SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  FORM 10-KSB/A
                                 Amendment No. 3

(Mark One)

   [X]   Annual report under Section 13 or 15(d) of the Securities  Exchange Act
         of 1934 for the fiscal year ended December 31, 2003.

   [ ]   Transition  report  under  Section  13 or  15(d)  of the  Securities
         Exchange  Act of 1934 for the  transition  period  from  __________  to
         __________.


         Commission file number: 000-31451
                                 ---------

                           CALIFORNIA CLEAN AIR, INC.
                           --------------------------
        (Exact name of small business issuer as specified in its charter)



             NEVADA                                              75-3090496
             ------                                              ----------
(State or other jurisdiction of                               (I.R.S. Employer
 incorporation or organization)                              Identification No.)



           3790 VIA DE LA VALLE, SUITE 103, DEL MAR, CALIFORNIA 92014
          ------------------------------------------------------------
               (Address of principal executive office) (Zip Code)

                                 (760) 494-6497
                                ----------------
                           (Issuer's telephone number)

       Securities registered under Section 12(b) of the Exchange Act: NONE

          Securities registered under Section 12(g) of the Exchange Act:

                         COMMON STOCK, $.001, PAR VALUE

         Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing requirements for the past 90 days.

                          Yes    XX                  No
                              --------                  --------

As of March 30, 2004 , the number of outstanding  shares of the issuer's  common
stock, $0.001 par value was 1,000,000 shares.




<PAGE>
Check whether the issuer:  (1) filed all reports required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days.

                          Yes    X                   No
                              --------                  --------


Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation SB is not contained in this form and no disclosure will be contained,
to the best of the  registrant's  knowledge,  in definitive proxy or information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB [ ].

         Issuer's revenues of its most recent fiscal year was $ 27,503

         As of  December  31,  2003 , the  number of  outstanding  shares of the
issuer's common stock, $0.001 par value was 1,000,000 shares.


                    DOCUMENTS INCORPORATED BY REFERENCE: NONE

          TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT: Yes [ ] No [x]


Explanatory  Note:  The  purpose  of  this  amendment  is  to  correct  previous
accounting errors regarding acquisition of assets.
































<PAGE>
                                    PART F/S

                          INDEX TO FINANCIAL STATEMENTS

Auditor's Report.............................................................F-2

Balance Sheets as of December 31, 2003 and  2002.............................F-3

Statement of Operations for the years ended December 31, 2003 and  2002......F-5

Statement of Changes in Stockholder's Equity for the years ended December 31,
2003 and 2002................................................................F-6

Statement of Cash Flows for the years ended December 31, 2003 and 2002.......F-7

Notes to Financial Statements................................................F-8











































                                       F-1
<PAGE>
----- ----- -----              ARMANDO C. IBARRA
  A     C     I           CERTIFIED PUBLIC ACCOUNTANTS
----- ----- -----          A PROFESSIONAL CORPORATION


Armando C. Ibarra, C.P.A.         Members of the California Society of Certified
Armando Ibarra, Jr., C.P.A., JD   Public Accountants

                                  Members of the American Institute of
                                  Certified Public Accountants

                                  Members of the Better Business Bureau since
                                  1997


To the Board of Directors
California Clean Air, Inc.


                          INDEPENDENT AUDITORS' REPORT
                          ----------------------------

INDEPENDENT AUDITORS' REPORT

We have audited the accompanying consolidated balance sheets of California Clean
Air, Inc. as of December 31, 2003 (restated) and 2002 and the related statements
of operations, changes in stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the 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 audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of California Clean
Air, Inc. as of December 31, 2003 and 2002, and the results of their operations
and their cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.


/s/ ARMANDO C. IBARRA, CPA
---------------------------------
ARMANDO C. IBARRA, CPA


March 31, 2004
June 22, 2004 (restated)
July 14, 2004 (restated - See Note 9)


Chula Vista, Ca. 91910


                      371 "E" STREET, CHULA VISTA, CA 91910
                     TEL: (619) 422-1348 FAX: (619) 422-1465

                                       F-2
<PAGE>
                           CALIFORNIA CLEAN AIR, INC.
                                 BALANCE SHEETS

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


                                     ASSETS
                                     ------

                                             AS OF            AS OF
                                          DECEMBER 31,      DECEMBER 31,
                                              2003             2002
                                          ------------      ------------


CURRENT ASSETS

   Cash                                  $      3,285      $          -

   Prepaid expenses                             1,417                 -

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


     TOTAL CURRENT ASSETS                       4,702                 -


NET PROPERTY & EQUIPMENT                       96,296                 -

OTHER ASSETS

   Deposits                                     6,649                 -

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


     TOTAL OTHER ASSETS                         6,649                 -

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


                  TOTAL ASSETS           $    107,647      $          -

                                          ============      ============















                                       F-3
<PAGE>
                           CALIFORNIA CLEAN AIR, INC.
                                 BALANCE SHEETS

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


                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
                 ----------------------------------------------

<TABLE>
<CAPTION>
                                                                        AS OF           AS OF
                                                                     DECEMBER 31,    DECEMBER 31,
                                                                         2003            2002
                                                                     ------------    ------------
<S>                                                                  <C>             <C>
CURRENT LIABILITIES
   Accounts payable                                                  $    39,903     $         -
   Accrued payroll and payroll related liabilities                        25,860               -
   Accrued state income taxes                                                800               -
   Capitalized lease obligation - current portion                          5,471               -
                                                                     ------------    ------------

     TOTAL CURRENT LIABILITIES                                            72,034               -

LONG-TERM LIABILITIES
   Capitalized lease obligation                                           31,610               -
   Notes payable to related party                                        265,134          49,531
                                                                     ------------    ------------

     TOTAL LONG-TERM LIABILITIES                                         296,744          49,531

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

TOTAL LIABILITIES                                                        368,778          49,531

STOCKHOLDERS' EQUITY (DEFICIT)
   Preferred stock ( $0.001 par value, 20,000,000 shares
     authorized; 4,000,000 shares issued and outstanding as of
     December 31, 2003)                                                    4,000               -
   Common stock ( $0.001 par value, 100,000,000 shares
     authorized; 1,000,000 and 5,000,000 shares issued and
     outstanding as of December 31, 2003 and 2002, respectively)           1,000           5,000
   Retained earnings (deficit)                                          (266,131)        (54,531)
                                                                     ------------    ------------

     TOTAL STOCKHOLDERS' EQUITY (DEFICIT)                               (261,131)        (49,531)

TOTAL LIABILITIES
                                                                     ------------    ------------

                   & STOCKHOLDERS' EQUITY (DEFICIT)                 $    107,647     $         -
                                                                     ============    ============
</TABLE>





                                       F-4
<PAGE>
                           CALIFORNIA CLEAN AIR, INC.
                            STATEMENTS OF OPERATIONS

                                         YEAR ENDED      YEAR ENDED
                                        DECEMBER 31,    DECEMBER 31,
                                            2003            2002
                                        ------------    ------------
REVENUES
   Sales                               $     27,503    $          -
                                        ------------    ------------

Total Revenues                               27,503               -
                                        ------------    ------------

COST OF REVENUES                             20,863               -
                                        ------------    ------------

GROSS PROFIT                                  6,640               -
                                        ------------    ------------
OPERATING COSTS
   Operating expenses                       212,528          23,110
   Depreciation expense                       4,912               -
                                        ------------    ------------

Total Operating Costs                       217,440          23,110
                                        ------------    ------------

OPERATING INCOME (LOSS)                    (210,800)        (23,110)
                                        ------------    ------------

INCOME (LOSS) BEFORE INCOME TAXES      $   (210,800)   $    (23,110)
                                        ------------    ------------

INCOME TAX (PROVISION) BENEFIT                 (800)              -
                                        ------------    ------------

NET INCOME (LOSS)                      $   (211,600)   $    (23,110)
                                        ------------    ------------

BASIC EARNINGS (LOSS) PER SHARE        $      (0.08)   $      (0.00)
                                        ------------    ------------
WEIGHTED AVERAGE NUMBER OF
 COMMON SHARES OUTSTANDING                 2,621,918      5,000,000
                                        ------------    ------------

DILUTED EARNINGS (LOSS) PER SHARE      $      (0.03)
                                        ------------    ------------
WEIGHTED AVERAGE OF DILUTED
 COMMON SHARES OUTSTANDING                 7,378,082
                                        ------------    ------------









                                       F-5
<PAGE>
                           CALIFORNIA CLEAN AIR, INC.
                        STATEMENT OF STOCKHOLDERS' EQUITY
                   FROM DECEMBER 31, 2001 TO DECEMBER 31, 2003

<TABLE>
<CAPTION>
-------------------------------- -------------- ------------- ---------------- -------------- ---------------- ---------------

                                   PREFERRED     PREFERRED        COMMON          COMMON         RETAINED          TOTAL
                                    SHARES         STOCK          SHARES           STOCK         EARNINGS
                                                                                                 (DEFICIT)
-------------------------------- -------------- ------------- ---------------- -------------- ---------------- ---------------

<S>                              <C>             <C>                <C>                <C>            <C>             <C>
 BALANCE, DECEMBER 31, 2001                  -   $         -        5,000,000          5,000          (31,421)        (26,421)

 Net loss for the year ended
 December 31, 2002                                                                                    (23,110)        (23,110)
-------------------------------- -------------- ------------- ---------------- -------------- ---------------- ---------------

 BALANCE,  DECEMBER 31, 2002                 -             -        5,000,000          5,000          (54,531)        (49,531)

================================ ============== ============= ================ ============== ================ ===============

 Common stock exchanged for
 convertible preferred stock         4,000,000         4,000       (4,000,000)        (4,000)                               -

 Net loss for the year ended
 December 31, 2003                                                                                   (211,600)       (211,600)
-------------------------------- -------------- ------------- ---------------- -------------- ---------------- ---------------

 BALANCE,  DECEMBER 31, 2003         4,000,000   $     4,000        1,000,000   $      1,000   $     (266,131)  $    (261,131)

================================ ============== ============= ================ ============== ================ ===============
</TABLE>
























                                       F-6
<PAGE>
                           CALIFORNIA CLEAN AIR, INC.
                            STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                   YEAR ENDED          YEAR ENDED
                                                                  DECEMBER 31,        DECEMBER 31,
                                                                      2003                2002
                                                                -----------------   -----------------
<S>                                                             <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES
                NET INCOME (LOSS)                               $       (211,600)  $         (23,110)
        DEPRECIATION EXPENSE                                               4,912                   -


        (INCREASE) DECREASE IN PREPAID EXPENSES (1,417)

             (INCREASE) DECREASE IN DEPOSITS                              (6,649)
        INCREASE (DECREASE) IN ACCOUNTS PAYABLE                           39,903                   -

    Increase (decrease) in accrued payroll and payroll related
    liabilities                                                           25,860                   -

    Increase (decrease) in accrued state income taxes                        800                   -

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

    NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES                 (148,191)            (23,110)
CASH FLOWS FROM INVESTING ACTIVITIES

    NET SALE (PURCHASE) OF PROPERTY AND EQUIPMENT                       (101,208)                  -


    NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES                 (101,208)                  -
CASH FLOWS FROM FINANCING ACTIVITIES

    CHANGE IN CAPITALIZED LEASE OBLIGATIONS                               37,081                   -

    CHANGE IN NOTES PAYABLE TO RELATED PARTY                             215,603              23,110


    NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                  252,684              23,110


    NET INCREASE (DECREASE) IN CASH                                        3,285                   -

    CASH AT BEGINNING OF YEAR                                                  -                   -


    CASH AT END OF YEAR                                         $          3,285   $               -

    SUPPLEMENTAL  CASH FLOW DISCLOSURES:

    CASH PAID DURING YEAR FOR INTEREST                          $              -   $               -

    CASH PAID DURING YEAR FOR TAXES                             $              -   $               -
</TABLE>

                                       F-7
<PAGE>
                           CALIFORNIA CLEAN AIR, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       AS OF DECEMBER 31, 2003 (RESTATED)


NOTE 1.  ORGANIZATION AND DESCRIPTION OF BUSINESS

General

California Clean Air, Inc. (the "Company") is incorporated under the laws of the
State of Nevada.  From June 2, 2000, the date of original  incorporation,  until
August 21, 2003,  the Company was seeking a merger,  exchange of capital  stock,
participate in an asset  acquisition,  or any other business  combination with a
domestic or foreign  private  business and had not commenced any formal business
operations.  The  Company  was  considered  to be in the  development  stage and
accounted and reported its activities  using  Statement of Financial  Accounting
Standards No, 7, "Accounting and Reporting by Development Stage Enterprises". On
August 21, 2003, the Company's  subsidiary began operating a test-only  vehicles
emissions inspection facility.


NOTE 2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Accounting Method

The Company's  policy is to use the accrual  method of accounting to prepare and
present financial  statements,  which conform to generally  accepted  accounting
principles (GAAP). The Company has elected a December 31, year-end.

b. Basis of Consolidation

On November 21, 2002,  the Company  organized  Smog Centers of  California,  LLC
(`Smog  Centers"),  an Oregon limited liability  company.  California Clean Air,
Inc. is the sole owner of Smog Centers. California Clean Air, Inc. owns title to
all  assets and  liabilities  of the  consolidated  financial  statements.  Smog
Centers was organized to acquire,  own and operate test-only  vehicles emissions
inspection  facilities  in the State of  California  under  their  Smog Check II
program.  Smog Centers  currently  operates  two  test-only  vehicles  emissions
inspection facilities.

c. Cash Equivalents

The Company  considers  all highly  liquid  investments  with  maturity of three
months or less when purchased to be cash equivalents.

d. Property and Equipment

Property,  equipment  and  leasehold  improvements  are  stated  at  costs  less
accumulated  depreciation or amortization.  Maintenance and repairs,  as well as
renewals for minor amounts are charged to expenses.  Renewals and betterments of
substantial  amount are  capitalized,  and any  replaced or  disposed  units are
written off.







                                       F-8
<PAGE>
                           CALIFORNIA CLEAN AIR, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       AS OF DECEMBER 31, 2003 (RESTATED)


NOTE 2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

e. Advertising

The  Company  expenses  the cost of  advertising  as it is  incurred  avertising
expense was approximately $19,497 for the year ended December 31, 2003.

f. Estimates

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires 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  reporting  period.
Actual results could differ from those estimates. In accordance with FASB 16 all
adjustments are normal and recurring.

g. Revenue Recognition and Deferred Revenue

Smog Centers generates revenue through vehicle test-only emissions facilities in
the State of California under their Smog Check II program. Revenue is recognized
when a sale is made.

h. Basic Earnings per Share

In February  1997,  the FASB issued SFAS No. 128,  "Earnings  Per Share",  which
specifies the computation, presentation and disclosure requirements for earnings
(loss) per share for entities  with  publicly  held common  stock.  SFAS No. 128
supersedes the provisions of APB No. 15, and requires the  presentation of basic
earnings (loss) per share and diluted earnings (loss) per share. The Company has
adopted the provisions of SFAS No. 128 effective June 2, 2000 (inception).

Basic net loss per share  amounts is computed by dividing  the net income by the
weighted average number of common shares outstanding. Diluted earnings per share
are the same as basic  earnings  per share due to the lack of dilutive  items in
the Company.

i. Income Taxes

The Company  accounts  for income  taxes using the asset and  liability  method.
Under the asset and liability  method,  deferred income taxes are recognized for
the tax consequences of "temporary  differences" by applying  enacted  statutory
tax rates  applicable  to future  years to  differences  between  the  financial
statement carrying amounts and the tax bases of existing assets and liabilities.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management,  it is more likely than not that some portion or all of the deferred
tax assets will not be realized.







                                       F-9
<PAGE>
                           CALIFORNIA CLEAN AIR, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             AS OF DECEMBER 31, 2003


NOTE 2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

j. Reporting Consolidated Comprehensive Income (Loss)

The Company reports and displays  consolidated  comprehensive  income (loss) and
Its components as separate amounts in the consolidated financial statements with
the same prominence as other financial  statements.  Consolidated  comprehensive
Income  (loss)  includes all changes in equity during the year that results from
recognized  transactions and other economic events other than  transactions with
owners. There were no components of consolidated  comprehensive income to report
for the years ended December 31, 2003 and 2002.

k.  Segment Reporting

The Company reports information about operating segments and related disclosures
about  products  and  services,  geographic  areas  and  major  customer.  using
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of en Enterprise and Related Information".  The Company views its operations and
manages its business in principally one segment,  test-only  vehicles  emissions
inspection facilities in the State of California.

l.  Principles of Consolidation

The Consolidated  financial  statements include the accounts of California Clean
Air, Inc., the parent company) and Smog Centers of California. The Subsidiary is
a  wholly  owned   subsidiary.   All  significant   intercompany   balances  and
transactions have been eliminated in consolidation.



























                                      F-10
<PAGE>
                           CALIFORNIA CLEAN AIR, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             AS OF DECEMBER 31, 2003


NOTE 2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

NEW ACCOUNTING PRONOUNCEMENTS:

In April 2002,  the Financial  Accounting  Standards  Board issued SFAS No. 145,
Rescission of FASB Statements No. 4, 44 and 64,  Amendment of FASB Statement No.
13, and  Technical  Corrections  ("SFAS  145").  Among  other  things,  SFAS 145
eliminates the  requirement  that gains and losses from the  extinguishments  of
debt be  classified  as  extraordinary  items.  SFAS 145 is effective for fiscal
years beginning after May 15, 2002, with early adoption permitted.  The adoption
of  SFAS  145 did not  have a  material  effect  on the  Company's  consolidated
financial statements.

In June 2002, the Financial  Accounting Standards Board issued SFAS No. 146. The
standard requires  companies to recognize costs associated with exit or disposal
activities  when they are incurred rather than at the date of a commitment to an
exit or disposal  plan.  The  adoption of SFAS 146 did not have an effect on the
Company's consolidated financial statements.

In October 2002, the Financial  Accounting  Standards Board issued SFAS No. 147,
"Acquisitions  of  Certain  Financial   Institutions  -  an  amendment  of  FASB
Statements  No. 72 and 144 and FASB  interpretation  No.  9".  SFAS 147  removes
acquisitions of financial  institutions  from the scope of both Statement 72 and
interpretation  9 and  requires  that those  transactions  be  accounted  for in
accordance  with FASB  Statements No. 141,  Business  Combinations,  and No. 142
Goodwill and Other  Intangible  Assets.  Thus, the requirement in paragraph 5 of
Statement 72 to recognize  (and  subsequently  amortize)  any excess of the fair
value of  liabilities  assumed over the fair value of tangible and  identifiable
intangible  assets  acquired  as an  unidentifiable  intangible  asset no longer
applies to acquisitions  within the scope of this Statement.  In addition,  this
Statement  amends FASB  Statement  No. 144,  Accounting  for the  Impairment  or
Disposal   of   Long-Lived   Assets,   to   include   in  its  scope   long-term
customer-relationship  intangible  assets  of  financial  institutions  such  as
depositor  and borrower  relationship  intangible  assets and credit  cardholder
intangible assets. Consequently, those intangible assets are subject to the same
undiscounted cash flow  recoverability  test and impairment loss recognition and
measurement  provisions that Statement 144 requires for other long-lived  assets
that are held and used.  SFAS 147 is effective  October 1, 2002. The adoption of
SFAS  147 did  not  have  an  effect  on the  Company's  consolidated  financial
statements.

In December 2002, the Financial  Accounting Standards Board issued SFAS No. 148,
"Accounting  for  Stock-Based  Compensation - Transition and  Disclosure"  (SFAS
148). SFAS 148 amends SFAS No. 123  "Accounting  for  Stock-Based  compensation"
(SFAS 123), to provide  alternative methods of transition for a voluntary change
to  the  fair  value  based  method  of  accounting  for  stock-based   employee
compensation.  In addition,  SFAS 148 amends the disclosure requirements of SFAS
123 to  require  prominent  disclosures  in both  annual and  interim  financial
statements about the method of accounting for stock-based employee  compensation
and the effect of the method used on reported results. SFAS 148 is effective for
fiscal  years  beginning  after  December  15,  2002.  The  interim   disclosure
provisions are effective for financial reports containing  financial  statements
for interim periods  beginning after December 15, 2002. The adoption of SFAS 148
did not have an effect on the Company's consolidated financial statements.

                                      F-11
<PAGE>
                           CALIFORNIA CLEAN AIR, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             AS OF DECEMBER 31, 2003


NOTE 3. PROPERTY & EQUIPMENT

Property  is  stated  at cost.  Additions,  renovations,  and  improvements  are
capitalized.  Maintenance  and repairs,  which do not extend  asset  lives,  are
expensed as incurred. Depreciation is provided on a straight-line basis over the
estimated useful lives ranging from 27.5 years for commercial rental properties,
5 years for tenant improvements, and 5 - 7 years on furniture and equipment.

                                                            DECEMBER 31,
                                                                2003
                                                       -----------------------
                Office equipment                                $      11,708
                Equipment                                              89,500
                                                       -----------------------
                                                                $     101,208
                Less Accumulated Depreciation                          (4,912)
                                                       -----------------------
                Net Property and Equipment                      $      96,296
                                                       =======================

Depreciation for the year ending December 31, 2003 was $4,912.


NOTE 4.  CAPITALIZED LEASE OBLIGATION

Smog Centers has a  non-cancelable  lease obligation for the purchase of vehicle
emission inspection equipment. Under the terms of the agreement, Smog Centers is
obligated to pay $899 per month through October 2008.

Aggregate minimum future lease payments under capitalized  leases are as follows
for the years ending subsequent to December 31, 2003:

           Years ending December 31:
           -------------------------

                 2004                                              $ 10,788
                 2005                                                10,788
                 2006                                                10,788
                 2007                                                10,788
                 2008  (through October 2008)                         8,990
                                                          ------------------

           Total minimum lease payments                              52,142
           Less amount representing interest                         15,061
                                                          ------------------

           Present value of minimum lease payments                 $ 37,081
                                                          ==================






                                      F-12
<PAGE>
                           CALIFORNIA CLEAN AIR, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             AS OF DECEMBER 31, 2003


NOTE 5. OPERATING LEASE COMMITMENTS

Smog  Centers has entered  into two  non-cancelable  lease  agreements  for smog
center  facilities,  under the terms of the agreements,  a monthly lease payment
for the Lemon  Grove  location  of $1,500 as of  November  14,  2003 and through
November 15 2006;  $1,700 from November 15, 2006 through  November 14, 2007; and
$1,800 from November 15, 2007 through  November 14, 2008.  Also, a monthly lease
payment for the Escondido  location of $1,500 through July 01, 2006. The Company
has an  option  to  extend  the  terms  of the  lease on both  locations  for an
additional five (5) years.

Aggregate minimum future lease payments under these non-cancelable leases are as
follows for the years ending subsequent to December 31, 2003:

           Years ending December 31:

                 2004                                             $ 36,000
                 2005                                               36,200
                 2006                                               27,500
                 2007                                               20,600
                 2008                                               19,800
                                                          -----------------

           Total minimum lease payments                          $ 140,100
                                                          =================

Lease  expense  under  the  above  non-cancelable  lease  agreements  aggregated
approximately $8,250 for the year ending December 31, 2003.


NOTE 6.  TRANSACTIONS WITH RELATED PARTIES

The operating expenses of California Clean Air, Inc., consisting  principally of
business investment activities, and they have been paid for by advances received
from  an  individual  considered  to  be  a  related  party.  The  advances  are
non-interest bearing and are due on demand;  however, this individual has orally
agreed not to demand  repayment  until cash is available from operations and not
before  February  2006.  As of  December  31,  2003 the note  payable  amount is
$265,134.















                                      F-13
<PAGE>
                           CALIFORNIA CLEAN AIR, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             AS OF DECEMBER 31, 2003


NOTE 7. BASIC & DILUTED INCOME / (LOSS) PER COMMON SHARE

Basic gain (loss) per common  share has been  calculated  based on the  weighted
average number of shares of common stock outstanding during the period.  Diluted
gain (loss) per common share has been calculated  based on the weighted  average
number of shares of common and preferred  stock  outstanding  during the period.
The  variance  between  basic and diluted  weighted  average is the  addition of
preferred stock in the calculation of diluted weighted average per share.

<TABLE>
<CAPTION>
                                                               DECEMBER 31,         DECEMBER 31,
                                                                   2003                 2002
                                                           -------------------- -------------------
<S>                                                        <C>                  <C>
NET INCOME (LOSS) FROM OPERATIONS                          $         (211,600)  $         (23,130)

BASIC INCOME / (LOSS) PER SHARE                            $            (0.08)  $           (0.00)
                                                           ==================== ===================

WEIGHED AVERAGE NUMBER OF SHARES OUTSTANDING                        2,621,918           5,000,000
                                                           ==================== ===================

                                                              DECEMBER 31,
                                                                   2003
                                                           --------------------

NET INCOME (LOSS) FROM OPERATIONS                          $         (211,600)

DILUTED INCOME / (LOSS) PER SHARE                          $            (0.03)
                                                           ====================

DILUTED WEIGHED AVERAGE NUMBER OF SHARES OUTSTANDING                7,378,082
                                                           ====================
</TABLE>

As of December 31, 2003 there have not been any preferred  dividends issued that
would reduce earnings available to common shareholders.


NOTE 8.  INCOME TAXES

Deferred income taxes consisted of the following:

                                                     DECEMBER 31,
                                                 2003            2002
                                             --------------  -------------
    Deferred tax asset:
    Net operating loss carryover             $    266,131    $   (54,531)
                                             --------------  -------------
                                                  266,131         54,531
    Valuation allowance                          (266,131)       (54,531)


                                      F-14
<PAGE>
                           CALIFORNIA CLEAN AIR, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             AS OF DECEMBER 31, 2003


                                             --------------  -------------
    Net deferred income taxes                        -0-            -0-
                                             ==============  =============


Net  operating  losses  expire  twenty years from the time they are incurred for
federal tax purposes.


NOTE 9.  RECLASSIFICATION OF GOODWILL TO EQUIPMENT

On August 21, 2003, Smog Centers acquired smog-testing assets for $60,000. These
assets are currently used in the Company's Lemon Grove  location,  Broadway Smog
Check.

The acquisition can be summarized as follows:

         Fair value of vehicle emission inspection equipment       $  60,000
                                                                -------------
         Cash paid                                                 $  60,000
                                                                =============

This  transaction  had previously  been  accounted for in the audited  financial
statements in the Company's Form 10-KSB for the fiscal year ending  December 31,
2003, as a business combination,  which included $20,000 in goodwill and $40,000
in equipment.  Upon further review,  it was determined that this transaction was
an asset  purchase  and  $20,000 in  goodwill  was  reclassified  as  equipment.
Amortization  expense being  recognized over a 3 year period was reclassified as
depreciation  expense  being  recognized  over  a 5  year  period.  The  audited
financial statements for the fiscal year ending December 31, 2003, were restated
to reflect these changes. The impact on the financial statements was to decrease
total  operating  costs by $6,514  since the  depreciation  expense  recognition
period of 5 years is longer than the amortization  expense recognition period of
3 years.  Because  total  operating  costs  decreased for the fiscal year ending
December 31,  2003,  assets  reflected  as of December  31,  2003,  increased by
$6,514.



NOTE 10.  OPERATING SEGMENTS

<TABLE>
<CAPTION>
               FOR THE YEAR ENDED 2003                      CALIFORNIA               SMOG CENTERS OF
                                                          CLEAN AIR, INC.            CALIFORNIA, LLC
                                                     -------------------------- ---------------------------

<S>                                                    <C>                        <C>
      Total Revenue                                    $                    0     $             27,503
      Costs of Revenues                                                     0                  (20,863)
                                                     -------------------------- ---------------------------

      Gross Profit                                                          0                    6,640
      Total Operating Costs                                           (60,885)                (156,555)
                                                     -------------------------- ---------------------------

      Operating income (loss)                                         (60,885)                (149,915)

      Total other income & (expenses)                                       0                        0
                                                     -------------------------- ---------------------------
      Income (loss) before income tax
            and extraordinary items                    $              (60,885)    $           (149,915)
                                                     ========================== ===========================
</TABLE>

                                      F-15
<PAGE>
                           CALIFORNIA CLEAN AIR, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             AS OF DECEMBER 31, 2003


NOTE 11.  TRANSACTIONS WITH STOCKHOLDERS

Effective  December 20, 2002, the authorized  capital stock of California  Clean
Air, Inc. was increased to 20,000,000  shares of preferred stock and 100,000,000
shares of common stock and changed the par value of each class of capital  stock
from $.0001 per share to $.001 per share.  All share  amounts have been restated
in the accompanying consolidated financial statements.

On May 29, 2003. shareholders who owned 4,000,000 shares of California Clean Air
Inc.'s common stock agreed to exchange their shares for 4,000,000  shares of the
Company's Series A Convertible Preferred Stock. The Company's Series A Preferred
Stock may be voting or have other rights and preferences as determined from time
to time by the Board of Directors.


NOTE 12.  STOCKHOLDERS' EQUITY

The  stockholders'  equity section of the Company contains the following classes
of capital stock as of December 31, 2003.

(A) Preferred stock, $0.001 par value;  20,000,000 shares authorized:  4,000,000
shares issued and outstanding.

(B) Common stock, $ 0.001 par value;  100,000,000 shares  authorized:  1,000,000
shares issued and outstanding as of December 31, 2003.





























                                      F-16
<PAGE>
                           CALIFORNIA CLEAN AIR, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             AS OF DECEMBER 31, 2003

NOTE 13.  ISSUANCE OF SHARES FOR SERVICES - STOCK OPTIONS

The company  has a  nonqualified  stock  option  plan,  which  provides  for the
granting of options to key employees,  consultants,  and nonemployee's directors
of the Company.  These  issuances shall be accounted for based on the fair value
of the  consideration  received  or the  fair  value of the  equity  instruments
issued,  whichever  is more  readily  determinable.  The  Company has elected to
account for the stock option plan in  accordance  with  paragraph 30 of SFAS 123
were the  compensation  to employees  should be recognized over the period(s) in
which the related employee  services are rendered.  In accordance with paragraph
19 of SFAS 123 the fair value of a stock option  granted is  estimated  using an
option-pricing model.

As of December 31, 2003 there were no stock options issued or outstanding.


NOTE 14.  DEVELOPMENT STAGE ENTERPRISE

On  August  21,  2003,  the  Company  was  no  longer  considered  to be in  the
development  stage. The deficit  accumulated  during the development  stage from
June 2, 2000 (inception)  through August 20, 2003 was $54,731 and is included in
retained deficit in the accompanying consolidated balance sheet.

































                                      F-17