UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 20-F

       |_| Registration statement pursuant to section 12(b) or (g) of the
                        Securities Exchange Act of 1934
                                       or
            |X| Annual report pursuant to section 13 or 15(d) of the
                         Securities Exchange act of 1934
                   For the fiscal year ended December 31, 2004
                                       or
          |_| Transition report pursuant to Section 13 or 15(d) of the
                        Securities Exchange Act of 1934
         For the transition period from _____________ to _______________

Commission file number: 000-50184

                      YANTAI DAHUA HOLDINGS COMPANY LIMITED
              ----------------------------------------------------
             (Exact name of Registrant as specified in its charter)


              ----------------------------------------------------
                 (Translation of Registrant's name into English)

                                     Belize
                 -----------------------------------------------
                 (Jurisdiction of incorporation or organization)

          East of Muping, Yantai, Shandong, People's Republic of China
                 -----------------------------------------------
                    (Address of principal executive offices)

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

Securities registered or to be registered pursuant to Section 12(g) of the Act.

                         Common Shares, $.001 par value

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

                                      None

The number of outstanding shares of common stock as at September 30, 2005 is
33,447,000.

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 which financial statement item the registrant has elected
to follow.

|_| Item 17          |X| Item 18

<PAGE>

                                TABLE OF CONTENTS

                                                                         Page No

Forward-looking Statements                                                     3

PART I

Item 1   Identity of Directors, Senior Management and Advisers                 3

Item 2   Offer Statistics and Expected Timetable                               3

Item 3   Key Information                                                       3

Item 4   Information on the Company                                            9

Item 5   Operating and Financial Review and Prospects                         12

Item 6   Directors, Senior Management and Employees                           15

Item 7   Major Shareholders and Related Party Transactions                    17

Item 8   Financial Information                                                18

Item 9   The Offering and Listing                                             18

Item 10  Additional Information                                               18

Item 11  Quantitative Information about Market Risk                           21

Item 12  Description of Securities Other than Equity Securities               21

PART II

Item 13  Defaults, Dividend Arrearages and Delinquencies                      21

Item 14  Material Modifications to the Rights of Security Holders
         and Use of Proceeds                                                  21

Item 15  Controls and Procedures                                              21

Item 16A Audit Committee financial expert                                     22

Item 16B Code of Ethics                                                       22

Item 16C Principal Accountant Fees and Services                               22

Item 16D Exemptions from the Listing Standards for Audit Committees           23

Item 16E Purchases of Equity Securities by the Issuer and Affiliated
         Purchasers                                                           23


                                       2
<PAGE>

PART III

Item 17  Financial Statements                                                 23

Item 18  Financial Statements                                                 23

Item 19  Exhibits                                                             57

Signature                                                                     58

Consent of Independent Auditor                                                59

Certification                                                                 60

(A)   Pursuant to General Instructions E(b) of Form 20-F, this annual report
      includes the information specified in Parts I, II, III

(B)   Pursuant to General Instructions E(c) of Form 20-F, the registrant has
      elected to provide the financial statements and related information
      specified in Item 18

FORWARD-LOOKING STATEMENTS

The statements in this report and the documents incorporated by reference
contain certain forward-looking statements concerning future economic
performance and the plans and objectives of the management for future
operations. These forward-looking statements can be identified by the use of
such words as "project," "expect" and "anticipate," and variations of such
words. Actual results might differ materially from such projections,
expectations and anticipations, due to general economic conditions, supply and
demand for paper, labor conditions, the availability of requisite financing and
other factors. We intend those forward looking statements to be covered by the
safe harbor provisions for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995 and are including this statement for
the purposes of complying with the safe harbor provisions.

You are cautioned not to place undue reliance on these forward-looking
statements. These forward-looking statements are made as of the date of this
annual report on Form 20-F and are not intended to give any assurance as to
future results.

PART I

ITEM 1 IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS Not applicable,
       pursuant to Instructions to Item 1.

ITEM 2 OFFER STATISTICS AND EXPECTED TIMETABLE Not applicable, pursuant to
       Instructions to Item 2.

ITEM 3 KEY INFORMATION

A.    SELECTED FINANCIAL DATA

The following selected consolidated financial data with respect to the period
ended December 31, 2002, the year ended December 31, 2003 and the year ended
December 31, 2004 has been derived from our audited consolidated financial
statements in December 31, 2003 and December 31, 2004 respectively. The
financial data to the period ended December 31, 2002 is for reference only. The
selected consolidated financial data for the period ended December 31, 2003 and
December 31, 2004 should be read in conjunction with the Operating and Financial
Review and Prospects under Item 5 and the Consolidated Financial Statements and
Notes and Other Financial Information under Item 8, elsewhere in this annual
report.


                                       3
<PAGE>

<TABLE>
<CAPTION>
                                                                                      Period from
                                                                                      February 1,
                                                                                             2002
                                                                                         (date of
                                                                                    incorporation)
                                                   Year ended        Year ended                to
                                                 December 31,      December 31,      December 31,
Operations for the period                                2004              2003              2002
                                                          US$               US$               US$
<S>                                                <C>               <C>            <C>
Operating revenue
Sales of goods                                     11,012,646        11,954,095         3,469,026

Cost of sales                                      (9,647,787)       (8,758,307)       (2,345,510)
                                                -------------     -------------     -------------

Gross profit                                        1,364,859         3,195,788         1,123,516

Operating expenses                                   (657,381)
Depreciation                                          (46,924)          (45,996)               --
Handling and shipping costs                          (312,837)         (407,935)               --
Selling, general and administrative expenses       (6,083,399)       (1,312,727)               --
                                                -------------     -------------     -------------

(Loss) Income from operations                      (5,078,301)        1,429,130           466,135

Non-operating income (expenses)
Sundry income                                          43,552            21,148            21,475
Finance costs                                        (526,015)         (465,215)
                                                -------------     -------------     -------------

(Loss) Income before income taxes                  (5,560,764)          985,063           487,610

Provision for income taxes                            570,188          (321,135)         (147,907)
                                                -------------     -------------     -------------

(Loss) Income after income taxes                   (4,990,576)          663,928           339,703

Share of operating results from an associate               (3)               --                --

Minority interest                                     748,586           (99,608)          (50,953)
                                                -------------     -------------     -------------

Net (loss) income                                  (4,241,993)          564,320           288,750
                                                =============     =============     =============

(Loss) Earnings per share
Basic common stock outstanding                     33,447,000        33,447,000     11,149,000.00
                                                =============     =============     =============

Basic net (loss) income per common stock             (US$0.13)          US$0.02           US$0.01
                                                =============     =============     =============

<CAPTION>
                                                                As of December 31,
                                                         2004              2003              2002
ASSETS                                                    US$               US$               US$
<S>                                                <C>               <C>               <C>

Current assets                                      8,966,937        11,844,660        10,584,585
Non-current assets                                 10,126,008        11,111,470         9,956,551
                                                -------------     -------------     -------------

Total assets                                       19,092,945        22,956,130        20,541,136
                                                =============     =============     =============

LIABILITIES

Current liabilities                                13,392,199        12,129,663        10,415,466

Non-current liabilities
Deferred tax                                               --           135,142            87,793
                                                -------------     -------------     -------------

Total liabilities                                  13,392,199        12,264,805        10,503,259
                                                =============     =============     =============
</TABLE>


                                       4
<PAGE>

The principal operating subsidiary of the Company is Yantai Dahua Paper Industry
Company Limited ("Yantai Dahua Paper"), which was acquired as a result of the
merger with Australia China Investment Limited ("Australia China") pursuant to
the Agreement and Plan of Share Exchange dated January 10, 2003 (see Item 4A for
more information about the transaction).

B.    CAPITALIZATION AND INDEBTEDNESS
      Not Applicable

C.    REASONS FOR THE OFFER AND USE OF PROCEEDS
      Not Applicable

D.    RISKS FACTORS

Stockholders and prospective stockholders should consider carefully the
following risk factors that make an investment in the Company's shares
speculative and of high risk.

LACK OF LIQUIDITY OR DIFFICULTY IN BUYING AND SELLING THE COMPANY'S SHARES,
WHICH ARE CONSIDERED A "PENNY STOCK," AS DEFINED.

The Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosure in connection with trades in any stock defined as a "penny
stock." The SEC's regulations generally define a penny stock to be an equity
security that has a price of less than $5.00 per share, subject to certain
exceptions. No exceptions are applicable to the Company. Unless an exception is
available, the regulations require the delivery, prior to any transaction
involving a penny stock, of a disclosure schedule explaining the penny stock
market and the risks associated therewith. In addition, unless and until the
securities of the Company are listed for trading on NASDAQ or the Company has $2
million in net tangible assets, trading in the Company's securities will be
subject to Rule 15c2-6 promulgated under the Securities Exchange Act of 1934 for
non-NASDAQ and non-exchange listed securities. Under the penny stock rules,
broker-dealers who recommend such securities to persons other than institutional
accredited investors (generally institutions with assets in excess of
$5,000,000) must make a special written suitability determination for the
purchaser, receive the purchaser's written agreement to the transaction prior to
sale and provide the purchaser with risk disclosure documents which identify
certain risks associated with investing in penny stock and which describe the
market as well as the purchaser's legal remedies. Further, the broker-dealer
must also obtain a signed and dated acknowledgment from the purchaser
demonstrating that the purchaser has actually received the required risk
disclosure document before a transaction in a penny stock can be consummated.

These requirements may have the effect of reducing the level of trading activity
in the secondary market for securities that become subject to the penny stock
rules. With the Company's securities being subject to the penny stock rules,
investors may find it more difficult to sell such securities, which could have
an adverse effect on the market price thereof. Because our common stock would be
characterized as penny stock, the market liquidity for the Company's securities
could be adversely affected. In such an event, the penny stocks regulations
could limit the ability of broker-dealers to sell the Company's securities and
the ability of stockholders to sell their securities in the secondary market.


                                       5
<PAGE>

THE COMPANY'S DEPENDENCE ON KEY PERSONNEL.

The Company's ability to compete is largely dependent on the personal efforts
and abilities of its senior management. The Company believes that the loss of
the services of any of these executives could have a material adverse effect on
the Company. In addition, the Company believes that its success is dependent on
its ability to attract and retain additional qualified employees, and the
failure to recruit and retain additional skilled personnel could have a
materially adverse effect on the Company's financial condition and results of
operations. The Company currently does not maintain key employee insurance on
any of its employees.

DIVIDEND POLICY.

The Company anticipates that all of its earnings in the foreseeable future will
be retained for the development and expansion of its business and, therefore,
has no current plans to pay cash dividends. The Company's future dividend policy
will depend on the Company's earnings, capital requirements, financial
condition, bank facilities and other factors considered relevant by the Board of
Directors. However, at present, the Company does not have any plans to pay cash
dividends in the future.

THE COMPANY'S OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY.

The Company's quarterly and annual operating results may be affected by a wide
variety of factors that could materially adversely affect revenues and
profitability, including: competitive pressures on selling prices; the timing of
customer orders and the deferral or cancellation of orders previously received;
changes in product mix; the Company's ability to introduce new products and
technologies on a timely basis; the introduction of products and technologies by
the Company's competitors; market acceptance of the Company's and the Company's
competitors' products; fulfilling backlog on a timely basis. As a result of the
foregoing and other factors, from time to time we experience material
fluctuations in future operating results on a quarterly or annual basis which
could materially and adversely affect the Company's business, financial
condition and operating results.

EFFECT OF CHANGES IN BELIZE LAWS COULD NEGATIVELY IMPACT SHAREHOLDERS.

Because the Company is incorporated in Belize, it is subject to potential
changes in Belize law. The effects of any change in Belize laws on the Company
are unknown at this time, but such effects may be adverse to the Company's
stockholders' best interests. These potential changes include changes in tax
law, corporate law, political instability, economic collapse, and currency
fluctuations.

INDEMNIFICATION OF OFFICERS AND DIRECTORS FOR SECURITIES LIABILITIES COULD
CREATE LOSS OF RETURN ON INVESTMENT FOR STOCKHOLDERS.

The laws of Belize provide that the Company may indemnify any director, officer,
agent and/or employee as to those liabilities and on those terms and conditions
as provided for by law. Further, the Company may purchase and maintain insurance
(but has not done so) on behalf of any such persons whether or not the
corporation would have the power to indemnify such person against the liability
insured against. The foregoing could result in substantial expenditures by the
Company and prevent any recovery from such officers, directors, agents and
employees for losses incurred by the Company as a result of their actions.
Further, the Company has been advised that in the opinion of the Securities and
Exchange Commission, indemnification is against public policy and is, therefore,
unenforceable.

Pursuant to the International Business Companies Act (the "Act") and Articles of
Association of Yantai Dahua Holdings Company Limited (previously known as Equity
Finance Holding Corporation), every director or other officer of the Company
shall be entitled to be indemnified out of the assets of the Company against all
losses or liabilities which he may sustain or incur in or about the execution of
the duties of his office or otherwise in relation thereto, and no director or
other officer shall be liable for any loss, damage or misfortune which may
happen to or be incurred by the Company in the execution of the duties of his
office or in relation thereto. But this Article shall only have effect insofar
as its provisions are not avoided by the Securities Act of 1933.


                                       6
<PAGE>

STOCKHOLDER LOSS MIGHT RESULT BECAUSE A U.S. CITIZEN WHO PURCHASES SHARES OF
COMMON STOCK MAY HAVE DIFFICULTY IN ENFORCING HIS RIGHTS AGAINST THE COMPANY.

The Company is incorporated in Belize and engages in business in the People's
Republic of China (`PRC"); its directors and officers and certain of its
advisers are citizens and/or residents of the PRC. The Company engages in,
through its subsidiaries, the manufacturing and sales of paper principally for
printing and writing in the PRC. The main assets of its subsidiaries are located
outside the United States. As a result, it may be difficult for stockholders to
initiate a lawsuit within the United States against the Company or its
subsidiaries or these non-resident persons, or to enforce judgments in the
United States against the Company or its subsidiaries or these persons that are
obtained in a non-United States court. It also may be difficult for stockholders
to enforce a judgment of a United States court or to succeed in a lawsuit in
Belize or China on the assets of the Company's subsidiaries based only on the
United States securities laws.

STOCKHOLDER RIGHTS MAY BE AT RISK AS A RESULT OF THE COMPANY'S ORGANIZING IN
BELIZE.

In Belize, there is no established body of corporate law on which stockholders
can rely for clarifying and protecting their rights. These rights differ
materially from typical rights of investors in most U.S. companies. For example,
(1) stockholders do no have the right to approve mergers and sales of
substantially all of the Company assets, and (2) dissenters' rights of appraisal
do not exist by law.

POLITICAL AND ECONOMIC INSTABILITY IN THE PRC MAY RESULT IN LOSS TO THE
COMPANY'S STOCKHOLDERS.

The Company is organized under the laws of Belize but engages in business in the
PRC. Since 1979, the PRC adopted an open-door policy and the country is
gradually shifting itself towards a more market-oriented economy. Such reforms
have resulted in significant economic growth and social progress. Many of the
reforms are unprecedented or experimental and will be refined and improved upon.
The reforms over the past 25 years have significantly opened up the country's
investment and business environment compared with the past, but as the economy
is now at a transitional stage, a number of reforms are subject to further
refinements and readjustments. We are operating on the assumption that, in the
long term, such refinements and readjustments should in most cases improve the
overall investment and business environment that would be advantageous to us.
However, there is no assurance that such reforms will benefit us immediately,
and it is difficult to determine whether such reforms may have direct or
indirect negative impacts on our business and operations in the future.

THE LEGAL AND REGULATORY FRAMEWORK OF THE PRC COULD CREATE LOSSES FOR THE
COMPANY STOCKHOLDERS.

The National People's Congress, or its Standing Committee, is responsible for
the passing of new laws of the PRC and any amendments thereto. The PRC legal
system is based on written statutes. Court judgments are therefore not legally
binding - although judges in subsequent cases will often make reference to them
in forming their judgments. The interpretation of the PRC laws may be subject to
policy changes reflecting the domestic, political and social developments at the
time. Since 1979, to facilitate foreign investments and to meet the needs of
Investors, the PRC government has been developing and modifying its economic
systems by promulgating a series of economic related laws and regulations. As
the legal system of the PRC keeps evolving, the promulgation of new legislation,
the changes to existing laws and regulations and the precedence of national laws
over local regulations may have negative impacts on foreign investors. Although
throughout the past 25 years, the legal system of the PRC in general has been
evolving in favor of foreign investors, there is no guarantee that the changes
and modifications of laws and regulations in the future will be advantageous to
foreign investors as in the past. Therefore uncertainty exists as to changes to
and/or development of any PRC laws and regulations and of the legal system
itself. There is no assurance that any change in and interpretation of the PRC
laws and regulations in future will not have any adverse effect on our business
and prospects.


                                       7
<PAGE>

THE CURRENCY OF OUR OPERATING SUBSIDIARY IS NOT FREELY CONVERTIBLE.

The State Administration for Exchange Control ("SAEC"), under the authority of
the People's Bank of China (the "PBOC"), controls the conversion of Renminbi
into foreign currency. The value of the Renminbi is subject to changes in
central government policies and to international economic and political
developments affecting supply and demand in the China Foreign Exchange Trading
System market.

Since substantially all of our raw materials are provided by local suppliers
using Renminbi and the majority of our expenses are denominated in Renminbi,
restrictions on currency conversions did not and likely will not materially
affect our operations. Also, since we do not expect to require any raw material
that are not permitted or are limited to purchase using foreign currencies, our
management believes that such restriction will not materially affect our
operations in the future.

However, our ability to pay dividends and meet other obligations depends upon
the receipt of dividends or other payments from our operating subsidiaries and
our other holdings and investments, and our operating subsidiaries located in
China may be subject to restrictions on the conversion of Renminbi to U.S.
dollars and, as a result, may be restricted to make distributions to us.

In view of the current economy of China, the control and review of the foreign
exchange rate by the central government and the People's Bank of China has
announced in July 2005 that Renminbi would be pegged to a basket of foreign
currencies rather than being strictly tied to the U.S. dollar, therefore there
is anticipated fluctuation with the possible currency risk of the Renminbi
further inflated of around 2% from 2005 onwards.

WE DEPEND ON OUR SUBSIDIARIES' FACTORIES.

We have no direct business operations, other than through our ownership of our
subsidiaries for the manufacturing and sales of paper principally for printing
and writing in the PRC. Our results of operations and financial condition are
currently solely dependent on our subsidiary's factories in the PRC. We
currently maintain fire, casualty and theft insurance covering various of our
stock in trade, goods and merchandise, furniture and equipment, and factory
buildings in the PRC. The proceeds of this insurance may not sufficiently cover
material damage to, or the loss of, any of our factories due to fire, severe
weather, flooding or other cause, and such damage or loss would have a material
adverse effect on our financial condition, business and prospects. However, we
have not suffered from such material damage or loss to date.

COMPETITION.

The Company is engaged in, through its subsidiaries, the manufacturing and sales
of paper principally for printing and writing in China. Yantai Dahua Paper is a
leading paper manufacturer in Shandong, PRC. There are competitors in the
industry that provide similar products and services to those which are provided
by Yantai Dahua Paper. Yantai Dahua Paper's future success will depend to an
extent upon its ability to remain competitive in the areas of service, quality,
price, marketing, product development, service delivery, distribution and client
processing. There can be no assurance that Yantai Dahua Paper will be able to
compete successfully. Prices for the Yantai Dahua Paper's products are typically
determined by market conditions. To remain competitive, the Company reviews and
adjusts its pricing structure from time to time in response to such
industry-wide price changes. To the extent that the Company may be obligated to
adjust Yantai Dahua Paper's pricing policies to meet competition, the Company's
financial performance may be adversely affected by its inability to reduce its
costs in response to industry-wide price reductions or by its inability to
increase its prices in response to increases in its costs and expenses.


                                       8
<PAGE>

LOSSES FROM RECENT OPERATIONS AND POOR FINANCIAL CONDITION.

After realizing net income in prior periods, we incurred a substantial net loss
in the fiscal year ended December 31, 2004 as a result of increased costs of
sales, a substantial increase in selling, general and administrative expenses
and increased financing costs. As of December 31, 2004, we had a deficit in
working capital of $4,425,262. See Items 5 and 8 elsewhere in this annual report
for more complete financial information about the Company's financial condition
and results of operation.

ITEM 4 INFORMATION ON THE COMPANY

A.    HISTORY AND DEVELOPMENT OF THE COMPANY

Equity Finance Holding Corporation (Equity Finance), a Belize corporation, the
predecessor of the Company, was a management consulting corporation and marketer
of management and financial consulting services offered principally to small
businesses.

On February 18, 2003 Equity Finance announced the closing of an Agreement and
Plan of Share Exchange dated January 10, 2003 pursuant to which it acquired
Australia China Investments Limited ("Australia China"), a British Virgin
Islands limited corporation incorporated on February 1, 2002, engaged, by and
through a subsidiary, in the production and sale principally of printing and
writing papers in the PRC. At closing, Equity Finance issued an aggregate of
6,000,000 shares and certain Equity Finance stockholders transferred 3,000,000
of their 4,634,100 shares to Tang Yuxiang and Qu Shuzhi, the Australia China
stockholders , in exchange for all of the issued and outstanding Australia China
shares.

In connection with the exchange, Equity Finance changed its name to Yantai Dahua
Holdings Company Limited (OTC BB: YDHCF), all directors and executive officers
of Equity Finance resigned. Mr. Tang Yuxiang and Mr. Qu Shuzhi were appointed
directors of the Company along with Mr. Yu Shou Ping, Mr. Yu Zhou and Mr. Xiong
Shi Gui, Mr. Tang Yuxiang was appointed Chief Executive Officer and Mr. Leung
Wai Chiu Albert was appointed Chief Financial Officer. Mr. Leung subsequently
resigned in December 2003 and Mr. Qu was appointed to fill the position.

Before June 28, 2002, Australia China Investment (a company incorporated in
Australia) held 85% of the shares of a sino-foreign joint venture, Yantai Dahua
Paper Industry Company Limited, a sino-foreign equity joint venture established
on April 14, 1994 ("Yantai Dahua Paper").

Yantai Longda Paper Industry Company Limited, a company incorporated in the PRC,
formerly known as "Muping Paper Manufacturer", an originally state-owned
enterprise that is now a private company jointly owned by management and
employees, is the PRC partner holding 15% of Yantai Dahua Paper.

Yantai Dahua Paper was an equity joint venture with an initial registered
capital of Rmb38,177,000 and planned to operate for a term of 15 years until
April 14, 2009.


                                       9
<PAGE>

Yantai Dahua Paper is principally engaged in manufacturing and selling various
paper products, including printing paper, writing paper and computer paper, etc.

On June 28, 2002, Australia China Investment, Yantai Longda and Australia China
entered into an agreement in which Australia China Investment agreed to transfer
its entire interest and Yantai Longda agreed to transfer its interest in Yantai
Dahua Paper to Australia China (the "Transfer"). The aggregate consideration of
the Transfer was US$8,242,836 which represented 85% of net asset value of Yantai
Dahua Paper as of September 30, 2002.

Upon completion of the transaction, Australia China and Yantai Longda owned 85%
and 15% interests in Yantai Dahua Paper, respectively. On July 30, 2002, the
Yantai Foreign Investment Bureau approved the above transfers of interest.

At a meeting held on April 3, 2003, the Board of Directors resolved to issue two
additional shares for each common stock issued and outstanding, as a stock
split, for no consideration, to its stockholders of record on April 13, 2003, to
be effected on April 23, 2003. The additional shares would be of the same class
of common stock outstanding, with the same right and privileges and without
change in the par value. Prior to the split, the Company has a total of
11,149,000 shares of common stock issued and outstanding. The stock split
increased the total issued and outstanding shares to 33,447,000.

B. BUSINESS OVERVIEW

The Company, through its subsidiary, is engaged in the manufacturing and sales
of paper principally for printing and writing in the PRC. Yantai Dahua Paper is
a leading paper manufacturer in Shandong, China and employs over 1,000 staff.

The Company's marketing teams distribute its products through six sales offices
in different parts of the PRC to cater to its clientele of over 210
well-established publishing houses, printing companies and other state-owned
material supplies companies.

The Company's production facilities are based at Yantai Dahua Paper, situated at
Muping, Yantai City, Shandong Province. Yantai Dahua Paper's current production
capacity is about 25,000 tons of paper per year.

The major types of paper products manufactured by Yantai Dahua Paper comprise of
Printing Paper, Writing Paper, Computer Paper, and small quantities of other
papers, including newsprint and a new paper product, namely Munkedal, made by
wooden pulp paper.

For 2003 and 2004 a break down of the Company's sales of paper products is
summarized as follows:

--------------------------------------------------------------------------------
Product Types                         In tons                    Percentage
                      ----------------------------------------------------------
                                 2003          2004           2003         2004
--------------------------------------------------------------------------------
Printing Paper                 17,356        12,948          82.2%        70.2%
--------------------------------------------------------------------------------
Writing Paper                     875         2,000           4.2%        10.8%
--------------------------------------------------------------------------------
Computer Paper                    284           500           1.3%         2.7%
--------------------------------------------------------------------------------
Wooden Pulp Paper               2,606         3,000          12.3%        16.3%
--------------------------------------------------------------------------------
Total                          21,121        18,448           100%         100%
--------------------------------------------------------------------------------

Sales of the Company's paper products are conducted by Yantai Dahua Paper's
sales teams based at the head office in Muping and 6 representative offices
located at Beijing, Shijiazhuang (capital city of Hebei Province), Guangzhou
(capital city of Guangdong province), Lanzhou (capital city of Gansu Province),
Shanghai and Hangzhou.


                                       10
<PAGE>

The Beijing and Shijiazhuang offices account for approximately 71% of the sales,
Guangzhou 2%, Shanghai and Hangzhou 20%, and Lanzhou 7%. Each of the
representative offices is manned by a Sales Manager and several full-time sales
representatives.

With representative offices covering the capital city and major cities in
northern, eastern, western and southern China, the Company has established a
sales and distribution network serving an established customer base all over
China.

In 2005, the Company has a list of more than 210 customers through out China. Of
these, nine major customers account for about 50% of the yearly sales. These
major customers include major publishers, printers, and state-owned enterprises
and they are material to the Company's business and profitability. The loss of
any one or more of these major customers would have a material adverse effect on
the Company's results of operation.

The Company's sales in the second half of the year are usually higher than those
in the first half of the year because the Company usually repairs the equipment
during the Chinese New Year. The sales are affected by the drop in production
because of the repairs.

Due to the environmental requirement, the Company has reduced purchase of wheat
stalks because the treatment of wheat stalks caused pollution to the environment
so the Company must stop to use wheat stalks. To produce its two major paper
products for the Chinese market, the Company requires regular supplies of its
raw materials from local suppliers. The major raw materials comprise: Wood pulp;
and Chemicals, including sodium hydroxide and liquid chlorine.

Local suppliers supply most of the above raw materials, and the Company also
brings in some wood pulp itself, because of its status as a sino-foreign joint
venture.

The manufacturing of paper products also requires substantial amount of water,
heat and electricity. At present, the Company supplies its own heat with its 35
metric tons boiler, which commenced operation in April 2001. The Company has
built a new 3,000 kilo watt electricity generator within its site at Muping by
using internally generated funds for the new generator. With this new facility,
the Company is no longer dependent on the local grid to supply its electricity,
and the Company expects to save on its electricity bill.

In 2005, there are more than 500 paper manufacturers in the PRC. Of these, about
200 have an annual production capacity of over 20,000 tons. In Shandong province
alone, there are 78 paper manufacturers. Most of these manufacturers are
state-owned enterprises. The principal competitive factors are brand name
recognition, distribution capability, product quality and capability of mass
production.

The paper manufacturing industry, because of the process of cleaning and
bleaching of the pulp, does produce effluents which contaminate the environment
and consume a great deal of water. In a country where water is a valuable
resource, the PRC government is implementing stringent measures to protect the
environment. A number of these paper plants that fail to meet the environmental
standards have been and will be closed. Only those that comply with the
environmental standards can continue to produce. The Company has complied with
the said standards.

New associate company

On April 3, 2004, Australia China entered into an agreement with Yantai Longda
to establish Yantai Longxiang Paper Industry Limited ("YLXP"), a sino-foreign
equity joint venture with registered capital of US$2,491,200. Each of Australia
China and Yantai Longda beneficially owns 25% and 75% equity interest,
respectively, in YLXP and is classified as an associate of the Company.


                                       11
<PAGE>

C.    ORGANIZATIONAL STRUCTURE

                                              ----------------------
                                              |    The Company     |
                                              ----------------------
                                                       |     100%
                                                       |
      -------------------------               ----------------------
      |     Yantai Longda     |               |   Australia China  |
      -------------------------               ----------------------
          15%     |                                    |     85%
                  |                                    |
                  |                                    |
                  --------------------------------------
                                    |
                                    |
                            -------------------
                            |  Yantai         |
                            |  Dahua Paper    |
                            -------------------

D.    PROPERTY, PLANTS AND EQUIPMENT

Yantai Dahua Paper is situated at Muping East at a site close to the
Yantai-Weihai Highway. The area of the site is about 110,000 square metres. On
the site, the total built-up area is about 22,000 square metres. The built-up
area includes pulp making facilities, 4 paper making plants, storage warehouse,
administration block, boiler plant, electricity generation plant, effluent
treatment plant, and other amenities.

The pulp making facilities can produce up to 20,000 tons of straw pulp per year.

There are 4 paper making plants in Yantai Dahua Paper, with a total production
capacity of 28,000 tons of paper per year. In each of these plants, there is one
paper making machine. Three of the plants produce up to a maximum of 22,000 tons
of paper with a width of 1.76 metres and one produces up to 6,000 tons of paper
with a width of 1.575 metres.

ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS

A.    OPERATING RESULTS

GENERAL -"Forward Looking Statements"

All statements contained herein that are not historical facts, such as
statements regarding the Company's current business strategy and plans for
future operations are "Forward-Looking Statements" based upon current
expectations. These statements are forward-looking in nature and involve a
number of risks and uncertainties. Such risks and uncertainties include, but are
not limited to, those described herein under "Risk Factors" under Item 3 and
also include, among others:

      (1)   significant increases in competitive pressure in the paper industry;

      (2)   general global economic conditions;

      (3)   changes in the regulatory environment; and

      (4)   changes in the securities markets.

Therefore, the information set forth in such Forward-Looking Statements should
be carefully considered when evaluating the business prospects of the Company.


                                       12
<PAGE>

FINANCIAL RESULTS

Fiscal year 2004 vs. Fiscal year 2003

The Company had a net loss of US$4,241,993 for the year ended December 31, 2004
compared with a net income of US$564,320 for the period ended December 31, 2003.
The decrease in net income is principally due to (i) allowance for doubtful
debts of US$1.3 million, made for accounts receivable balances aged over 2 years
due to uncertainty of their recoverability, and (ii) a loss provision of US$3.3
million made for finished goods delivered to customers where invoices had not
been issued because it is believed that the ultimate recoverability of these
inventories is not certain.

The cash and bank balances decreased at December 31, 2004 because they are
mainly being used in operations.

There was also increase in prepayments and other receivables. During 2004, there
was a significant increase in trade deposits paid because the Company has
changed its wooden pulp suppliers. The new suppliers requested the Company to
place deposits. The total deposits paid as of December 31, 2004 were Rmb6.8
million (equivalent to US$0.8 million).

The pledged bank deposits are for a loan from a bank collateralized by the
Company's deposits.

The decrease of the property and equipment was due to the fact that the Company
had to abandon some wheat pulp equipments for environmental protection issues.

The other short-term loans represented mainly interest-free loans from staff.

The increase in short-term bank loans was due to the Company's repaying the loan
from Yantai Longda by raising the new loan from bank.

The accounts payable increase was mainly because of the purchase of raw
materials.

The increase in operating expenses was due to the considerable increase in the
price of the raw materials, like coal, wooden pulp etc.

The increase in selling, general and administrative expenses was because (i)
allowance for doubtful debts was made for accounts receivable balances aged over
2 years due to uncertainty of their recoverability, and (ii) a loss provision
was made for finished goods delivered to customers where invoices had not been
issued because it is believed that the ultimate recoverability of these
inventories is not certain. Both of these were charged as expenses directly
under the selling, general and administrative expenses.

Fiscal year 2003 vs. Fiscal year 2002

In 2003, the Company has a net income of US$564,320 for the year ended December
31, 2003 compared with a net income of US$288,750 for the period ended December
31, 2002. The increase in net income is due to the result for the period ended
December 31, 2002 includes only the 3-month period of Yantai Dahua Paper as
Australia China acquired Yantai Dahua Paper in October 2002. In fact, the net
income of Yantai Dahua Paper, being the major operating subsidiary, has
decreased during the year 2003. The decrease in the net income relates primarily
to a decrease in sales of goods.


                                       13
<PAGE>

The cash and bank increase this year because the new special purpose short term
loan obtained has not been fully utilized.

The inventories balance increase is due to the increase in the production after
the completion of new production facilities.

The increase of the property and equipment is due to the purchase of new
equipment and the completion of new production facilities. This also leads to
the decrease in prepayment and receivables in respect of deposits for
construction transferred to the property and equipment upon completion.

INFORMATION REGARDING SIGNIFICANT FINANCIAL FACTORS

Inflation generally affects companies by the cost of labor, equipment, and raw
materials. The Company does not believe that inflation has had, or will have,
any material effect on the Company's business.

B.    LIQUIDITY AND CAPITAL RESOURCES

Cash Flow

The Company had audited operating revenue of US$11,012,646 with net loss and
minority interest of US$4,241,993 for the year ended December 31, 2004.

The Company's primary sources of funding are (i) cash flow from operating
activities, (ii) borrowings from credit agreements with various banks and (iii)
loans from staff.

There are no material unused sources of liquidity. The Company is of the opinion
that the working capital is sufficient for the Company's present requirement.

Information relating to the Company's cash flow and borrowings as at December
31, 2004 can also be found in the financial statements in Item 18 of this form.

C.    RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES

The Company has not invested into research and development.

D.    TREND INFORMATION

Price

Due to the keen competition in the paper market, the Company is unlikely to
increase the price of its products.

E.    OFF-BALANCE SHEET ARRANGEMENTS

The Company has not made any off-balance sheet arrangement.

F.    TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

None/Not Applicable

G.    SAFE HARBOR

None/Not Applicable


                                       14
<PAGE>

ITEM 6 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.    DIRECTORS AND SENIOR MANAGEMENT

The Company's key management team consists of the following persons:

Mr. TANG Yuxiang, age 56, is Chairman & Chief Executive Officer of the Company.
He has been working in the paper industry since 1984, when he was appointed as
Party Secretary and then Plant Manager of Yantai Longda. Since the inception of
Yantai Dahua Paper in 1994, he has been General Manager and Chairman of the
Board of the joint venture. His previous experience includes 18 years experience
in an agricultural machinery plant in Yantai Longda, where he was promoted to
Deputy Plant Manager, a position he held from 1979 to 1982. He is a graduate of
Shandong Agricultural Machinery Institute and is a Chinese government endorsed
Senior Economist.

Mr. YU Shou Ping, age 57, is Director & Chief Operating Officer of the Company.
He has been Deputy General Manager and Director of Yantai Dahua Paper since
1994. He is responsible for its manufacturing operations. He has been working in
the paper industry since August 1984. He is a graduate of Shandong Muping
Electricity University.

Mr. QIAO Xuezhou, age 42, is Director and Deputy General Manager of the Company.
He joined Yantai Longda in 1980 and was promoted to Deputy Plant Manger in 1989.
He is a graduate of Yantai University. To accommodate the market changes, Mr.
Qiao has now taken other administrative roles.

Mr. WANG Xian, age 39, is Director and Deputy General Manager of the Company. He
manages the sales and purchasing operations, including the six offices in the
PRC since 2002. He joined Yantai Longda in 1984 and was promoted to Deputy Plant
Officer and Plant Officer in 1988. He has been Deputy General Manager since
2000, in charge of production and raw materials. He is a graduate of Yantai
University Professional Economic Management.

Ms. JIANG Min, age 42, is Director and Chief Engineer of the Company. She is
responsible for its engineering, technical and quality operations. She joined
Yantai Longda in 1982 and was appointed to her present position in 1994. She is
a graduate of Shandong Technical College of Light Industry, majoring in pulp and
paper manufacturing.

Mr. QU Shuzhi, age 44, is Director and Deputy General Manager & Chief Financial
Officer of the Company. He is responsible for its accounting and general
administration. He joined Yantai Longda in 1979 as an accountant, and was
promoted to Chief Accountant in 1988. He was appointed Deputy General Manager &
Chief Accountant in 2001. He was appointed as Chief Financial Officer in
December 2003. He is a graduate in Finance Management at the China Agricultural
University.

Mr. YU Zhou, Independent Director, aged 47. He is working for an information
technology company since 1996.

Mr. XIONG Shi Gui, Independent Director, aged 70. He was a law graduate in PRC
in 1958. Since graduation, Mr. Xiong has been working for the Government in
respect of education work. He is now working for Sincere College Shanghai as an
Associate Dean.

Mr. QU Dongqing, age 40, has been Assistant to Mr. TANG Yuxiang since June 2000.
He is responsible for Human Resources and General Administration. He joined
Yantai Longda in 1980 as an officer of the trade union within Yantai Longda.
From 1986 to 1996, he served as Manager, General Administration of Yantai
Longda. From 1996 to 2000, he served as Plant Manager of an iron lid
manufacturer branch of Yantai Longda.


                                       15
<PAGE>

B.    COMPENSATION

Compensation to Directors

For the years ended December 31, 2003 and 2004, there was no compensation paid
by the Company to any director or to its directors as a group. In the year 2005,
the Company has no plans to pay the directors any compensation. There are no
stock options, retirement plans, nor agreements for compensation upon separation
from the Board of Directors.

Compensation to Officers

For the Company, the salaries paid by the Company or its subsidiaries to the
officers for the year ended December 31, 2004 are:

      ---------------------------------------------
      Name                          Annual Salary
      ---------------------------------------------
      TANG Yuxiang                  US$12,000
      ---------------------------------------------
      YU Shou Ping                  US$8,000
      ---------------------------------------------
      QIAO Xuezhou                  US$8,000
      ---------------------------------------------
      WANG Xi An                    US$8,000
      ---------------------------------------------
      JIANG Min                     US$8,000
      ---------------------------------------------
      QU Shuzhi                     US$8,000
      ---------------------------------------------
      YU Zhou                       US$8,000
      ---------------------------------------------
      XIONG Shi Gui                 US$8,000
      ---------------------------------------------
      QU Dongqing                   US$8,000
      ---------------------------------------------

C.    BOARD PRACTICES

The following persons serve as a member of the Company's Board of Directors:

Name                   Position                                   Director since
Mr. TANG Yuxiang       Chairman & Chief Executive Officer         March 2003
Mr. YU Shou Ping       Director & Chief Operating Officer         March 2003
Mr. QIAO Xuezhou       Director & Deputy General Manager          March 2003
Mr. WANG Xi An         Director & Deputy General Manager          February 2004
Ms. JIANG Min          Director & Chief Engineer                  March 2003
Mr. QU Shuzhi          Director & Chief Financial Officer         March 2003
Mr. YU Zhou            Independent Director                       March 2003
Mr. XIONG Shi Gui      Independent Director                       March 2003

Each director is elected to serve until the next annual meeting of shareholders
and until his successor is elected. All officers serve at the discretion of the
Board of Directors.

There are no directors' service contracts with us or any of our subsidiaries
providing for benefits upon termination of employment. There is no audit or
compensation committee of the Company's Board of Directors

D.    EMPLOYEES

The Company has 1,008 employees as of December 31, 2004. Management considers
the relationship with employees to be excellent.

As stipulated by PRC regulations, the Company participates in a retirement plan
for all employees. Pursuant to the plan, all retired employees of Yantai Dahua
Paper are entitled to certain retirement benefits. Yantai Dahua Paper is
required to make contributions to a state sponsored retirement plan at
approximately 20% of the basic amount which is within the range from RMB400 to
RMB468 stipulated by the PRC government. Yantai Dahua Paper determines the base
amount with reference to the basic salary of its employees and has no further
obligations for the actual payments of any post-retirement benefits. The state
sponsored retirement plan is responsible for the entire pension obligations
payable to the employees.

                                       16
<PAGE>

The Company's pension expense for the period ended December 31, 2003 and the
year ended December 31, 2004 was US$191,460 and US$296,019 respectively.

E.    SHARE OWNERSHIP

The following table set forth the share ownership of the Company as at September
30, 2005:

Name                                 Shares         Percentage     Owned by
Magic Growth Investments Limited     18,000,000     53.82%         TANG Yuxiang
Success Channel Limited              3,000,000      8.97%          QU Shuzhi
Everwell Strategy Limited            3,000,000      8.97%          QU Dongqing

Tang Yuxiang is a director and shareholder of Magic Growth Investments Limited.
Qu Shuzhi is a director and shareholder of Success Channel Limited. Qu Dongqing
is a director and shareholder of Everwell Strategy Limited. Tang Yuxiang and Qu
Shuzhi are directors of the Company. Qu Dongqing is not a director of the
Company.

ITEM 7 MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.    MAJOR SHAREHOLDERS

Please see Item 6E for share ownership information regarding our principal
shareholders and directors.

B.    RELATED PARTY TRANSACTIONS

From time to time, the Company may enter into transaction with parties that have
a relationship with our officers or directors or entities in which we have an
ownership interest. Such transactions are reviewed by the Board of Directors and
are subject to the approval of members of the Board of Directors who do not have
a personal interest in the applicable transaction. We disclose all material
transactions that, in our judgment, constitute related party transactions;
related parties include our subsidiaries, investments accounted for under the
equity method, members of our management and owners of a significant percentage
of our common stock and their family members, and any other party that we
significantly influence. In the opinion of management, the terms of the related
party transactions are fair to the Company.

<TABLE>
<CAPTION>
(a)   Name and relationship of related parties             Existing relationships with the Company
<S>                                                        <C>
      Yantai Longda                                        Joint venturer of a subsidiary
      Muping Iron Cover Manufacturing Factory (MIC)        Branch of YLDP
      Muping Paper Product Manufacturing Factory (MPP)     Branch of YLDP
      Muping Vegetable Processing Factory (MVP)            Branch of YLDP
      Mr. Tang Yuxiang                                     Stockholder / Director
      Mr. Qu Shuzhi                                        Stockholder / Director
      Yantai Long Xiang Paper Industry Co. Ltd. (YLXP)     An associate of a subsidiary
</TABLE>

                                       17
<PAGE>

(b)   Related party transactions

                                                              2004          2003
                                                               US$           US$
      (i)   Due from related parties (Note)
            MVP                                             12,285        12,043
            MPP                                             25,467        27,528
            MIC                                            164,932       111,762
                                                                       ---------

                                                           202,684       151,333
                                                         =========     =========

      (ii)  Due to a related party (Note)
            Yantai Longda                                1,193,253     2,646,576
                                                         =========     =========

      (iii) Due to stockholders (Note)
            Mr. Tang Yuxiang                               109,702        89,035
            Mr. Qu Shuzhi                                   17,958        16,330
                                                         ---------     ---------

                                                           127,660       105,365
                                                         =========     =========

      Note: The amounts due represent non-trade unsecured advances which are
            interest-free and repayable on demand.

C.    INTERESTS OF EXPERTS AND COUNSEL

None/Not Applicable

ITEM 8 FINANCIAL INFORMATION

A.    CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

The Company's audited financial statements are filed in this annual report as
Item 18.

B.    SIGNIFICANT CHANGES

None/Not Applicable

ITEM 9 THE OFFER AND LISTING

There is no established trading market in the United States or elsewhere for
shares of the Company's common stock and there has been no established trading
market at any time.

ITEM 10 ADDITIONAL INFORMATION

A.    SHARE CAPITAL

See the balance sheet included in the financial statements for information about
the share capital as of December 31, 2004.

See Item 19 for a list of exhibits filed as part of this annual report or
incorporated herein by reference.

B.    MEMORANDUM AND ARTICLES OF ASSOCIATION

This information, contained in the by-laws of Equity Finance Holding Corporation
and the Memorandum of Association and Articles of Association of Equity Finance
Holding Corporation, IBC No. 6825, incorporated, Belize, 6 March 1998, is hereby
incorporated by specific reference in this annual report to Exhibits 1 and 2 to
the registration statement on Form 8-A12G dated February 20, 2003.


                                       18
<PAGE>

C.    MATERIAL CONTRACTS

None/Not applicable

D.    EXCHANGE CONTROLS

Belize has no system of exchange controls. There are no Belize restrictions on
the repatriation of capital or earnings of a Belize public company to
non-resident investors. There are no laws in Belize or exchange restrictions
affecting the remittance of dividends, profits, interest, royalties and other
payments to non-resident holders of the Company's securities.

The PRC has a system of exchange controls. The Renminbi exchange rate system is
the base for stable operation of PRC's exchange control system. The Regulations
on Exchange Control of the PRC promulgated with the State Council's approval in
January 1996 point out that the exchange rate for Renminbi is a single, managed
floating exchange rate based on market demand and supply.

Foreign exchange system reform began in 1994 with the establishment of the China
Region Exchange Trading Center in Shanghai which is linked to 34 cities by a
computer network and extends to the nearby regions. After segmentation by
administration areas was discarded, a nationwide unified interbank trading
market was established. The Center has adopted a membership system with 384 unit
members - at present comprising the head offices of Chinese-funded banks and
their authorized branches, foreign-funded banks and authorized non-bank
financial institutions, which represent the main trading body on the market.
Following foreign- funded enterprises' participation in the banking system for
the settlement and sales of foreign exchange, foreign-funded banks are also
permitted to engage in such business, so that the interbank trading market is
further stimulated.

At present, there are three foreign currencies tradable with the Renminbi at the
Center: US dollars, Japanese yen and Hong Kong dollars. The daily weighted
average is published by the People's Bank of China as the middle rate for the
ensuing business day; each bank may quote prices within the permitted floating
limits of 0.15 per cent for US dollars and 1 per cent for Japanese yen and Hong
Kong dollars.

For other currencies, cross rates are fixed on the basis of the international
market level and a floating margin as specified by the People's Bank of China.
Thus the establishment and normal operation of the nationwide interbank trading
market has geared the Renminbi rate to market supply and demand.

In January 1994 the single exchange rate system was hailed as a strategic
decision by the IMF, and has created favorable conditions for China to
participate in international competition with others on a fair and equal
footing. In order to ensure the healthy development of the national economy and
maintain basic stability of the Renminbi rate, the People's Bank of China
exercises necessary control and intervenes in the light of state macroeconomic
control targets.

Now Renminbi payments for foreign trade and non-trade transactions as well as
transfers of capital gains within China may be converted into foreign currencies
for remittance or transfer abroad.

The following table sets forth certain information concerning exchange rates
between Renminbi and U.S. dollars for the periods indicated:


                                       19
<PAGE>

            CALENDAR YEAR                          YEAR AVERAGE
                                                   (RMB PER US$)

                 1999                                 8.2785
                 2000                                 8.2784
                 2001                                 8.2772
                 2002                                 8.2672
                 2003                                 8.2672
                 2004                                 8.2765

In view of the current economy of China, the control and review of the foreign
exchange rate by the central government and the People's Bank of China has
announced in July 2005 that Renminbi would be pegged to a basket of foreign
currencies rather than being strictly tied to the U.S. dollar, therefore there
is anticipated fluctuation with the possible currency risk of the Renminbi
further inflated of around 2% from 2005 onwards.

E.    TAXATION

Yantai Dahua Paper is subject to income taxes on an entity basis on income
arising in or derived from the tax jurisdictions in which it operates. The tax
jurisdiction of the Company is National Tax Bureau of Yantai District, Shandong
Province.

Yantai Dahua Paper is established and is carrying on business in the PRC and
subject to the PRC enterprise income tax at a rate of 24%.

Deferred income tax of US$nil and US$293,553 has been provided to the Company
for the period ended December 31, 2004, and the year ended December 31, 2003,
respectively.

The Company is incorporated in Belize and the Belize tax laws are summarized as
follows. Unless exempt under an investment incentive, resident companies are
liable for corporate income tax on all of their income, whether derived from
Belize or not, although foreign earned income is taxed only on remittances to
Belize. A company is resident if it is incorporated in Belize or if it's central
management and control are exercised in Belize. If a company does not operate
under a Fiscal Incentives (Approved Enterprise Order) the total tax payable is
35% of the chargeable income. The Company status is a resident company in
Belize.

Corporate income tax is charged on net profits, as adjusted for tax purposes.
Net profits comprise the aggregate amount of net income derived from conducting
business in Belize. Inventory valuation is not specifically addressed in income
tax law and, in any event, is inapplicable to the Company. Methods that conform
to generally accepted accounting principles may be used as long as they are
consistently applied. Dividends are taxable in the hands of recipients, the cash
amount of the dividends paid being grossed up by the amount of corporate income
tax paid by the distributing company, although the latter is liable only for
corporate income tax and does not actually account to the tax authorities for
any withholding. Some dividends are not taxable on recipients, including those
paid to exempt entities and those paid under specified tax incentives.

F.    DIVIDENDS AND PAYING AGENTS

The Company has not paid any dividends and does not expect to in the future, but
rather to use any earnings in the growth and development of its business.

See Item 19 for a list of exhibits filed as part of this annual report or
incorporated herein by reference.


                                       20
<PAGE>

G.    STATEMENT BY EXPERTS

The Consolidated Financial Statements of the Company for the year ended December
31, 2004 included under Item 18 in this annual report have been audited by
Messrs. Moores Rowland Mazars, Chartered Accountants and Certified Public
Accountants of 34th Floor, The Lee Gardens, 33 Hysan Avenue, Causeway Bay, Hong
Kong to the extent indicated in their report thereon and have been included in
this annual report given upon the authority of such firm as experts in
accounting and auditing.

See Item 19 for a list of exhibits filed as part of this annual report or
incorporated herein by reference.

H.    DOCUMENTS ON DISPLAY

See Item 18 and Item 19 for a list of exhibits filed as part of this annual
report or incorporated herein by reference.

I.    SUBSIDIARY INFORMATION

Not Applicable

ITEM 11 QUANTITATIVE INFORMATION ABOUT MARKET RISK

The Company does not maintain nor invest in market sensitive or interest rate
sensitive holdings. Therefore, the Company has no quantitative or qualitative
exposure to market risk associated with activities in derivative financial
instruments, other financial instruments and derivative commodity instruments.

ITEM 12 DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

None/Not Applicable.

PART II

ITEM 13 DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None/Not Applicable.

ITEM 14 MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
        PROCEEDS

Not Applicable.

ITEM 15 CONTROLS AND PROCEDURES

Based on their evaluation of the Company's internal disclosure controls and
procedures completed in June 2004, Mr. Tang Yuxiang, Chief Executive Officer,
and Mr. Qu Shuzhi, Chief Financial Officer, have concluded that the Company's
controls and procedures (as defined in Rule 13a -15(e) and Rule 15d-15(e) of the
Securities Exchange Act of 1934) are adequate and effective in ensuring the
adequacy and effectiveness of the information in this annual report. There have
not been any significant changes made in the Company's internal controls and
procedure or any other factors that could significantly affect these controls.

See Exhibits 99A and 99B for statements of management concerning the internal
controls over the Company's financial reporting.


                                       21
<PAGE>

Note: The Company is a foreign private issuer that is not required to comply
with the annual report on internal control over financial reporting under Item
15(b) or the attestation requirement under Item 15(c) until the first fiscal
year ending on or after July 15, 2006.

ITEM 16A Audit Committee Financial Expert

The Company does not have an audit committee financial expert (as defined in
Instruction (b) to Item 16A) serving on our board of directors other than Mr. Qu
Shuzhi, the Deputy General Manager and Chief Financial Officer who is not
"independent." If and when the Company is successful in raising capital, the
Company will seek to retain an independent audit committee financial expert. At
present, there is no requirement for forming an audit committee but the Company
will form the committee upon further requirement from the change of law.

ITEM 16B Code of Ethics

The Company has not yet adopted a code of ethics that applies to its principal
executive officer, principal financial officer, principal accounting officer or
controller, but is in the course of preparing such code.

ITEM 16C Principal Accountant Fees and Services

(a)   Audit Fees

The Company paid Moores Rowland Mazars, the principal accountant for the audit
of the Company's financial statement for the last two years, for professional
services in connection with statutory and regulatory filings for those fiscal
years, US$30,240 and US$31,450 in fiscal 2003 and fiscal 2004, respectively.

(b)   Audit-Related Fees

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

(c)   Tax Fees

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

(d)   All Other Fees

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

(e)   Pre-approval policies and procedures

The board of directors adopted resolutions in accordance with the Sarbanes-Oxley
Act of 2002 requiring pre-approval of all auditing services and all
audit-related, tax or other services not prohibited under Section 10A(g) of the
Securities Exchange Act of 1934 to be performed for us by our independent
auditors, subject to the de minimus exception described in Section 10A(i)(1)(B)
of that Act. These resolutions authorized our independent auditor to perform
audit services required in connection with the annual audit relating to the
fiscal year ended December 31, 2004. Our board of directors also appointed and
authorized Mr. Qu Shuzhi, our Chief Financial Officer, to grant pre-approvals of
other audit, audit-related, tax and other services requiring board approval to
be performed for us by our independent auditor, provided that the designee,
following any such pre-approvals, thereafter reports the pre-approvals of such
services at the next following regular meeting of the Board.

Neither the board of directors nor Mr. Qu Shuzhi approved any audit-related, tax
and other services.


                                       22
<PAGE>

(f)   Not applicable.

Item 16D Exemptions from the Listing Standards for Audit Committees

Not Applicable

Item 16E Purchase of Equity Securities by the Issuer and Affiliated Purchasers

Not Applicable

PART III

ITEM 17 FINANCIAL STATEMENTS

Not Applicable

ITEM 18 FINANCIAL STATEMENTS

(a)   Years ended December 31, 2004 and 2003

                                                                        PAGE NO.
                                                                        --------

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                    24

CONSOLIDATED STATEMENTS OF OPERATIONS                                      25

CONSOLIDATED BALANCE SHEETS                                                26

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY                             27

CONSOLIDATED STATEMENTS OF CASH FLOWS                                      28

NOTES TO THE FINANCIAL STATEMENTS                                          29


                                       23
<PAGE>

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of
Yantai Dahua Holdings Company Limited
(A company incorporated in Belize)

We have audited the accompanying consolidated balance sheets of Yantai Dahua
Holdings Company Limited and its subsidiaries (the "Company") as of December 31,
2004 and 2003 and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the years then ended. 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 standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the 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 consolidated financial position of the
Company as of December 31, 2004 and 2003 and the results of its operations and
its cash flows for the years then ended, in conformity with generally accepted
accounting principles in the United States.


Moores Rowland Mazars
Chartered Accountants
Certified Public Accountants
Hong Kong

Date: December 8, 2005


                                       24
<PAGE>

Yantai Dahua Holdings Company Limited

Consolidated Statements of Operations
================================================================================

<TABLE>
<CAPTION>
                                                                 Year ended December 31,
                                                               ---------------------------
                                                                      2004            2003
                                                       Note            US$             US$
<S>                                                       <C>   <C>             <C>
Operating revenue
Sales of goods                                                  11,012,646      11,954,095

Cost of sales                                                   (9,647,787)     (8,758,307)
                                                               -----------     -----------

Gross profit                                                     1,364,859       3,195,788

Operating expenses
Depreciation                                                       (46,924)        (45,996)
Handling and shipping costs                                       (312,837)       (407,935)
Selling, general and administrative expenses                    (6,083,399)     (1,312,727)
                                                               -----------     -----------

(Loss) Income from operations                                   (5,078,301)      1,429,130

Non-operating income (expense)
Sundry income                                                       43,552          21,148
Finance costs                                                     (526,015)       (465,215)
                                                               -----------     -----------

(Loss) Income before income taxes                               (5,560,764)        985,063

Provision for income taxes                                4        570,188        (321,135)
                                                               -----------     -----------

(Loss) Income after income taxes                                (4,990,576)        663,928

Share of operating results from an associate                            (3)             --

Minority interest                                                  748,586         (99,608)
                                                               -----------     -----------

Net (loss) income                                               (4,241,993)        564,320
                                                               ===========     ===========

(Loss) Earnings per share
Basic common shares outstanding                                 33,447,000      33,447,000
                                                               ===========     ===========

Basic net (loss) income per common share                          (US$0.13)        US$0.02
                                                               ===========     ===========
</TABLE>

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


                                       25
<PAGE>

Yantai Dahua Holdings Company Limited

Consolidated Balance Sheets
================================================================================

<TABLE>
<CAPTION>
                                                                   As of December 31,
                                                               ---------------------------
                                                                      2004            2003
ASSETS                                                 Note            US$             US$
<S>                                                      <C>    <C>             <C>
Current assets
Cash and cash equivalents                                          219,392       1,160,173
Accounts receivable, trade                                       5,216,076       7,582,766
Prepayments                                                         27,350         100,514
Others receivables                                               1,698,932         758,541
Inventories                                               5      1,300,103       2,091,333
Due from related parties                                 9b        202,684         151,333
Pledged bank deposits                                     8        302,400              --
                                                               -----------     -----------

Total current assets                                             8,966,937      11,844,660
Property and equipment, net                               6     10,126,008      11,070,760
Construction in progress                                                --          40,710
Interest in an associate                                                --              --
                                                               -----------     -----------

Total assets                                                    19,092,945      22,956,130
                                                               ===========     ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
Other short-term loans                                    7      1,053,865              --
Short-term bank loans                                     8      5,835,110       5,212,166
Accounts payable, trade                                          2,047,842       1,577,689
Accrued charges                                                  1,263,185         811,527
Other payables                                                   1,715,902       1,248,263
Due to a related party                                   9b      1,193,253       2,646,576
Due to stockholders                                      9b        127,660         105,365
Due to an associate                                                 86,227              --
Income tax payable                                                  69,155          52,298
Deferred tax                                              4             --         475,779
                                                               -----------     -----------

Total current liabilities                                       13,392,199      12,129,663
                                                               -----------     -----------

Non-current liabilities
Deferred tax                                              4             --         135,142
                                                               -----------     -----------

Minority interest in subsidiary                                    846,833       1,595,419
                                                               -----------     -----------

Contingencies and commitments                            10

Stockholders' equity
Common stock, par value US$0.001;
 100,000,000 shares authorized
 33,447,000 shares issued and outstanding                           33,447          33,447
Additional paid-in capital                                       8,209,389       8,209,389
(Accumulated losses) Retained earnings                          (3,428,785)        821,903
Statutory reserves                                       11         39,862          31,167
                                                               -----------     -----------

Total stockholders' equity                                       4,853,913       9,095,906
                                                               -----------     -----------

Total liabilities and stockholders' equity                      19,092,945      22,956,130
                                                               ===========     ===========
</TABLE>

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


                                       26
<PAGE>

Yantai Dahua Holdings Company Limited

Consolidated Statement of Stockholders' Equity
================================================================================

<TABLE>
<CAPTION>
                                         Common stock
                                    ------------------------
                                                                                Retained
                                                                Additional      earnings
                                        No. of                     paid-in  (Accumulated      Statutory
                                        shares        Amount       capital          loss)      reserves         Total
                                                         US$           US$           US$            US$           US$
                                    ----------    ----------    ----------  ------------     ----------    ----------
<S>                                 <C>               <C>        <C>          <C>                <C>       <C>
Balance as of January 1, 2003       33,447,000        33,447     8,209,389       275,052         13,698     8,531,586

Net income for the year                     --            --            --       564,320             --       564,320

Transfer to statutory reserves              --            --            --       (17,469)        17,469            --
                                    ----------    ----------    ----------    ----------     ----------    ----------

Balances as of December 31, 2003    33,447,000        33,447     8,209,389       821,903         31,167     9,095,906

Net loss for the year                       --            --            --    (4,241,993)            --    (4,241,993)

Transfer to statutory reserves              --            --            --        (8,695)         8,695            --
                                    ----------    ----------    ----------    ----------     ----------    ----------

Balance as of December 31, 2004     33,447,000        33,447     8,209,389    (3,428,785)        39,862     4,853,913
                                    ==========    ==========    ==========    ==========     ==========    ==========
</TABLE>

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


                                       27
<PAGE>

Yantai Dahua Holdings Company Limited

Consolidated Statements of Cash Flows
================================================================================

<TABLE>
<CAPTION>
                                                                       Year ended December 31,
                                                                      -------------------------
                                                                            2004           2003
                                                                             US$            US$
<S>                                                                   <C>            <C>
Cash flows from operating activities:
Net (loss) income                                                     (4,241,993)       564,320

Adjustments to reconcile net income to net cash (used in) provided
  by operating activities:
     Share of loss from an associate                                           3             --
     Depreciation                                                        994,987      1,005,337
     Provision for impairment loss of property, plant and
         equipment                                                        60,867             --
     Loss on disposal of property, plant and equipment                        --         23,442
     Minority interest                                                  (748,586)        99,608
     Provision for doubtful accounts                                   1,333,296        334,904
Changes in working capital:
     Accounts receivable, trade                                        1,033,394     (1,092,982)
     Other receivables                                                  (940,391)            --
     Prepayments                                                          73,164        324,717
     Inventories                                                         791,230       (429,260)
     Due from related parties                                            (51,351)        70,620
     Accounts payable, trade                                             470,153       (259,711)
     Other creditors                                                     467,639             --
     Accrued charges                                                     451,658        116,667
     Due to a related party                                           (1,453,323)        74,733
     Income tax                                                         (594,064)       321,007
                                                                      ----------     ----------

Net cash (used in) provided by operating activities                   (2,353,317)     1,153,402
                                                                      ----------     ----------

Cash flows from investing activities:
Purchases of property and equipment                                      (70,392)    (2,019,511)
Addition to construction in progress                                          --       (366,199)
                                                                      ----------     ----------

Net cash used in investing activities                                    (70,392)    (2,385,710)
                                                                      ----------     ----------

Net cash from financing activities:
Due to an associate                                                       86,224             --
Due to stockholders                                                       22,295        101,291
New bank loans                                                         1,832,543      2,851,075
New other loans                                                        1,053,865             --
Pledged bank deposits                                                   (302,400)            --
Repayment of amount borrowed                                          (1,209,600)    (1,251,984)
                                                                      ----------     ----------

Net cash provided by financing activities                              1,482,927      1,700,382
                                                                      ----------     ----------

Net (decrease) increase in cash and cash equivalents                    (940,781)       468,074

Cash and cash equivalents at the beginning of year                     1,160,173        692,099
                                                                      ----------     ----------

Cash and cash equivalents at end of year                                 219,392      1,160,173
                                                                      ==========     ==========

Supplemental disclosure information
Interest paid                                                            526,015        465,215
Income taxes paid                                                         23,876            129
                                                                      ==========     ==========
</TABLE>

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


                                       28
<PAGE>

Yantai Dahua Holdings Company Limited

Notes to the Financial Statements
================================================================================

1.    ORGANIZATION AND PRINCIPAL ACTIVITIES

      Yantai Dahua Holdings Company Limited ("YDHC") and its subsidiaries
      (collectively referred to as the "Company") are principally engaged in
      manufacturing and selling various paper products, including printing
      paper, writing paper and computer paper, etc. The head office of its
      principal operating subsidiary is located at East of Muping City, Yantai,
      Shandong, the People's Republic of China (the "PRC").

      Yantai Dahua Paper Industry Limited ("YDPI"), the Company's principal
      operating subsidiary, was established in the PRC on April 14, 1994 as a
      sino-foreign equity joint venture which was planned to operate for a term
      of 15 years until April 14, 2009. On July 30, 2002, Yantai Foreign
      Investment Bureau also approved YDPI's application for the extension of
      operating period for an additional 15 years to 2024. As of the balance
      sheet date, the Company owns an 85% equity interest in YDPI through its
      wholly owned subsidiary, Australia China Investment Limited ("ACIL"), a
      company incorporated in the British Virgin Islands.

      On April 3, 2004, ACIL entered into an agreement with Yantai Longda Paper
      Industry Limited ("YLDP") (see relationship in note 9(a) to the financial
      statements) to establish Yantai Longxiang Paper Industry Limited ("YLXP"),
      a sino-foreign equity joint venture with registered capital of
      US$2,491,200. ACIL and YLDP beneficially own 25% and 75% equity interest
      respectively in YLXP and is classified as an associate of the Company.

      YLXP was established on May 11, 2004 and plans to operate for a term of 20
      years until May 10, 2024. As of December 31, 2004, the registered capital
      of YLXP was not fully paid-up by ACIL and YLDP.

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Basis of accounting

      The financial statements have been prepared in accordance with generally
      accepted accounting principles in the United States ("USGAAP"). The
      measurement basis used in the preparation of the financial statements is
      historical cost.

      Principles of consolidation

      The consolidated financial statements include the financial information of
      the Company and its subsidiaries. The results of subsidiaries acquired or
      disposed of during the year are consolidated from or up to the date of
      their effective date of acquisition or disposal respectively.

      All significant intercompany balances and transactions have been
      eliminated in consolidation.

      Subsidiary

      A subsidiary is an affiliate controlled by the Company directly, or
      indirectly through one or more intermediaries. The term control (including
      the terms controlling, controlled by and under common control with) means
      the possession, directly or indirectly, of the power to direct or cause
      the direction of the management and policies of a person, whether through
      the ownership of voting stocks, by contract, or otherwise.


                                       29
<PAGE>

Yantai Dahua Holdings Company Limited

Notes to the Financial Statements
================================================================================

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      Associate

      An associate is an enterprise in which the Company has significant
      influence but not control or joint control, over its management. The
      Company has significant influence in the financial and operating policy
      decisions.

      The interest in an associate is accounted for in the consolidated
      financial statements under the equity method and is initially recorded at
      cost and adjusted thereafter for the post acquisition change in the
      Company's share of the associate's net assets, unless it is acquired and
      held exclusively with a view to subsequent disposal in the near future or
      operates under severe long-term restrictions that significantly impair its
      ability to transfer funds to the investor, in which case the investment is
      accounted for as trading securities or non-trading securities. The
      consolidated income statement reflects the Company's share of the
      post-acquisition results of the associate for the year, including any
      amortization of goodwill. When the Company's share of losses exceeds the
      carrying amount of the associate, the carrying amount is reduced to nil
      and recognition of further losses is discontinued except to the extent
      that the Company has incurred obligations in respect of the associate.

      Revenue recognition

      Net sales represent the invoiced value of goods, net of value-added tax
      ("VAT") and returns. The Company recognizes revenue in accordance with SEC
      Staff Accounting Bulletin Nos. 101 and 104, "Revenue Recognition in
      Financial Statements", when the title and risk of loss have passed to the
      customer, there is persuasive evidence of an arrangement, delivery has
      occurred, the sales price is determinable, and collectibility is
      reasonably assured.

      Income taxes

      The Company did not carry on any business and did not maintain any branch
      office in the United States of America.

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

      Income tax expense is computed based on pre-tax income included in the
      consolidated statements of operations. The Company provides for deferred
      income taxes using the liability method, by which deferred income taxes
      are recognized for all significant 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 financial statements.


                                       30
<PAGE>

Yantai Dahua Holdings Company Limited

Notes to the Financial Statements
================================================================================

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      Property and equipment and depreciation

      Property, plant and equipment are stated at cost less accumulated
      depreciation.

      The cost of an item of property, plant and equipment comprises its
      purchase price and any directly attributable costs of bringing the asset
      to its working condition and location for its intended use. Major costs
      incurred in restoring assets to their normal working conditions are
      charged to the statement of operations. Improvements are capitalized and
      depreciated over their expected useful lives.

      The gain or loss arising from the retirement or disposal of property,
      plant and equipment is determined as the difference between the estimated
      net sales proceeds and the carrying amount of the assets and is recognized
      as income or expense in the income statement.

      Depreciation is provided to write off the cost of property, plant and
      equipment over their estimated useful lives from the date on which they
      become fully operational and after taking into account their estimated
      residual values, using the straight-line method, at the annual rate per
      annum:

            Building and fixtures                          13-33 years
            Plant and machinery                            10-25 years
            Motor vehicles                                 10 years

      Impairment of long-lived assets

      Long-lived assets are reviewed at least annually for impairment whenever
      events or changes in circumstances indicate that the carrying amount of
      the asset may not be recoverable. Recoverability of assets to be held and
      used is measured by a comparison of the carrying amount of an asset to the
      undiscounted future net cash flows expected to be generated by the asset.
      If such assets are considered to be impaired, impairment is measured as
      the difference between the carrying amount and fair value of the asset.
      Goodwill will not be allocated to long-lived assets when tested for
      impairment.

      Inventories

      Inventories are stated at the lower of cost or market. Cost, which
      comprises all costs of purchase and, where applicable, other costs that
      have been incurred in bringing the inventories to their present location
      and condition, is calculated using the weighted average cost method.
      Estimated losses on inventories represent reserves for obsolescence,
      excess quantities, irregular and slow moving inventory. The Company
      estimates the loss / write-down on the basis of its assessment of the
      inventory's net realized value based upon current market conditions and
      historical experience.

      Statement of cash flows

      Cash equivalents are defined as short-term, highly liquid investments that
      are readily convertible to known amounts of cash and which are subject to
      an insignificant risk of changes in value. An investment normally
      qualifies as a cash equivalent only when it has a maturity of three months
      or less from its acquisition date.


                                       31
<PAGE>

Yantai Dahua Holdings Company Limited

Notes to the Financial Statements
================================================================================

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      Translation of foreign currency

      Subsidiaries maintain their accounting books and records in Renminbi
      ("RMB"). Foreign currency transactions during the year are translated to
      RMB at the approximate rates of exchange on the dates of transactions.
      Monetary assets and liabilities denominated in foreign currencies at year
      end are translated at the approximate rates of exchange at the balance
      sheet date. Non-monetary assets and liabilities are translated at the
      rates of exchange prevailing at the time the asset or liability was
      acquired. Exchange gains or losses are recorded in the consolidated
      statement of operations.

      On consolidation, the financial statements of the subsidiaries are
      translated into US$ using the closing rate method, whereby the balance
      sheet items are translated into US$ using the exchange rates at the
      respective balance sheet dates. The share capital and various reserves are
      translated at exchange rates prevailing at the time of the transactions
      while income and expenses items are translated at the average exchange
      rate for the year.

      All exchange differences arising on consolidation are recorded within
      equity. Historically, foreign exchange transactions have not been material
      to the financial statements.

      (Loss) Earnings per share

      Basic (loss) earnings per share are computed by dividing (loss) income
      available to common stockholders by the weighted average number of common
      stocks outstanding. The computation of diluted earnings per share is
      similar to the computation of basic earnings per share except that the
      weighted average number of common stocks 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 the period.

      Uses of estimates

      The preparation of the financial statements in conformity with US GAAP
      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 the 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
      allowances for doubtful accounts, depreciation, taxes and contingencies.

      Allowance for doubtful accounts

      The Company provides an allowance for doubtful accounts equal to the
      estimated uncollectable amounts. The Company's estimate is based on
      historical collection experience and a review of the current status of
      trade accounts receivable. It is reasonably possible that the Company's
      estimate of the allowance for doubtful accounts will change. Accounts
      receivable are presented net of an allowance for doubtful accounts of
      US$1,945,329 and US$612,033 as of December 31, 2004 and 2003 respectively.
      The charge for the years ended December 31, 2004 and 2003 of US$1,333,296
      and US$334,904, respectively, are included in selling, general and
      administrative expenses.


                                       32
<PAGE>

Yantai Dahua Holdings Company Limited

Notes to the Financial Statements
================================================================================

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      Segment information

      Operating segments are defined as components of a company about which
      separated financial information is available that is evaluated regularly
      by the operating decision maker in deciding how to allocate resources and
      in assessing performance. The Company operates in a single business
      segment of manufacturing and selling of paper products which are sold in
      the PRC. There are no reportable business or geographical segments
      identified and no segment information is disclosed accordingly.

      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.

      New accounting pronouncements

      In November 2004, the Financial Accounting Standards Board ("FASB") issued
      Statement of Financial Accounting Standard ("SFAS") No. 151 "Inventory
      Costs, an Amendment of ARB No. 43, Chapter 4". This statement amends ARB
      No. 43, Chapter 4 to clarify that abnormal amounts of idle facility
      expense, freight, handling costs, and spoilage should be recognized as
      current-period charges regardless of whether they meet the criterion of
      "so abnormal" and that fixed production overheads should be allocated to
      inventory based on the normal capacity of the production facilities. The
      guidance is effective for inventory costs incurred during fiscal years
      beginning after June 15, 2005; however, earlier application is permitted
      for inventory costs incurred during fiscal years beginning after November
      23, 2004. The provisions of SFAS No. 151 should be applied prospectively.
      The Company believes that SFAS No. 151 will not have a significant impact
      on its financial statements when it is adopted.

      In July 2005, the FASB issued FSP No APB 18-1, "Accounting by an Investor
      for Its Proportionate Share of Accumulated Other Comprehensive Income of
      an Investee Accounted for under the Equity Method in Accordance with APB
      Opinion No. 18 upon a Loss of Significant Influence". This pronouncement
      states that an investor's proportionate share of an investee's equity
      adjustments for other comprehensive income (OCI) should be offset against
      the carrying value of the investment at the time significant influence is
      lost. To the extent that the offset results in a carrying value of the
      investment that is less than zero, an investor should (a) reduce the
      carrying value of the investment to zero and (b) record the remaining
      balance in income. This guidance is effective as of the first reporting
      period beginning after July 12, 2005.


                                       33
<PAGE>

Yantai Dahua Holdings Company Limited

Notes to the Financial Statements
================================================================================

4.    PROVISION FOR INCOME TAXES

      The Company is subject to income taxes on an entity basis on income
      arising in or derived from the tax jurisdictions in which it operates.

      The operating subsidiary is established and is carrying on business in the
      PRC. It is subject to the PRC enterprise income tax at a rate of 24%.

      Income tax expense comprised the following:

                                                     Year ended December 31,
                                                  -----------------------------
                                                          2004             2003
                                                           US$              US$

      Current tax                                       40,733           27,582
      Deferred tax                                    (610,921)         293,553
                                                  ------------     ------------

      Income tax (benefit) expense                    (570,188)         321,135
                                                  ============     ============

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

                                                             %                %

      Statutory rate                                        24               24
      Underprovision in respect of prior year                1               --
      Unrecognized timing difference                        (6)
      Non-deductible activities                             (7)               9
                                                  ------------     ------------

      Effective tax rate                                    10               33
                                                  ============     ============

      Components of the Company's deferred tax liabilities are as follows:

                                                       As of December 31,
                                                  -----------------------------
                                                          2004             2003
                                                           US$              US$

      Deferred sales of goods                          153,333           60,909
      Provision for inventory written off             (788,595)              --
      Depreciation                                      95,238          115,411
      Capitalized inventory costs                           --          399,356
      Others                                           403,638           35,245
      Valuation allowances                             136,386               --
                                                  ------------     ------------

                                                            --          610,921
                                                  ============     ============


                                       34
<PAGE>

Yantai Dahua Holdings Company Limited

Notes to the Financial Statements
================================================================================

4.    PROVISION FOR INCOME TAXES (CONTINUED)

                                                       As of December 31,
                                                  -----------------------------
                                                          2004             2003
                                                           US$              US$

      Current portion                                 (942,629)         475,779
      Non-current portion                              (54,048)         135,142
      Valuation allowances                             996,677               --
                                                  ------------     ------------

                                                            --          610,921
                                                  ============     ============

      In assessing the realizability of deferred tax assets, management
      considers whether it is more likely than not that some portion or all of
      the deferred tax assets will not be realized. The ultimate realization of
      deferred tax assets is dependent upon the generation of future taxable
      income during the periods in which those temporary differences become
      deductible.

5.    INVENTORIES

      Inventories comprise the following:

                                                       As of December 31,
                                                  -----------------------------
                                                          2004             2003
                                                           US$              US$

      Raw materials                                    627,834          847,194
      Finished goods                                   672,269        1,244,139
                                                  ------------     ------------

                                                     1,300,103        2,091,333
                                                  ============     ============

      As of December 31, 2004, a loss provision of US$3,384,684 was made for
      finished goods delivered to customers where invoices had not been issued
      because it is believed that the ultimate recoverability of these
      inventories is not certain. The allowance was charged to the income
      statement and is included in selling, general and administrative expenses.

6.    PROPERTY AND EQUIPMENT

                                                       As of December 31,
                                                  -----------------------------
                                                          2004             2003
                                                           US$              US$

      Buildings and fixtures                         4,553,553        4,553,553
      Plant and machinery                           11,779,330       11,729,095
      Motor vehicles                                   273,486          273,486
                                                  ------------     ------------

                                                    16,606,369       16,556,134
      Less: Accumulated depreciation                (6,480,361)      (5,485,374)
                                                  ------------     ------------

      Property and equipment, net                   10,126,008       11,070,760
                                                  ============     ============


                                       35
<PAGE>

Yantai Dahua Holdings Company Limited

Notes to the Financial Statements
================================================================================

6.    PROPERTY AND EQUIPMENT (CONTINUED)

      In view of the abandonment of certain machines used in the manufacture of
      paper products due to environmental restrictions, management determined
      that there was no value for these machines and that an impairment loss of
      US$60,867 needed to be recognized for the plant and machinery carried on
      the balance sheet. This loss has been recognized as expense and included
      in the consolidated statements of operations.

7.    OTHER SHORT-TERM LOANS

      The balances represent loans from employees of the Company which are
      unsecured, interest-free and without fixed repayment terms.

8.    BANKING FACILITIES

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

                                                       As of December 31,
                                                  -----------------------------
                                                          2004             2003
                                                           US$              US$
      Facilities granted
      Committed credit lines                         6,058,886        5,212,166
                                                  ============     ============

      Utilized facilities
      Committed credit lines                         5,835,110        5,212,166
                                                  ============     ============

      Unutilized facilities
      Committed credit lines                           223,776               --
                                                  ============     ============

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

      The Company had the following banking facilities:

<TABLE>
<CAPTION>
                                                                      As of December 31,
                                                                 ----------------------------
                                                                         2004            2003
                                                                          US$             US$
<S>                                                                 <C>             <C>
      Collateralized by trade receivables of the Company              725,760              --
      Collateralized by guarantee of a third party (note)           1,582,156       2,066,000
      Collateralized by certain property and equipment of the
          Company and guarantee of a third party (note)             3,146,170       3,146,166
      Collateralized by bank deposit of the Company                   604,800              --
                                                                 ------------    ------------

                                                                    6,058,886       5,212,166
                                                                 ============    ============
</TABLE>

      Note: These guarantees are given by Yantai Yinhe Knitting Company Limited.


                                       36
<PAGE>

Yantai Dahua Holdings Company Limited

Notes to the Financial Statements
================================================================================

9.    RELATED PARTY TRANSACTIONS

<TABLE>
<CAPTION>
      (a)   Name and relationship of related parties           Existing relationships with the Company
<S>                                                            <C>
            YLDP                                               Joint venturer of a subsidiary and the associate
            Muping Iron Cover Manufacturing Factory (MIC)      Branch of YLDP
            Muping Paper Product Manufacturing Factory (MPP)   Branch of YLDP
            Muping Vegetable Processing Factory (MVP)          Branch of YLDP
            Mr. Tang Yuxiang                                   Stockholder / Director
            Mr. Qu Shuzhi                                      Stockholder / Director
</TABLE>

      (b)   Summary of related party balances

                                                          As of December 31,
                                                     --------------------------
                                                            2004           2003
                                                             US$            US$
            (i)   Due from related parties
                  MVP                                     12,285         12,043
                  MPP                                     25,467         27,528
                  MIC                                    164,932        111,762
                                                     -----------    -----------

                                                         202,684        151,333
                                                     ===========    ===========

            (ii)  Due to a related party
                  YLDP                                 1,193,253      2,646,576
                                                     ===========    ===========

            (iii) Due to stockholders
                  Mr. Tang Yuxiang                       109,702         89,035
                  Mr. Qu Shuzhi                           17,958         16,330
                                                     -----------    -----------

                                                         127,660        105,365
                                                     ===========    ===========

            Note: All amounts due represent non-trade unsecured advances which
                  are interest-free and repayable on demand.


                                       37
<PAGE>

Yantai Dahua Holdings Company Limited

Notes to the Financial Statements
================================================================================

9.    RELATED PARTY TRANSACTIONS (CONTINUED)

      (c)   Summary of related party transactions

<TABLE>
<CAPTION>
                                                                                  Year ended December 31,
                                                                               ----------------------------
                                                                                       2004            2003
                                                                                        US$             US$
<S>                                                                               <C>                    <C>
            (i)   Contract sum entered into in respect of acquisition of
                    plant and equipment on behalf of
                  YLDP                                                            1,867,679              --
                  YLXP                                                              351,435              --
                                                                               ============    ============

            (ii)  Deposits paid for acquisition of plant and equipment on
                    behalf of
                  YLDP                                                            1,303,522              --
                  YLXP                                                              237,038              --
                                                                               ============    ============
</TABLE>

10.   CONTINGENCIES AND COMMITMENTS

      (a)   In prior years up to the recapitalization of ACIL in October 2002,
            YDPI had paid the PRC income tax at a basis of calculation which was
            not in compliance with the standard basis of calculation as
            stipulated by the Mainland China tax law. The PRC tax authority
            might charge the Company for any tax underpaid in this regard.
            However, the management of the Company considers the chance of this
            liability occurring is remote and no provision has been recognized
            accordingly. In addition, a shareholder of YDPI has indemnified the
            Company against any losses that would arise should the Company be
            assessed the unpaid tax liabilities.]

      (b)   As disclosed in note 9(c) above, the Company has entered into
            contracts on behalf of YLDP and YLXP for the acquisition of plant
            and machinery. The Company, being the party to the contracts, would
            be obligated to settle the amounts to be arising from these
            contracts should YLDP or YLXP fail to comply with the terms thereof.

11.   STATUTORY RESERVES

      According to the Articles of Association of YDPI, its income is
      distributable to its joint venture partners after any required transfer to
      statutory reserves. Being a sino-foreign equity joint venture, YDPI is
      required to maintain a reserve fund, an enterprise development fund and a
      staff welfare and bonus fund.

      Statutory reserves include the reserve fund and the staff welfare and
      bonus fund. Pursuant to the Articles of Association, YDPI's board of
      directors determines the percentage of appropriations to the reserve fund
      and the staff welfare and bonus fund. The reserve fund can be used to make
      good losses in previous years. The staff welfare and bonus fund, which is
      to be used for the welfare of the staff and workers of YDPI, is of a
      capital nature.

      The nature of enterprise development fund is set aside for future
      development.


                                       38
<PAGE>

Yantai Dahua Holdings Company Limited

Notes to the Financial Statements
================================================================================

12.   RETIREMENT BENEFITS AND OTHER EMPLOYMENT BENEFITS

      As stipulated by the PRC rules and regulations, YDPI participates in a
      retirement plan for all employees. Pursuant to the plan, all retired
      employees of YDPI are entitled to certain retirement benefits. YDPI is
      required to make contributions to a state sponsored retirement plan at
      approximately 20% of the base amount which is within the range from US$57
      to US$278 per employee as stipulated by the PRC government. YDPI
      determines the base amount with reference to the basic salary of its
      employees and has no further obligations for the actual payments of any
      post-retirement benefits. The state sponsored retirement plan is
      responsible for the entire pension obligations payable to the employees.

      The pension expense for the years ended December 31, 2004 and 2003 was
      US$197,395 and US$191,460 respectively.

13.   OPERATING RISK

      (a)   Country risk

            Currently, revenues are derived from sale of paper products to
            customers in the PRC. The results may be adversely affected by
            changes in the political and social conditions in the 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 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)   Credit risk

            Financial instruments consist principally of temporary cash
            investments and accounts receivable.

            The Company places its temporary cash investments with various
            financial institutions in the PRC. The management believes that no
            significant credit risk exists as these investments are placed
            principally with financial institutions with fair reputation in the
            PRC.

            The business activities and accounts receivable are principally with
            customers in the PRC. Management assesses credit risks associated
            with accounts receivable critically on the basis as set out in note
            3 to the financial statements. The management believes that no
            significant credit risk exists for the balance carried on the
            balance sheet. No single customer accounted for greater than 10% of
            total revenue in each year.

            The fair values of all of the financial instruments approximate
            their carrying values.


                                       39
<PAGE>

(b)   Years ended December 31, 2003 and 2002

                                                                        PAGE NO.
                                                                        --------

INDEPENDENT ACCOUNTANT'S REPORT                                            41

CONSOLIDATED STATEMENTS OF OPERATIONS                                      42

CONSOLIDATED BALANCE SHEET                                                 43

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY                             44

CONSOLIDATED STATEMENTS OF CASH FLOWS                                      45

NOTES TO THE FINANCIAL STATEMENTS                                          46


                                       40
<PAGE>

Independent Accountants' Report

To the Board of Directors and Stockholders of
Yantai Dahua Holdings Company Limited
(Formerly Equity Finance Holding Corporation)
(A company incorporated in Belize)

We have audited the accompanying consolidated balance sheets of Yantai Dahua
Holdings Company Limited and its subsidiaries (the "Company") as of December 31,
2003 and 2002 and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the years ended December 31, 2003 and
2002. 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 standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the 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 consolidated financial position of the
Company as of December 31, 2003 and 2002 and the results of its operations and
its cash flows for the years ended December 31, 2003 and 2002, in conformity
with generally accepted accounting principles in the United States.


Moores Rowland Mazars
Chartered Accountants
Certified Public Accountants
Hong Kong

Date: June 29, 2004


                                       41
<PAGE>

Yantai Dahua Holdings Company Limited
(Formerly Equity Finance Holding Corporation)

Consolidated Statements of Operations
================================================================================

<TABLE>
<CAPTION>
                                                                                  Period from
                                                                                  February 1,
                                                                                         2002
                                                                                     (date of
                                                                                incorporation)
                                                                   Year ended              to
                                                                 December 31,    December 31,
                                                                         2003            2002
                                                       Note               US$             US$
<S>                                                      <C>      <C>             <C>
Operating revenue
Sales of goods                                                     11,954,095       3,469,026

Cost of sales                                                      (8,758,307)     (2,345,510)
                                                                -------------   -------------

Gross profit                                                        3,195,788       1,123,516

Operating expenses
Depreciation                                                       (1,005,337)        (11,248)
Handling and shipping costs                                          (407,935)        (85,956)
Selling, general and administrative expenses                         (818,601)       (560,177)
                                                                -------------   -------------

Income from operations                                                963,915         466,135

Non-operating income
Sundry income                                                          21,148          21,475
                                                                -------------   -------------

Income before income taxes                                            985,063         487,610

Provision for income taxes                                6          (321,135)       (147,907)
                                                                -------------   -------------

Income after income taxes                                             663,928         339,703

Minority interest in income of subsidiary                             (99,608)        (50,953)
                                                                -------------   -------------

Net income                                                            564,320         288,750
                                                                =============   =============

Earnings per share
Basic common stock outstanding                                     33,447,000      33,447,000
                                                                =============   =============

Basic net income per common stock                               US$0.02 cents   US$0.01 cents
                                                                =============   =============
</TABLE>

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


                                       42
<PAGE>

Yantai Dahua Holdings Company Limited
(Formerly Equity Finance Holding Corporation)

Consolidated Balance Sheet
================================================================================

<TABLE>
<CAPTION>
                                                                    As of December 31,
                                                                ---------------------------
                                                                       2003            2002
ASSETS                                                 Note             US$             US$
<S>                                                     <C>      <C>             <C>
Current assets
Cash and cash equivalents                                         1,160,173         692,099
Accounts receivable, trade                                        7,582,766       6,824,688
Prepayments and other receivables                                   859,055       1,183,772
Inventories                                               7       2,091,333       1,662,073
Due from related parties                                10b         151,333         221,953
                                                                -----------     -----------

Total current assets                                             11,844,660      10,584,585
Property and equipment, net                               8      11,070,760       9,814,442
Construction in progress                                             40,710         142,109
                                                                -----------     -----------

Total assets                                                     22,956,130      20,541,136
                                                                ===========     ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
Short-term loans                                          9       5,212,166       3,613,075
Accounts payable, trade                                           1,577,689       1,837,400
Accrued charges and other payables                                2,059,790       2,134,655
Due to a related party                                  10b       2,646,576       2,571,843
Due to stockholders                                     10b         105,365           4,074
Income tax payable                                                   52,298          24,845
Deferred tax                                                        475,779         229,574
                                                                -----------     -----------

Total current liabilities                                        12,129,663      10,415,466
                                                                -----------     -----------

Non-current liabilities
Deferred tax                                                        135,142          87,793
                                                                -----------     -----------

Minority interest in subsidiary                                   1,595,419       1,506,291
                                                                -----------     -----------

Stockholders' equity
Common stock, par value US$0.001 each;
     100,000,000 shares authorized
     33,447,000 shares issued and outstanding                        33,447          33,447
Additional paid-in capital                                        8,209,389       8,209,389
Retained earnings                                                   821,903         275,052
Statutory reserves                                       12          31,167          13,698
                                                                -----------     -----------

Total stockholders' equity                                        9,095,906       8,531,586
                                                                -----------     -----------

Total liabilities and stockholders' equity                       22,956,130      20,541,136
                                                                ===========     ===========
</TABLE>

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


                                       43
<PAGE>

Yantai Dahua Holdings Company Limited
(Formerly Equity Finance Holding Corporation)

Consolidated Statement of Stockholders' Equity
================================================================================

<TABLE>
<CAPTION>
                                         Common stock
                                    ------------------------
                                                                Additional
                                        No. of                     paid-in      Retained      Statutory
                                        shares        Amount       capital      earnings       reserves         Total
                                                         US$           US$           US$            US$           US$
<S>                                 <C>               <C>        <C>             <C>             <C>        <C>
Balance as of February 1, 2002      33,447,000        33,447     8,209,389            --             --     8,242,836

Net income for the year                     --            --            --       288,750             --       288,750

Transfer to statutory reserves              --            --            --       (13,698)        13,698            --
                                    ----------    ----------    ----------    ----------     ----------    ----------

Balances as of December 31, 2002    33,447,000        33,447     8,209,389       275,052         13,698     8,531,586

Net income for the year                     --            --            --       564,320             --       564,320

Transfer to statutory reserves              --            --            --       (17,469)        17,469            --
                                    ----------    ----------    ----------    ----------     ----------    ----------

Balances as of December 31, 2003    33,447,000        33,447     8,209,389       821,903         31,167     9,095,906
                                    ==========    ==========    ==========    ==========     ==========    ==========
</TABLE>

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


                                       44
<PAGE>

Yantai Dahua Holdings Company Limited
(Formerly Equity Finance Holding Corporation)

Consolidated Statements of Cash Flows
================================================================================

<TABLE>
<CAPTION>
                                                                            Period from
                                                                            February 1,
                                                                                   2002
                                                                               (date of
                                                                          incorporation)
                                                            Year ended               to
                                                          December 31,     December 31,
                                                                  2003             2002
                                                                   US$              US$
<S>                                                         <C>                 <C>
Cash flows from operating activities:
Net income                                                     564,320          288,750

Adjustments to reconcile net income to net cash provided
  by operating activities:
      Depreciation                                           1,005,337          129,548
      Exchange gain                                                 --              (17)
      Loss on disposal of property, plant and equipment         23,442               --
      Minority interest                                         99,608           50,953
      Provision for doubtful debts                             334,904               --
Changes in working capital:
      Accounts receivable, trade                            (1,092,982)         287,026
      Prepayments and other receivables                        324,717         (443,238)
      Inventories                                             (429,260)          61,619
      Due from related parties                                  70,620               --
      Accounts payable, trade                                 (259,711)        (305,329)
      Accrued charges and other payables                       116,667           (7,289)
      Due to a related party                                    74,733         (113,338)
      Income tax                                               321,007          146,979
                                                            ----------       ----------

Net cash provided by operating activities                    1,153,402           95,664
                                                            ----------       ----------

Cash flows from investing activities:
Cash flows from acquisition of subsidiary (Note 13)                 --          846,047
Purchases of property and equipment                         (2,019,511)        (184,278)
Addition to construction in progress                          (366,199)        (115,334)
                                                            ----------       ----------

Net cash (used in) provided by investing activities         (2,385,710)         546,435
                                                            ----------       ----------

Net cash from financing activities:
Issue of stocks                                                     --           50,000
Due to stockholders                                            101,291               --
New bank loan                                                2,851,075               --
Repayment of amount borrowed                                (1,251,984)              --
                                                            ----------       ----------

Net cash provided by financing activities                    1,700,382           50,000
                                                            ----------       ----------

Net increase in cash and cash equivalents                      468,074          692,099

Cash and cash equivalents at the beginning of year             692,099               --
                                                            ----------       ----------

Cash and cash equivalents at end of the year                 1,160,173          692,099
                                                            ==========       ==========
</TABLE>

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


                                       45
<PAGE>

Yantai Dahua Holdings Company Limited
(Formerly Equity Finance Holding Corporation)

Notes to the Financial Statements
================================================================================

1.    ORGANIZATION AND PRINCIPAL ACTIVITIES

      Yantai Dahua Holdings Company Limited ("YDHC") was incorporated in Belize
      on March 6, 1998 as a limited liability company. The former name of YDHC
      was Equity Finance Holding Corporation ("Equity Finance") which was
      changed to its existing name on February 18, 2003.

      Prior to the reorganization as described in Note 2 below on February 18,
      2003 with Australia China Investment Limited ("ACIL"), a company
      incorporated under the International Business Companies Act of the British
      Virgin Islands ("BVI") on February 1, 2002, Equity Finance had been a
      management consulting company and marketer of management and financial
      consulting services offered principally to small businesses assisting them
      in accessing the U.S. capital markets for financing.

      After recapitalization, YDHC and its subsidiaries (collectively referred
      to as the "Company") are principally engaged in the manufacturing and
      selling various paper products, including printing paper, writing paper
      and computer paper, etc. The head office of its principal operating
      subsidiary is located at East of Muping City, Yantai, Shandong, the
      People's Republic of China (the "PRC").

2.    BASIS OF PRESENTATION

      Effective February 18, 2003, pursuant to an Agreement and Plan of Share
      Exchange dated January 10, 2003 ("Share Exchange Agreement"), Equity
      Finance merged with an operating entity, ACIL, resulting in the
      stockholders and management of ACIL having actual and effective control of
      Equity Finance.

      For accounting purposes, the transaction has been treated as a
      recapitalization of ACIL with Equity Finance being the legal survivor and
      ACIL 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 18, 2003, are those of ACIL, even though they were
      labeled as those of Equity Finance (YDHC).

      The recapitalization transaction was effected by an exchange of stock
      under which the stockholders of ACIL, Mr. Tang Yuxiang and Mr. Qu Shuzhi
      exchanged all of the outstanding shares (824,283,600 shares) of ACIL for
      6,000,000 new shares of Equity Finance and 3,000,000 existing shares from
      Equity Finance's stockholders.

      In the recapitalization, historical stockholders' equity of the accounting
      survivor, ACIL, prior to the merger was retroactively restated for the
      equivalent number of new shares issued (6,000,000 shares) in the merger
      with an offset to additional paid-in capital. Retained earnings of the
      accounting survivor, ACIL, is carried forward after the recapitalization.
      Operations since February 1, 2002 (being date of incorporation of ACIL)
      and up to the date of recapitalization are those of the accounting
      survivor, ACIL. 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, Equity Finance. Following the recapitalization, Equity Finance held
      100% of the issued and outstanding shares of ACIL and Mr. Tang Yuxing and
      Mr. Qu Shuzhi became the principal stockholders of Equity Finance.


                                       46
<PAGE>

Yantai Dahua Holdings Company Limited
(Formerly Equity Finance Holding Corporation)

Notes to the Financial Statements
================================================================================

3.    INVESTMENTS

      Details of the investments in subsidiaries other than ACIL are as follows:

      Yantai Dahua Paper Industry Limited ("YDPI") was established in the PRC on
      April 14, 1994 as a sino-foreign equity joint venture which was planned to
      operate for a term of 15 years until April 14, 2009.

      On June 28, 2002, Australia China Investment Pty Limited ("ACIP"), the
      then 26% equity owner of YDPI, and Yantai Longda Paper Industry Limited
      ("YLPI"), the then 74% equity owner of YDPI, entered into an agreement
      (the "Agreement") in which ACIP agreed to transfer its entire interest and
      YLPI agreed to transfer its 59% interest in YDPI to ACIL (the "Transfer").
      The aggregate consideration of the Transfer is US$8,242,836 which
      represented 85% of net asset value of YDPI as of September 30, 2002. Upon
      completion of the transaction, ACIL and YLPI own 85% and 15% interest in
      YDPI respectively. On July 30, 2002, the Yantai Foreign Investment Bureau
      approved the above transfers of interest.

      On July 30, 2002, Yantai Foreign Investment Bureau also approved YDPI's
      application for the extension of operating period for an additional 15
      years to 2024.

4.    BASIS OF PRESENTATION

      The financial statements have been presented in United States dollars
      (US$) and prepared in accordance with accounting principles generally
      accepted in the United States of America ("US GAAP").

5.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Basis of consolidation

      The financial statements include the accounts of YDPI and its subsidiaries
      (see note 3) in which YDPI has a controlling financial interest. The
      results of operations of the subsidiary acquired during the period is
      included from the effective date of acquisition. All significant
      intercompany accounts and transactions have been eliminated.

      Subsidiary

      A subsidiary is an affiliate controlled by YDPI directly, or indirectly
      through one or more intermediaries. The term control (including the terms
      controlling, controlled by and under common control with) means the
      possession, direct or indirect, of the power to direct or cause the
      direction of the management and policies of a person, whether through the
      ownership of voting stocks, by contract, or otherwise.


                                       47
<PAGE>

Yantai Dahua Holdings Company Limited
(Formerly Equity Finance Holding Corporation)

Notes to the Financial Statements
================================================================================

5.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      Revenue recognition

      Net sales represent the invoiced value of goods, net of value-added tax
      ("VAT") and returns. The Company generally recognizes product revenue when
      persuasive evidence of an arrangement exists, delivery has occurred, the
      fee is fixed or determinable, and collectibility is probable.

      Income taxes

      The Company did not carry on any business and did not maintain any branch
      office in the United States of America.

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

      Income tax expense is computed based on pre-tax income included in the
      consolidated statements of operations. The Company provides for deferred
      income taxes using the liability method, by which deferred income taxes
      are recognized for all significant 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 financial statements.

      Property and equipment and depreciation

      Property and equipment are stated at cost less accumulated depreciation.
      The cost of an asset consists of 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, are charged
      to the consolidated statement of operations in the year 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 removed from the accounts and any gain or loss resulting from their
      disposal is included in the consolidated statement of operations.

      When assets are transferred between property and equipment and other
      classes of assets, the cost of such an asset on transfer is deemed to be
      the carrying amount of the asset as stated under its original
      classification.

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


                                       48
<PAGE>

Yantai Dahua Holdings Company Limited
(Formerly Equity Finance Holding Corporation)

Notes to the Financial Statements
================================================================================

5.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      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 the 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 the
      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.

      Inventories

      Inventories are stated at the lower of cost or market. The cost of
      inventories is determined using the weighted average cost method.
      Potential losses from obsolete and slow-moving inventories are provided
      for when identified. Costs of work-in-progress and finished goods include
      direct materials, direct labor and an attributable portion of
      manufacturing overhead.

      Statement of cash flows

      Cash equivalents are defined as short-term, highly liquid investments that
      are readily convertible to known amounts of cash and which are subject to
      an insignificant risk of changes in value. An investment normally
      qualifies as a cash equivalent only when it has a maturity of three months
      or less from its acquisition date.

      Foreign currency translation

      The Company maintains its accounting books and records in US$. Foreign
      currency transactions during the year are translated to US$ at the
      approximate rates of exchange on the dates of transactions. Monetary
      assets and liabilities denominated in foreign currencies at the balance
      sheet date are translated at the approximate rates of exchange at that
      date. Non-monetary assets and liabilities are translated at the rates of
      exchange prevailing at the time the asset or liability was acquired.
      Exchange gains or losses are recorded in the consolidated statement of
      operations.

      On consolidation, the financial statements of the subsidiaries are
      translated into US$ using the closing rate method. The balance sheet items
      are translated into US$ using the exchange rates at the respective balance
      sheet dates. The capital and various reserves are translated at historical
      exchange rates prevailing at the time of the transactions while income and
      expenses items are translated at the average exchange rate for the year.
      All exchange differences arising on consolidation are recorded within
      equity. The amount of such translation adjustments were not significant
      for the period, no other comprehensive income was recognized.


                                       49
<PAGE>

Yantai Dahua Holdings Company Limited
(Formerly Equity Finance Holding Corporation)

Notes to the Financial Statements
================================================================================

5.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      Earnings per share

      Basic earnings per share are computed by dividing income available to
      common stockholders by the weighted average number of common stocks
      outstanding. The computation of diluted earnings per share is similar to
      the computation of basic earnings per share except that the weighted
      average number of common stocks 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 the period.

      Uses of estimates

      The preparation of the Company's financial statements in conformity with
      US GAAP requires the management to make estimates and assumptions that
      affect the amounts reported in the financial statements and accompanying
      notes. Actual amounts could differ from those estimates.

      Allowance for doubtful accounts

      The Company provides an allowance for doubtful accounts equal to the
      estimated uncollectable amounts. The Company's estimate is based on
      historical collection experience and a review of the current status of
      trade accounts receivable. It is reasonably possible that the Company's
      estimate of the allowance for doubtful accounts will change. Accounts
      receivable are presented net of an allowance for doubtful accounts of
      US$612,033 and US$277,129 as of December 31, 2003 and 2002 respectively.

      Segment information

      Operating segments are defined as components of a company about which
      separated financial information is available that is evaluated regularly
      by the operating decision maker in deciding how to allocate resources and
      in assessing performance. The Company operates in a single business
      segment of manufacturing and selling of paper products which are sold in
      the PRC. There are no reportable business or geographical segments
      identified and no segment information is disclosed accordingly.

      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 standards

      There are no new accounting pronouncements for which adoption is expected
      to have a material effect on the Company's financial statements.


                                       50
<PAGE>

Yantai Dahua Holdings Company Limited
(Formerly Equity Finance Holding Corporation)

Notes to the Financial Statements
================================================================================

6.    PROVISION FOR INCOME TAXES

      The Company is subject to income taxes on an entity basis on income
      arising in or derived from the tax jurisdictions in which it operates.

      The subsidiary is established and is carrying on business in the PRC. The
      subsidiary is subject to the PRC enterprise income tax at a rate of 24%.

      Income tax expense is comprised of the following:

                                                                    Period from
                                                                    February 1,
                                                                           2002
                                                                       (date of
                                                                  incorporation)
                                                    Year ended               to
                                                  December 31,     December 31,
                                                          2003             2002
                                                           US$              US$

      Current tax                                       27,582           25,446
      Deferred tax                                     293,553          122,461
                                                 -------------    -------------

      Income tax expenses                              321,135          147,907
                                                 =============    =============

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

                                                               %              %

      Statutory rate                                          24             24
      Non-deductible activities                                9              6
                                                     -----------    -----------

      Effective tax rate                                      33             30
                                                     ===========    ===========

      Components of the Company's deferred tax liabilities are as follows:

                                                         As of December 31,
                                                     --------------------------
                                                            2003           2002
                                                             US$            US$

      Deferred sales of goods                             60,909         36,032
      Depreciation                                       115,411         68,049
      Capitalized inventory costs                        399,356        202,389
      Others                                              35,245         10,897
                                                     -----------    -----------

                                                         610,921        317,367
                                                     ===========    ===========


                                       51
<PAGE>

Yantai Dahua Holdings Company Limited
(Formerly Equity Finance Holding Corporation)

Notes to the Financial Statements
================================================================================

7.    INVENTORIES

      Inventories comprise the following:

                                                          As of December 31,
                                                     --------------------------
                                                            2003           2002
                                                             US$            US$

      Raw materials                                      847,194      1,148,035
      Finished goods                                   1,244,139        514,038
                                                     -----------    -----------

                                                       2,091,333      1,662,073
                                                     ===========    ===========

8.    PROPERTY AND EQUIPMENT

                                                          As of December 31,
                                                     --------------------------
                                          Estimated
                                            useful
                                            lives
                                          ---------         2003           2002
                                            Years            US$            US$
      Cost
        Buildings and fixtures              20-50      4,553,553      4,148,088
        Plant and machinery                 10-25     11,729,095      9,868,128
        Motor vehicles                       10          273,486        279,586
                                                     -----------    -----------

                                                      16,556,134     14,331,802

      Accumulated depreciation                        (5,485,374)    (4,517,360)
                                                     -----------    -----------

      Property and equipment, net                     11,070,760      9,814,442
                                                     ===========    ===========

9.    BANKING FACILITIES

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

                                                          As of December 31,
                                                     --------------------------
                                                            2003           2002
                                                             US$            US$
      Facilities granted
      Committed credit lines                           5,212,166      4,552,935
                                                     ===========    ===========

      Utilized facilities
      Committed credit lines                           5,212,166      3,613,075
                                                     ===========    ===========

      Unutilized facilities
      Committed credit lines                                  --        939,859
                                                     ===========    ===========

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


                                       52
<PAGE>

Yantai Dahua Holdings Company Limited
(Formerly Equity Finance Holding Corporation)

Notes to the Financial Statements
================================================================================

9.    BANKING FACILITIES (CONTINUED)

      The Group had the following banking facilities:

<TABLE>
<CAPTION>
                                                                              As of December 31,
                                                                         --------------------------
                                                                                2003           2002
                                                                                 US$            US$
<S>                                                                        <C>            <C>
      Collateralized by guarantee of a third party (note)                  2,066,000        759,629
      Collateralized by certain property and equipment of the Company
         and guarantee of a third party (note)                             3,146,166      3,628,800
      Collateralized by certain property and equipment of the Company             --        164,506
                                                                         -----------    -----------

                                                                           5,212,166      4,552,935
                                                                         ===========    ===========
</TABLE>

      Note: These guarantees are given by Yantai Yinhe Knitting Company Limited
            and YLPI separately.

10.   RELATED PARTY TRANSACTIONS

<TABLE>
<CAPTION>
      (a)   Name and relationship of related parties           Existing relationships with the Company
<S>                                                            <C>
            YLPI                                               Joint venturer of a subsidiary
            Muping Iron Cover Manufacturing Factory (MIC)      Branch of YLPI
            Muping Paper Product Manufacturing Factory (MPP)   Branch of YLPI
            Muping Vegetable Processing Factory (MVP)          Branch of YLPI
            Mr. Tang Yuxiang                                   Stockholder / Director
            Mr. Qu Shuzhi                                      Stockholder / Director
</TABLE>

      (b)   Related party transactions

                                                          As of December 31,
                                                     --------------------------
                                                            2003           2002
                                                             US$            US$
            (i)   Due from related parties
                  MVP                                     12,043         13,521
                  MPP                                     27,528         43,390
                  MIC                                    111,762        165,042
                                                     -----------    -----------

                                                         151,333        221,953
                                                     ===========    ===========


                                       53
<PAGE>

Yantai Dahua Holdings Company Limited
(Formerly Equity Finance Holding Corporation)

Notes to the Financial Statements
================================================================================

10.   RELATED PARTY TRANSACTIONS (CONTINUED)

      (b)   Related party transactions (Continued)

                                                          As of December 31,
                                                     --------------------------
                                                            2003           2002
                                                             US$            US$
            (ii)  Due to a related party
                  YLPI (Note 2)                        2,646,576      2,571,843
                                                     ===========    ===========

            (iii) Due to stockholders
                  Mr. Tang Yuxiang                        89,035          2,037
                  Mr. Qu Shuzhi                           16,330          2,037
                                                     -----------    -----------

                                                         105,365          4,074
                                                     ===========    ===========

            Note 1: The amounts due represent non-trade unsecured advances which
                    are interest-free and repayable on demand.

            Note 2: Loans from YLPI amounting to US$2,540,160 and US$2,552,256
                    as of December 31, 2003 and 2002 respectively represented
                    loans borrowed from banks by YLPI on behalf of the Company.

11.   COMMON STOCK

      As of December 31, 2003, the authorized share capital of YDHC is
      US$100,000 consisting of 100,000,000 shares of common stock, par value
      US$0.001 each.

      As described in Note 2 above, pursuant to the Share Exchange agreement,
      YDHC issued 6,000,000 shares of common stock, par value, US$0.001 each.

      By a resolution of the board of directors passed on April 3, 2003, YDHC
      issued two shares for each common stock issued and outstanding, as a stock
      split, for no consideration, to YDHC's stockholders. The additional shares
      would be of the same class of common stock outstanding. After the issuance
      of shares, the stock split of 11,149,000 shares increased the total issued
      and outstanding shares to 33,447,000 shares.


                                       54
<PAGE>

Yantai Dahua Holdings Company Limited
(Formerly Equity Finance Holding Corporation)

Notes to the Financial Statements
================================================================================

12.   STATUTORY RESERVES

      According to the Articles of Association of YDPI, income of the subsidiary
      is distributable to its joint venture partners after transfer to statutory
      reserves. Being a sino-foreign equity joint venture, the subsidiary is
      required to maintain a reserve fund, an enterprise development fund and a
      staff welfare and bonus fund as a percentage of profit after tax.

      Statutory reserves of the subsidiary include the reserve fund and the
      staff welfare and bonus fund. Pursuant to the Articles of Association of
      the subsidiary, the board of directors determines the percentage of
      appropriations to the reserve fund and the staff welfare and bonus fund.
      The reserve fund can be used to make good losses in previous years.

      The staff welfare and bonus fund, which is to be used for the welfare of
      the staff and workers of the subsidiary, is of a capital nature. The
      nature of enterprise development fund is set aside for the future
      development of the subsidiary.

13.   SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION

      Analysis of the net cash inflow in respect of the acquisitions during the
      period from February 1, 2002 (date of incorporation) to December 31, 2002:

                                                                            US$

      Cash consideration (note 3)                                     8,242,836
      Settled by advance from stockholders of ACIL                   (8,242,836)
      Cash and cash equivalents acquired                                846,047
                                                                    -----------

      Cash flows from acquisition of subsidiary                         846,047
                                                                    ===========

14.   RETIREMENT BENEFITS AND OTHER EMPLOYMENT BENEFITS

      As stipulated by the PRC rules and regulations, YDPI participates in a
      retirement plan for all employees. Pursuant to the plan, all retired
      employees of the subsidiary are entitled to certain retirement benefits.
      The subsidiary is required to make contributions to a state sponsored
      retirement plan at approximately 20% of the basic amount which is within
      the range from US$57 to US$278 stipulated by the PRC government. The
      subsidiary determines the base amount with reference to the basic salary
      of its employees and has no further obligations for the actual payments of
      any post-retirement benefits. The state sponsored retirement plan is
      responsible for the entire pension obligations payable to the employees.

      The pension expense for the year ended December 31, 2003 and period ended
      December 31, 2002 was US$191,460 and US$40,620 respectively.


                                       55
<PAGE>

Yantai Dahua Holdings Company Limited
(Formerly Equity Finance Holding Corporation)

Notes to the Financial Statements
================================================================================

15.   OPERATING RISK

      (a)   Country risk

            Currently, revenues are derived from sale of paper products to
            customers in the PRC. The results may be adversely affected by
            changes in the political and social conditions in the 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 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)   Credit risk

            Financial instruments consist principally of temporary cash
            investments and accounts receivable.

            The places its temporary cash investments with various financial
            institutions in the PRC. The management believes that no significant
            credit risk exists as these investments are placed principally with
            government-owned financial institutions in the PRC.

            The business activities and accounts receivable are principally with
            customers in PRC. Management believes that no significant credit
            risk exists as credit losses, when realized, have been within the
            range of management's expectations. No single customer accounted for
            greater than 10% of total revenue in the each year.

            The fair values of all of the financial instruments approximate
            their carrying values.


                                       56
<PAGE>

ITEM 19 EXHIBITS

The following exhibits are filed as part of this annual report on Form 20-F:

      1A    Memorandum of Association of Yantai Dahua Holdings Company Limited
            (formerly known as Equity Finance Holding Corporation)

      1B    Articles of Association of Yantai Dahua Holdings Company Limited
            (formerly known as Equity Finance Holding Corporation)

      23    Consent of Moores Rowland Mazars, Chartered Accountants

      99A   Certification of Tang Yuxiang Pursuant to Section 302 of the
            Sarbanes-Oxley Act of 2002

      99B   Certification of Qu Shuzhi Pursuant to Section 302 of the
            Sarbanes-Oxley Act of 2002

      99C   Certification of Tang Yuxiang Pursuant to Section 906 of the
            Sarbanes-Oxley Act of 2002

      99D   Certification of Qu Shuzhi Pursuant to Section 906 of the
            Sarbanes-Oxley Act of 2002


                                       57
<PAGE>

                                   SIGNATURES

The registrant hereby certifies that it meets all the requirements for filing on
Form 20-F and that it has duly caused and authorized the undersigned to sign
this annual report registration statement on its behalf.

                      YANTAI DAHUA HOLDINGS COMPANY LIMITED


                              By: /s/ Tang Yuxiang
                                  ----------------
                              Tang Yuxiang, Chairman and Chief Executive Officer

Date: December 15, 2005

Name                         Title                             Date


/s/ TANG Yuxiang             Chairman and                      December 15, 2005
TANG Yuxiang                 Chief Executive Officer


/s/ QU Shuzhi                Director and                      December 15, 2005
QU Shuzhi                    Chief Financial Officer


/s/ YU Shou Ping             Director                          December 15, 2005
YU Shou Ping


                                       58