**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549





**FORM
      10-KSB/A**





(Mark
      One)


x ANNUAL
      REPORT
      PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For
      the
      fiscal year ended: December
      31, 2005





o TRANSITION
      REPORT
      PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For
      the
      transition period from ____________ to _____________







**Commission
      File No. 000-30183**





**MINGHUA
      GROUP INTERNATIONAL HOLDINGS L****IMITED**





(Name
      of
      small business issuer in its charter)





NEW
                YORK
            13-3874771(State
                or other jurisdiction of incorporation or organization)
            (I.R.S.
                Employer Identification No.)





8/F
      East
      Area, Century Golden Resources Business Center


69
      Banjing Road, Haidian District


Beijing,
      People’s Republic of China 100089





(Address
      of Principal Executive Offices)





+86-10-884-52568


(Registrant’s
      Telephone Number, Including Area Code)





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





Securities
      registered under Section 12(g) of the Exchange Act: Common stock, $.01 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 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
o





Check
      if
      no disclosure of delinquent filers in response to Item 405 of Regulation S-B
      is
      contained in this form, and no disclosure will be contained, to the best of
      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. x





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).  Yes
o No
x




The
      issuer’s revenues for its most recent fiscal year are $353,478.




The
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates computed by reference to the average bid and asked price of
      such
      common equity, as of April 13, 2006 is:$2,285,920.




The
      number of shares outstanding of the issuer's common stock as of April 13, 2006
      is 145,496,004.










**FORWARD-LOOKING
      STATEMENTS**





This
        report contains forward-looking statements and information relating to us
        that
        are based on the beliefs of our management as well as assumptions made by,
        and
        information currently available to, our management. When used in this report,
        the words “anticipate”, “believe”, “estimate”, “expect”, “intend”, “plan” and
        similar expressions, as they relate to us or our management, are intended
        to
        identify forward-looking statements. These statements reflect management's
        current view of us concerning future events and are subject to certain risks,
        uncertainties and assumptions, including among many others: our potential
        inability to raise additional capital, the possibility that third parties
        hold
        proprietary rights that preclude us from marketing our products, the emergence
        of additional competing technologies, changes in domestic and foreign laws,
        regulations and taxes, changes in economic conditions, uncertainties related
        to
        China's legal system and economic, political and social events in China,
        a
        general economic downturn, a downturn in the securities markets, Securities
        and
        Exchange Commission regulations which affect trading in the securities of
“penny
        stocks,” and other risks and uncertainties. Should any of these risks or
        uncertainties materialize, or should underlying assumptions prove incorrect,
        actual results may vary materially from those described in this report as
        anticipated, estimated or expected.





**PART
      I**





**ITEM
      1. DESCRIPTION OF BUSINESS**




***General***





Our
      corporate name is Minghua Group International Holdings Limited. We are a New
      York corporation that was incorporated as United Network Technologies, Inc.
      on
      February 29, 1996. On October 2, 1998, we changed our name to Panagra
      International Corporation and on August 2, 2001 we changed our name to Minghua
      Group International Holdings Limited. From our inception until 2001, we were
      relatively inactive with limited operations. To date we have generated only
      very
      limited revenues.





In
      2001,
      we acquired Minghua Group International Holding (Hong Kong) Limited, a
      corporation existing under the laws of the Hong Kong Special Administrative
      Region of the Peoples Republic of China (Minghua Hong Kong), whose sole material
      asset was an 85% indirect equity interest in Shenzhen Minghua Environmental
      Protection Vehicles Co. Ltd, a corporation existing under the laws of the
      Peoples Republic of China (Environmental Vehicle Company). On January 29, 2004
      our subsidiary, Minghua Hong Kong, acquired 100% of the outstanding equity
      of
      Asia Key Group Limited, a Hong Kong corporation (Asia Key) from Jinmou Li,
      the
      son of our former Chairman Chuquan Li, for a purchase price of RMB 8,200,000
      (approximately, US$990,638) and 28,210,000 shares of our Common Stock. Asia
      Key’s only asset is the remaining 15% equity interest in the Environmental
      Vehicle Company. Therefore, we indirectly own 100% of the outstanding equity
      of
      the Environmental Vehicle Company.





Through
      our indirect subsidiary, the Environmental Vehicle Company, we have been focused
      on the development and commercialization of mass transit, hybrid electric
      vehicles, primarily buses, since 2001. Our hybrid vehicles are powered by a
      combination of a combustion diesel engine and electric power systems based
      upon
      our patented technology. Prototype hybrid vehicles and a limited number of
      other
      vehicles have been produced, but to date we have made only very limited
      sales.








On
        March
        13, 2003, our indirect subsidiary, Ming Hua Environmental Protection Science
        and
        Technology Limited, a Hong Kong limited company (Minghua EPST), entered into
        the
        Acquisition Agreement with Good View Bus Manufacturing(Holdings) Company
        Limited, a Hong Kong limited company (Good View), Eagle Bus Development Limited,
        a Hong Kong limited company (Eagle), and Mr. Sin Keung Kok (Mr. Kok), relating
        to the acquisition of an 89.8% equity interest in the Guangzhou City View
        Bus
        Installation Company, a People's Republic of China limited company (the
        Guangzhou Bus Installation Company). The Guangzhou Bus Installation Company
        manufactures motor coaches for domestic sale in China and for export under
        the
“Eagle” brand name.





The
      acquisition of the equity interest was effective on January 2004 after obtaining
      certain governmental approvals. The parties to the Acquisition Agreement entered
      into, and simultaneously consummated the transactions contemplated by, a
      supplemental agreement (the Supplemental Agreement), which replaced the original
      Acquisition Agreement. Pursuant to the Supplemental Agreement, instead of
      acquiring the Guangzhou Bus Installation Company directly, Minghua EPST acquired
      a controlling interest in the entities that control the Guangzhou City View
      Bus
      Installation Company. More specifically, Minghua EPST acquired Good View (which
      owns 23.8% of the Guangzhou Bus Installation Company) and Eagle (which owns
      66%
      of the Guangzhou Bus Installation Company), respectively. Therefore, Minghua
      EPST is now the indirect owner of an 89.8% equity interest in the Guangzhou
      Bus
      Installation Company. The remaining 10.2% is held by Guangzhou Public Automobile
      No. 2 Company.





The
      purchase price of RMB14,000,000 (US$1,690,474) was determined by the parties
      based upon the market value of the assets and business potential of Guangzhou
      Bus Installation Company.





On
        June
        16, 2004, we formed a new indirect wholly-owned subsidiary, Beijing China
        Cardinal Real Estate Consulting Co. Ltd. or Beijing China Cardinal. Beijing
        China Cardinal is a corporation organized under the laws of the People’s
        Republic of China. We intend to leverage the real estate development experience
        of our board of directors and utilize Beijing China Cardinal as a vehicle
        to
        make real estate investments in the People’s Republic of China in the future.
        This marks a new business line for us. However, we fully intend to continue
        to
        develop our intellectual property and other assets relating to
        environmentally-friendly gas-electric vehicles.





***The
      Environmental Vehicle Company***





The
      Environmental Vehicle Company is our primary operating subsidiary, and its
      main
      business is the development, production and sale of hybrid vehicles. In
      September 2000, the Environmental Vehicle Company successfully developed its
      first prototype hybrid electric bus. Since then, in May 2004, the Environmental
      Vehicle Company developed its second generation hybrid vehicle. Since developing
      our first prototype hybrid vehicle in September 2000, we have only sold a total
      of 2 hybrid vehicles.








***Products
      and Product Development***





Environmentally-Friendly
      Vehicles





Our
      second generation hybrid bus was developed between November 2003 and June 2004.
      We manufactured two prototypes that run on a combination of LPG and an electric
      power system. One is a hybrid passenger bus that would be utilized as an urban
      public bus and the other is a tourist charter bus.




The
      performance parameters for the prototypes are as follows:




Number
                of Seats
            45Maximum
                vehicle speed:
            90
                kphDistance
                utilizing electric power exclusively:
            More
                than 40 kmFuel
                consumption per 100 km:
            Less
                than 50 litersMaximum
                hybrid driving efficiency:
            160
                kwContinuous
                driving distance:
            More
                than 400 kmMaximum
                incline:
            4
                degrees0-50
                km speedup time:
            Less
                than 30 sec




During
      normal operation our second generation hybrid operates exclusively on its
      electric power system. Once the vehicle attains a speed that is greater than
      20km per hour, the vehicle switches to its LPG propelled engine. Once the engine
      generates an affluent driving force, the electric motor is charged and ready
      to
      work at anytime the speed exceeds 70km per hour.




Diesel
      Buses





On
      March
      13, 2003, we agreed to acquire a controlling interest in the Guangzhou City
      View
      Bus Installation Company, a People’s Republic of China limited company (the
      Guangzhou Bus Installation Company). The Bus Installation Company had
      historically been a manufacturer of standard diesel buses. As our subsidiary,
      the Guangzhou Bus Installation Company now also manufactures our prototype
      hybrid vehicles. We sold 6 standard diesel buses in 2005 and 5 standard diesel
      buses in 2004. We will not manufacture any more diesel buses. When we acquired
      the Guangzhou Bus Installation Company we also acquired their inventory of
      diesel buses and parts and once we sell off this inventory, we will no longer
      sell standard diesel buses.





***Manufacturing
      Our Products***





We
      own
      approximately 90% of the Guangzhou Bus Installation Company. The remaining
      approximately 10% is held by Guangzhou Public Automobile No. 2
      Company.








As
      a
      result of the acquisition of the Guangzhou Bus Installation Company, we now
      have
      the ability to manufacture our products. In 2005 we manufactured 8 diesel buses
      using an inventory of parts that we acquired as part of our acquisition of
      the
      Guangzhou Bus Installation Company.





***Market***





We
      believe that the global market is favorable for the introduction of hybrid
      electric vehicles and other environmentally friendly vehicles.





Declining
      oil reserves and global warming concerns have launched the world's
      industrialized nations on a search for alternative fuel sources, which are
      efficient and environmentally sound. Motor vehicles account for a significant
      percentage of carbon monoxide and nitrogen oxide emissions in the world's
      metropolitan areas, and government and private sectors in several countries
      have
      pooled their resources in order to develop low emission and energy-efficient
      vehicles that address consumers' needs for safe and convenient means of
      transportation.





In
      China,
      severe air pollution caused from the exhaust from motor vehicles' internal
      combustion engines has inspired the government to include plans to control
      environmental pollution in its 5-year plans. To date, however, insufficient
      investment has stalled the realization of these goals.





Given
      the
      demonstrated world-wide interest in developing and using environmentally
      friendly mass transit vehicles, we believe our hybrid buses will be well
      received in China and other countries around the world. Initially, we intend
      to
      focus on selling our products to the local public transportation sector in
      China. In the future, we may expand the sale of our products to the global
      market through the negotiation of licensing agreements with manufacturers.
      These
      licensing agreements would allow us to sell our technology world-wide, without
      incurring the prohibitive costs associated with adhering to applicable
      government regulations and tax levies.





***Marketing
      Strategy***





Our
      marketing strategy is to market our vehicles to the PRC government and to
      transportation and tourism companies throughout the PRC and Hong Kong.
      Management has met with government officials in Guangzhou, Guangdong and with
      a
      bus association in Hong Kong in order to generate interest in our products.
      We
      have also met with members of the Guangdong Provincial Transportation Committee
      to discuss our products.





***Competition***





There
      are
      many companies, including well-known auto industry-related companies with
      substantially more resources than we have, developing hybrid vehicles targeted
      at specific segments of the market, though very few of these companies currently
      target the mass transit transportation segment in China. It is likely, however,
      that our competitors will begin to target this segment. Most of our potential
      competitors have substantially greater capital, marketing and development
      capabilities and human resources than we have and will likely represent
      significant competition for us. The foregoing conditions create a rigorous
      competitive climate for us and increase the risk that the vehicles and products
      developed, marketed and sold by us will be unable to compete successfully with
      other potential marketers of these products. Our competitors may succeed in
      developing products that are more effective or less costly than any that may
      be
      developed by us and may also prove to be more successful than us in technology,
      marketing and sales.








As
      more
      countries intensify their efforts to produce zero-emission vehicles, frequent
      technological advances by competitors are inevitable. Therefore, in order for
      us
      to compete, a significant amount of financing will be needed to enable us to
      continue researching and developing our vehicles.





Management
      believes that more than 150 companies are developing hybrid technology in China
      alone. Our main competitors in China include companies like Golden Dragon
      Company Ltd., Five Continent Dragon Company Ltd., Dongfeng Electric Vehicle
      Co.,
      Ltd.,  Neoplan
      (Jinghua) Vehicle Co., Ltd., and Xiangtan Electric Vehicle Co. Ltd.





***Research
      and Development***





Our
      research and development activities are conducted through our subsidiary, the
      Guangzhou Bus Installation Company. The Guangzhou Bus Installation Company
      has 8
      employees who work exclusively on research and development of future generation
      products. The Environmental Vehicle Company has invested approximately $34,455
      in the research and development conducted through the Guangzhou Bus Installation
      Company in fiscal year 2005 and $33,311 was invested during the fiscal year
      ending December 31, 2004.





***Regulation***




Bus
      manufacturers in China are generally subject to the following regulations and
      procedures:




·
            A
                basic business permit is required to commence operations. This permit
                involves the issuance of a business license, tax registration,
                environmental protection permit, and facility layout
                permit.




·
            A
                manufacturing permit is required before vehicles can be manufactured.
                This
                permit is issued by the State Development and Reform Commission.




·
            All
                vehicles are required to meet national regulations and standards.
                Each new
                product will be tested at a state designated site. Qualified vehicles
                will
                then be listed in a national registry that is publicized by the State
                Development and Reform Commission. These vehicles are then eligible
                to
                receive license plates by relevant local traffic and transportation
                administrations.




·
            All
                newly-developed vehicles must go through a product safety attestation,
                or,
                3C attestations, without which the vehicle would not be able to obtain
                a
                license plate from the local traffic and transportation administration.
                The 3C covers review of facilities, environment, equipment, management
                and
                all specifications of vehicle manufacturers. We are currently being
                reviewed under the 3C process and expect to receive a 3C attestation
                in
                the near future.











·
            Operating
                passenger vehicles must obtain a rating certificate. The superior
                grade
                must be rated directly by China’s Ministry of Communications annually, the
                intermediate, by authorities at local levels. Vehicles of different
                rates
                are allowed to run only on specific routes. Without being rated,
                passenger
                vehicles cannot be put into
                operation.




·
            Since
                the national standards of environmental protection, safety and
                technological regulations are continuously becoming more stringent.
                Some
                vehicles that are already in production and being sold must be upgraded
                in
                four or five years to satisfy the new standards and then be tested
                again
                by the government.




We
      currently hold 16 types of vehicle production and sales permits.




***Employees***





As
      of
      March 15, 2006, we had a total of 35 employees (excluding consultants and
      temporary help). Of these employees, 10 are management personnel at our parent
      company and our subsidiaries, 5 are in accounting, 9 are administrative staff,
      8
      are engaged in research and development and 3 are involved in sales and related
      support.





None
      of
      our employees is represented by a labor union although some of our employees
      are
      members of the City View trade union, however such trade union does not
      represent our employees in the negotiation of labor rates or other labor
      benefits. Management considers our relationships with our employees to be
      satisfactory, notwithstanding occasional payroll delays. Our ability to achieve
      our operational and financial objectives depends in part upon our ability to
      retain key technical, marketing and operations personnel, and to attract new
      employees as required to support growth. Working capital constraints may impair
      our ability to retain and attract the staff needed to maintain current
      operations and meet the needs of anticipated growth.





In
      addition, we rely on consultants to a significant extent to supplement our
      regular employee staff in certain key functional areas and to support management
      in the execution of our business strategy. These consultants are independent
      contractors. There can be no assurance that, if one or more of the consultants
      were to terminate their services, we would be able to identify suitable
      replacements. Failure to do so could materially and adversely affect our
      operating and financial results.




**ITEM
      2. DESCRIPTION OF PROPERT** **Y**





Our
      business is conducted at our executive offices, which are located at 8/F East
      Area, Century Golden Resources Business Center, 69 Bangjing Road, Haidian
      District, Beijing, People’s Republic of China 100089. Our executive offices
      consist of approximately 130 **** square
      meters consisting entirely of administrative office space. This lease expired
      on
      December 31, 2005 and the Company continues to occupy this property on a
      month-to-month basis .








The
      Guangzhou Bus Installation Company owns a facility consisting of 266,440 square
      meters. The building located at this facility consists of 10,000 square meters
      of administrative and manufacturing space.





The
      Environmental Vehicle Company leases 200 square meters of office space in
      Shenzhen, China at a monthly rental rate of approximately $1,220 per month
      on a
      month-to-month basis .




**ITEM
      3.** **LEGAL
      PROCEEDINGS** ****




None.




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





No
      matters were submitted to a vote of our security holders during the fourth
      quarter of fiscal year 2005.








**PART
      II**





**ITEM
      5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS** ****




***Market
      Information***





Our
      common stock is quoted and traded from time to time on the Over-the-Counter
      Electronic Bulletin Board (OTCBB) under the symbol “MGHA”. The following table
      sets forth, for the periods indicated, the high and low bid prices for the
      common stock as reported on Yahoo.com. The quotations reflect inter-dealer
      prices, without retail mark-up, mark-down or commission and may not represent
      actual transactions.





**FISCAL
                YEAR**
            **QUARTER
                ENDING**
            **HIGH**
            **LOW**2005
            December
                31, 2005
            $0.04
            $0.01September
                30, 2005
            $0.09
            $0.02June
                30, 2005
            $0.15
            $0.07March
                31, 2005
            $0.30
            $0.112004
            December
                31, 2004
            $0.30
            $0.12September
                30, 2004
            $0.25
            $0.10June
                30, 2004
            $0.45
            $0.19March
                31, 2004
            $0.64
            $0.28





***Holders***





The
      number of holders of record of our common stock as of April 14, 2006 was
      268.





***Dividends***





We
      have
      not paid any cash dividends with respect to our common stock in the last two
      fiscal years. We presently intend to retain future earnings to finance our
      development and expansion and therefore do not anticipate the payment of any
      cash dividends in the foreseeable future. Payment of future dividends, if any,
      will depend upon our future earnings and capital requirements and other factors
      that our board of directors considers appropriate.










***Securities
      Authorized for Issuance under Equity Compensation
      Plans***





**Plan
                category**
            **Number
                of securities to be issued upon exercise of outstanding options,
                warrants
                and rights**
            **Weighted-average
                exercise price of outstanding options, warrants and
                rights**
            **Number
                of securities remaining available for future
                issuance**Equity
                compensation plans approved by security holders
            -
            -
            20,000,000Equity
                compensation plans not approved by security holders
            2,000,000
            $1.75
            0Total
            2,000,000
            
            20,000,000





***Recent
      Sales of Unregistered Securities***





We
      have
      not sold any equity securities during the fiscal year ended December 31, 2005
      that were not previously disclosed in a quarterly report on Form 10-QSB or
      a
      current report on Form 8-K that was filed during the 2005 fiscal
      year.




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





***Overview***





From
      inception through June 22, 2001 we were relatively inactive with limited
      operations and revenue. On June 22, 2001, we acquired the Environmental Vehicle
      Company and since then, we have been focused on the development and
      commercialization of mass transit, hybrid electric vehicles, primarily
      buses.





We
      have
      patents for our technology from China, Germany, Hong Kong Special Administrative
      Region, Taiwan, Republic of Korea, Australia and Japan. We plan to focus
      initially on the local public transportation sector in China. We do not plan
      to
      export our hybrid vehicles directly to other countries due to prohibitive costs
      that may be incurred in order to adhere to various government regulations and
      tax levies. We plan to negotiate license agreements with manufacturers in other
      countries. These licensing agreements will provide us with the opportunity
      for
      global recognition and will facilitate the delivery of our state-of-the-art
      hybrid electric buses to the rest of the world.





Our
        focus
        is on bringing our vehicles to production so that we can begin to market
        and
        sell our vehicles and generate revenues. We have entered into financing
        agreements with Beijing Qiang Long Real Estate Development Co. Ltd. (“Qiang
        Long”). Pursuant to these arrangements, Qiang Long has funded
        $6,600,000 **** to
        us
        through December 31, 2005 and is obligated to fund an additional $28,800,000
        through December 31, 2007, with $12,000,000 becoming due and payable on December
        31, 2006 and $16,800,000 becoming due and payable on June 30, 2007. We plan
        to
        use the proceeds of this financing arrangement with Qiang Long to manufacture
        vehicles and to begin marketing our vehicles so that we can generate revenues.
        Without this financing, we have no other source of revenues and would not
        be
        able to execute our business plan unless alternate financing is obtained.
        The
        financing with Qiang Long is contingent. See “Liquidity and Capital Resources”
below.








In
      June
      2004, we formed Beijing China Cardinal as an indirect wholly-owned subsidiary
      to
      leverage the real estate development experience of our board of directors.
      We
      plan to generate revenues by engaging in real estate development in the Peoples
      Republic of China through Beijing China Cardinal. In order to generate revenues
      through this new business line, however, we must first raise capital for such
      purpose. We do not have any agreements or arrangements for any such financing
      at
      this time. Management believes that it may be able to obtain financing once
      it
      identifies potentially profitable development opportunities.





***Plan
      of Operation***





If
      the
      proposed financing arrangement with Qiang Long is not consummated, then it
      will
      be very difficult, if not impossible, for us to effect our business plan. We
      do
      not have enough capital resources to continue our operations as they are
      currently conducted without the receipt of funds from the proposed Qiang Long
      financing. We are relying on stockholder loans to continue operations and there
      can be no assurance that our stockholders or Qiang Long will continue to fund
      our operations. If our stockholders or Qiang Long do not continue funding our
      operations and we are unable to raise capital from other sources, we may be
      forced to scale down our operations or liquidate some or all of our assets.





At
      December 31, 2005 we had $48,217 in cash. Without receipt of financing from
      Qiang Long or from some other source, we would not have enough working capital
      to sustain our operations for the next twelve months.





***Results
      of Operations***





Fiscal
      Year Ended December 31, 2005 Compared to December 31, 2004





The
      following table summarizes the results of our operations during the fiscal
      year
      ended December 31, 2005 and 2004 and provides information regarding the dollar
      and percentage increase or (decrease) from the 2004 fiscal year to the 2005
      fiscal year.





**Line
                  Item**
              **12/31/05**
              **12/31/04**
              **Increase**
                **(Decrease)**
              **Percentage**
                **Increase**
                **(Decrease)**Revenues
              353,478
              83,733
              269,745
              322.15%Net
                  Loss
              (1,289,806)
              (11,024,215)
              (9,734,409)
              (88.30)%Operating
                  Expenses
              $1,565,031
              $11,120,659
              (9,555,628)
              (85.9)%Earnings
                  (Loss) per common share
              (0.01)
              (0.10)
              0.09
              90%




We
      have
      only generated very limited revenues from our operations since our inception.
      In
      order to generate revenues, we must raise enough capital to execute our business
      plan of manufacturing and selling hybrid vehicles. We believe that if we are
      able to consummate the financing arrangements with Qiang Long, we will have
      enough capital to execute our business plan.




We
      had
      revenues of $353,478 in 2005 compared to revenues of $83,733 during fiscal
      year
      2004. The revenues in 2005 were received in the first quarter of 2005 and were
      derived from the sale of a total of 6 diesel buses in three separate sale
      transactions. In total, 3 buses were sold to Man Zhou Li Golden Bridge Foreign
      Vehicle Transporting Co., Ltd., 2 were sold to He Yuan Communications Group
      Tong
      Fa He Ping Subsidiary, and 1 bus was sold to Guang Zhou Zhao Shang Tour Ltd.
      The
      cost of sales for the buses sold in 2005 exceeded revenues from the sale of
      the
      buses by $216,307. Our revenues in the 2004 fiscal year were the result of
      the
      sale by us of five diesel buses and two second generation hybrid buses in 2004.





Our
      net
      loss for the year ended December 31, 2005 was $1,289,806 compared with
      $11,024,215 for the prior year. This represents a decrease of $9,734,409 or
      88.30%. This decrease in net loss was primarily the result of the following
      factors:





·
              decreased
                  officer and director compensation of 355,218, which contributed
                  3.6% to
                  the overall decrease;




·
              decreased
                  legal and professional fees of $1,470,730, which contributed 15.1%
                  to the
                  overall decrease;




·
              decreased
                  goodwill impairment loss due to acquisitions of $5,408,584, which
                  contributed 55.5% to the overall decrease;




·
              decreased
                  inventory write-off and bus licenses of $994,972, which contributed
                  10.2%
                  to the overall decrease;




·
              decreased
                  write-off on advance to supplier of $533,426, which contributed
                  5.5% to
                  the overall decrease;









·
              decreased
                  depreciation and amortization expense of $368,002, which contributed
                  3.8%
                  to the overall decrease;




·
              decrease
                  in payroll expenses of $218,249, which contributed 2.2% to the
                  overall
                  decrease; and




·
              increase
                  in sales of scrap inventory of $359,020, which contributed 3.7%
                  to the
                  overall difference.






Our
        operating expenses for the fiscal year ended December 31, 2005 were $1,565,031
        as compared to $11,120,659 during the same period in 2004. This decrease
        of
        $9,555,628 or 85.9% is primarily the result of the following
        factors:





·
              decreased
                  officer and director compensation of $355,218, which contributed
                  3.7% to
                  the overall decrease;




·
              decreased
                  legal and professional fees of $1,470,730, which contributed 15.3%
                  to the
                  overall decrease;




·
              decreased
                  goodwill impairment loss due to acquisitions of $5,408,584, which
                  contributed 56.6% to the overall decrease;




·
              decreased
                  inventory write-off and bus licenses of $994,972,
                  which contributed 10.4% to the overall
                  decrease;




·
              Decreased
                  write-off on advance to supplier of $533,426,
                  which contributed 5.6% to the overall
                  decrease;




·
              Decreased
                  depreciation and amortization expense of $368,002, which contributed
                  3.8%
                  to the overall decrease; and




·
              Decreased
                  in payroll expenses of $218,249, which contributed 2.3% to the
                  overall
                  decrease.




Loss
      per
      common share for the fiscal year ended December 31, 2005 was 0.00 as compared
      to
      a loss of (0.10) during the same period of 2004. This decrease of 100% is the
      result of the factors described above that contributed to our net loss for
      the
      year.





***Liquidity
      and Capital Resources***





We
      had
      $1,817,690 in cash, cash equivalents and short-term investments as of December
      31, 2005. As of such date, we also had total current assets of $1,966,304 and
      total assets of $3,559,203. We have total current liabilities (consisting of
      accounts payable, accrued liabilities, short term notes payable, due to
      directors and other payables) in the amount of $3,276,918. Our stockholder’s
      equity as of December 31, 2005 was $282,285. Since inception, we have
      accumulated a deficit (net loss) of $28,938,715.








We
        entered into two financing agreements with Qiang Long in the third quarter
        of
        2003 and the first quarter of 2004. We refer to these contracts as the Qiang
        Long Contracts. These contracts require Qiang Long to make certain cash
        investments in Minghua. Pursuant to the Qiang Long Contracts, Qiang Long
        has
        funded Minghua a total of US$6,600,000 **** through
        December 31, 2005 and Minghua has issued to Qiang Long a total of 15,000,000
        shares of Minghua’s common stock for such funds. Under the Qiang Long Contracts,
        Qiang Long is obligated to fund an additional US$12,000,000 on December 31,
        2006, and an additional US$16,800,000 on June 30, 2007. The funding under
        the
        Qiang Long Contracts is subject to, among other things, Minghua increasing
        its
        authorized capital stock so that it has sufficient authorized, but unissued
        capital stock to consummate the transactions contemplated by the Qiang Long
        Contracts.





The
      Qiang
      Long Contracts have been amended several time to extend the time for which
      Qiang
      Long is required to make payments. Further extensions may occur in the
      future.





The
      Qiang
      Long Contracts provide that if the remaining payments due under the Qiang Long
      Contracts have not been made by Qiang Long on or prior to December 31, 2006,
      the
      current directors of Minghua will each resign from their position as directors
      and appoint such persons to the Board as may be requested by Chu Quan Li, who
      was the former controlling stockholder of Minghua.





Finally,
      the Qiang Long Contracts provided that the Board may not, without Chu Quan
      Li’s
      prior consent, authorize the issuance of any securities of Minghua or reduce
      the
      number of outstanding securities of Minghua until all payments due under the
      Qiang Long Contracts have been made.





Over
      the
      next twelve months, we will need approximately $1,000,000 to fund our operations
      and to continue to execute our business plan. We expect to obtain the necessary
      funding though our financing arrangement with Qiang Long. However, the next
      installment from Qiang Long is not due until December 31, 2006. Prior to
      receiving that installment, we must seek other means of financing our current
      operations. We have no commitments from any person to provide such interim
      financing. We expect that our shareholders will extend loans to us, however,
      they are not obligated to do so.





***Critical
      Accounting Policies***





Preparation
      of our financial statements requires management to make judgments, assumptions,
      and estimates regarding uncertainties that affect the reported amounts of
      assets, liabilities, stockholders' equity, revenues and expenses. Note 2 of
      the
      Notes to the Condensed Consolidated Financial Statements describes the
      significant accounting policies used in preparation of the Condensed
      Consolidated Financial Statements. The most significant areas involving
      management judgments and estimates are described below. Actual results in these
      areas could differ materially from management's estimates under different
      assumptions or conditions.





The
      condensed consolidated financial statements have been prepared on a going
      concern basis, which assumes the realization of assets and liquidation of
      liabilities in the normal course of operations. If we were not to continue
      as a
      going concern, we would likely not be able to realize on our assets at values
      comparable to the carrying value or the fair value estimates reflected in the
      balances set out in the preparation of the consolidated financial statements.
      There can be no assurances that we will be successful in generating additional
      cash from equity or other sources to be used for operations. The condensed
      consolidated financial statements do not include any adjustments relating to
      the
      recoverability of assets and classification of assets and liabilities that
      might
      be necessary should the Company be unable to continue as a going concern.








Long-lived
        assets, which primarily include property, plant and equipment, are reviewed
        for
        impairment whenever events and changes in business circumstances indicate
        the
        carrying value of the assets may not be recoverable. If we determine that
        the
        carrying value of the long-lived asset may not be recoverable, a permanent
        impairment charge is recorded for the amount by which the carrying value
        of the
        long-lived asset exceeds its fair value. Fair value is generally measured
        based
        on a discounted cash flow method using a discount rate determined by management
        to be commensurate with the risk inherent in our current business model.
        The
        Company has elected to account for all stock based compensation in accordance
        with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to
        Employees” (APB 25), and to adopt the disclosure-only provisions as required
        under Statement of Financial Accounting Standards No. 123, “Accounting for
        Stock-Based Compensation” (FAS 123), and Statement of Financial Accounting
        Standards No. 148, Accounting for Stock-Based Compensation - Transition and
        Disclosure (SFAS No. 148) .





***Off-Balance
      Sheet Arrangements***





We
      do not
      have any off-balance sheet arrangements that have or are reasonably likely
      to
      have a current or future effect on our financial condition, changes in financial
      condition, revenues or expenses, results of operations, liquidity, capital
      expenditures or capital resources that is material to investors.





***Inflation***





We
      believe that inflation has not had a material impact on our results of
      operations for the years ended December 31, 2005 or December 31,
      2004.





***Seasonality***





We
      may
      experience seasonal variations in our future revenues and our operating costs
      due to seasonality, however, we do not believe that these variations will be
      material.








***Risk
      Factors Affecting Our Business***





***You
      should carefully consider the risks and uncertainties described below before
      making any investment decisions with respect to Minghua. If any of the following
      risks are realized, our business, operating results and financial condition
      could be harmed and the value of our stock could go down.***




Risks
      Relating to Our Financial Condition





***We
        are an early stage development company and we have a limited operating history.
        We have earned only insignificant revenues and it is uncertain whether we
        will
        earn any revenues in the future or whether we will ultimately be
        profitable.***





We
      are in
      the development stage and our future operations are subject to all of the risks
      inherent in the establishment of a new business enterprise. The likelihood
      of
      our success must be considered in light of the problems, expenses, difficulties,
      complications and delays frequently encountered in connection with the
      development of new transportation products, the utilization of unproven
      technology and the competitive environment in which we operate. There can be
      no
      assurance that we will be able to develop, manufacture or market any products
      in
      the future, that future revenues will be significant, that any sales will be
      profitable or that we will have sufficient funds available to complete our
      marketing and development programs or to market any products which we may
      develop. In addition, as a result of our limited operating history even though
      we do currently have a marketable product, we expect to incur substantial
      operating losses until we can generate sufficient revenues from the sales of
      our
      hybrid electric vehicles to cover our operating costs. We currently have limited
      sources of potential operating revenue and there can be no assurance that we
      will be able to develop revenue sources or that our operations will ever become
      profitable.





***In
      order to fully implement our business and strategic plans, we will need
      substantial additional funding. We may not be able to obtain funding on
      acceptable terms or at all.***





The
      amounts and timing of our expenditures will depend primarily on the progress
      of
      our capital raising, marketing, technology development and manufacturing
      programs. We do not currently have enough capital to implement our business
      and
      strategic plans. We estimate that our existing working capital will only be
      sufficient to satisfy our capital and operational requirements for the next
      few
      months. Our ability to implement our business and strategic plans is dependent
      upon our ability to successfully fulfill our capital raising plans. Our cash
      requirements may vary materially from those now planned because of results
      of
      marketing, technology developments, manufacturing costs, relationships with
      possible strategic partners, changes in our focus and direction, research and
      development programs, competitive and technological advances and other factors.





As
      described above under “Liquidity and Capital Resources,” pursuant to the Qiang
      Long Contracts, Qiang Long is obligated, subject to certain contingencies,
      to
      fund us in the amount of US$12,000,000 on or before December 31, 2006 and an
      additional US$16,800,000 on or before June 30, 2007. No assurance can be given
      that we will be able to consummate the Qiang Long financing. Qiang Long has
      extended payment dates in the past and may do so again in the future. Our
      inability to consummate this financing would have a material adverse effect
      on
      us. Furthermore, the first installment of this financing is not due until
      December 31, 2006. We will need interim financing to satisfy our working capital
      needs prior to such date. We have no commitments for such interim
      financing.








We
      may
      seek to satisfy our future funding requirements through new offerings of
      securities, or from other sources, including additional loans from our
      stockholders. Additional financing may not be available when needed or on terms
      acceptable to us. Unavailability of financing may require us to delay, scale
      back or eliminate some or all of our marketing and development programs. To
      the
      extent we raise additional capital by issuing equity securities, your ownership
      interest would be diluted.





***Given
      our financial condition, we may not be able to hire the qualified personnel
      that
      we need in order to successfully run our business.***





Our
      success depends on continuing to hire and retain qualified personnel, and if
      we
      are not successful in attracting and retaining these personnel, our business
      will be harmed. Competition for qualified employees is intense, and the process
      of recruiting personnel with the combination of skills and attributes required
      to execute our business strategy can be difficult, time-consuming and expensive.
      There can be no assurance that we will be able to continue to attract and retain
      qualified personnel necessary for the development of our business. The loss
      of
      the services of existing personnel as well as the failure to recruit additional
      key management and technical personnel in a timely manner would be materially
      detrimental to our marketing and development programs and to our
      business.





In
      addition, the success of our business depends in significant part upon the
      continued contributions of key technical and senior management personnel, many
      of whom would be difficult to replace. The loss of any key employee, the failure
      of any key employee to perform satisfactorily in his or her current position
      or
      our failure to attract and retain other key technical and senior management
      employees could have a significant negative impact on our operations.





Business
      Risks





***We
      face harsh competition in the environmental vehicle manufacturing industry.
      Most
      of our competitors have more resources than us. It will be difficult for us
      to
      compete effectively.***





There
      are
      many companies, including well-known auto industry-related companies with
      substantially more resources than we have, developing hybrid vehicles targeted
      at specific segments of the market, though very few of these companies currently
      target the mass transit transportation segment in China. It is likely, however,
      that our competitors will begin to target this segment. Most of our potential
      competitors have substantially greater capital, marketing and development
      capabilities and human resources than we have and will likely represent
      significant competition for us. The foregoing conditions create a rigorous
      competitive climate for us and increase the risk that the vehicles and products
      developed, marketed and sold by us will be unable to compete successfully with
      other potential marketers of these products. Our competitors may succeed in
      developing products that are more effective or less costly than any that may
      be
      developed by us and may also prove to be more successful than us in technology,
      marketing and sales.








As
      more
      countries intensify their efforts to produce zero-emission vehicles, frequent
      technological advances by competitors are inevitable. Therefore, in order for
      us
      to compete, a significant amount of financing will be needed to enable us to
      continue researching and developing our vehicles.





***The
      time that it takes to collect accounts receivable for our business will likely
      be longer than the time it takes other businesses. This delay will affect our
      financial condition.***





Our
      business may suffer if we are unable to collect payments from our future
      customers on a timely basis. Our future customers will have to make a
      significant commitment of capital to purchase our products. As a result, any
      downturn in a future customer's business that affects the customer's ability
      or
      willingness to pay us could harm our financial condition. Moreover, accounts
      receivable collection cycles historically tend to be much longer in China than
      in other markets. The failure of any of our future customers to make timely
      payments once they become due could require us to write-off accounts receivable
      or increase our accounts receivable reserves, either of which could adversely
      affect our operating results and financial condition.





***Our
      ability to successfully distribute our products will depend in large part on
      finding suitable distribution partners. We have not yet identified or made
      any
      arrangements with any suitable distribution partners.***





Our
      distribution strategy focuses primarily on developing a direct sales
      organization in China and creating indirect distribution channels outside of
      China. We may not be able to successfully create an indirect sales organization
      outside of China and the cost of any expansion may exceed the revenue generated
      from these efforts. In addition, if we fail to develop relationships with
      significant international sales and marketing partners or if these partners
      are
      not successful in their sales or marketing efforts, we may be unsuccessful
      in
      our expansion efforts outside China.





To
      manage
      our growth effectively, we will need to take various actions,
      including:





●
            identifying
                and retaining partners who can help us distribute our
                products;




●
            further
                developing our operating, administrative, financial and accounting
                systems
                and controls;




●
            maintaining
                close coordination among our engineering, accounting, finance, marketing,
                sales and operations organizations;




●
            expanding,
                training and managing our employee base; and




●
            expanding
                our finance, administrative and operations staff.







***If
      our intellectual property, including our trade secrets, is misappropriated,
      then
      our business could be significantly harmed.***





We
      have
      obtained patents in China, Germany and Japan. We may seek to obtain additional
      patents in other countries. Additional patents may not be issued and our issued
      patents may not be upheld. We cannot guarantee that these and other intellectual
      property protection measures will be sufficient to prevent misappropriation
      of
      our technology or that our competitors will not independently develop
      technologies that are substantially equivalent or superior to ours or otherwise
      obtain access to our know-how or that others will not be issued patents which
      may prevent the sale of our products or require licensing and the payment of
      significant fees or royalties by us for the pursuit of our business. In
      addition, the legal systems of many foreign countries, including China, do
      not
      protect intellectual property rights to the same extent as the legal system
      of
      the United States. If we are unable to adequately protect our proprietary
      information and technology, our business, financial condition and results of
      operations could be materially adversely affected.





Furthermore,
      litigation may be necessary to enforce and protect our intellectual property
      rights. Any intellectual property litigation could be costly and could cause
      diversion of management's attention from the operation of our business. Adverse
      determinations in any litigation could result in the loss of our proprietary
      rights, subject us to significant liabilities or require us to seek licenses
      from third parties that may not be available on commercially reasonable terms,
      if at all. We could also be subject to court orders preventing us from
      manufacturing or selling our products, which could adversely affect our
      business.





Risks
      Relating to Doing Business in China





***Our
      executive offices and all of our operations are based in the People’s Republic
      of China. Accordingly, we are subject to all of the risks inherent in doing
      business in China.***





Our
      manufacturing facilities and all of our material operations are in China. We
      expect to make further investments in China in the future. Therefore, our
      business, financial condition and results of operations are to a significant
      degree subject to economic, political and social events in China, including
      the
      material risks outlined below.





*Governmental
      policies in China could impact our business.*





Since
      1978, China's government has been and is expected to continue reforming its
      economic and political systems. These reforms have resulted in and are expected
      to continue to result in significant economic and social development in China.
      Many of the reforms are unprecedented or experimental and may be subject to
      change or readjustment due to a number of political, economic and social
      factors. We believe that the basic principles underlying the political and
      economic reforms will continue to be implemented and provide the framework
      for
      China's political and economic system. New reforms or the readjustment of
      previously implemented reforms could have a significant negative effect on
      our
      operations. Changes in China's political, economic and social conditions and
      governmental policies which could have a substantial impact on our business
      include:





●
            new
                laws and regulations or new interpretations of those laws and regulations;




●
            the
                introduction of measures to control inflation or stimulate growth;




●
            changes
                in the rate or method of taxation;




●
            the
                imposition of additional restrictions on currency conversion and
                remittances abroad; and




●
            any
                actions which limit our ability to develop, manufacture or sell our
                products in China, or to finance and operate our business in China.




*Economic
      policies in China could negatively impact our business.*





The
      economy of China differs from the economies of most countries belonging to
      the
      Organization for Economic Cooperation and Development in various respects,
      such
      as structure, government involvement, level of development, growth rate, capital
      reinvestment, allocation of resources, self-sufficiency, rate of inflation
      and
      balance of payments position. In the past, the economy of China has been
      primarily a planned economy subject to one and five-year state plans adopted
      by
      central government authorities and largely implemented by provincial and local
      authorities. These plans set production and development targets.





Since
      1978, increasing emphasis had been placed on decentralization and the
      utilization of market forces in the development of China's economy. Economic
      reform measures adopted by China's government may be inconsistent or
      ineffectual, and we may not in all cases be able to capitalize on any reforms.
      Further, these measures may be adjusted or modified in ways that could result
      in
      economic liberalization measures that are inconsistent from time to time, from
      industry to industry or across different regions of the country. China's economy
      has experienced significant growth in the past decade. This growth, however,
      has
      been accompanied by imbalances in China's economy and has resulted in
      significant fluctuations in general price levels, including periods of
      inflation. China's government has implemented policies from time to time to
      increase or restrain the rate of economic growth, control periods of inflation
      or otherwise regulate economic expansion. While we may be able to benefit from
      the effects of some of these policies, these policies and other measures taken
      by China's government to regulate the economy could also have a significant
      negative impact on economic conditions in China with a resulting negative impact
      on our business.





*Uncertainty
      relating to China’s legal system could negatively affect us.*





China
      has
      a civil law legal system. Decided court cases do not have binding legal effect
      on future decisions. Since 1979, many new laws and regulations covering general
      economic matters have been promulgated in China. Despite this activity to
      develop the legal system, China's system of laws is not yet complete. Even
      where
      adequate law exists in China, enforcement of contracts based on existing law
      may
      be uncertain and sporadic and it may be difficult to obtain swift and equitable
      enforcement, or to obtain enforcement of a judgment by a court of another
      jurisdiction. The relative inexperience of China's judiciary in many cases
      creates additional uncertainty as to the outcome of any litigation. Further,
      interpretation of statutes and regulations may be subject to government policies
      reflecting domestic political changes.








Risks
      Relating to the Market for Our Securities





***There
      is a limited public market for our securities. Accordingly, you may find it
      difficult to liquidate your investment in our stock. Also, given that there
      is a
      limited public market for our stock, our stock price tends to be very
      volatile.***





Our
      common stock is quoted on the Over-the-Counter Bulletin Board. As a result,
      investors may find it difficult to dispose of, or to obtain accurate quotations
      of the price of, our securities. This lack of information limits the liquidity
      of our common stock, and likely will have an adverse effect on the market price
      of our common stock and on our ability to raise additional capital.





Our
      stock
      price could be subject to wide fluctuations in the future in response to many
      events or factors, including:





●
            actual
                or anticipated fluctuations in operating results;




●
            changes
                in expectations as to future financial performance or changes in
                financial
                estimates or buy/sell recommendations of securities
                analysts;




●
            changes
                in governmental regulations or policies in
                China;




●
            our,
                or a competitor's, announcement of new products or technological
                innovations; and




●
            the
                operating and stock price performance of other comparable companies.




The
      fact
      that there is a limited public market in our stock and general market conditions
      and domestic or international macroeconomic factors unrelated to our performance
      may also affect our stock price. For these reasons, investors should not rely
      on
      recent trends to predict future stock prices or financial results. In addition,
      following periods of volatility in a company's securities, securities class
      action litigation against a company is sometimes instituted. This type of
      litigation could result in substantial costs and the diversion of management
      time and resources.





***Our
      stock is a penny stock and there are significant risks related to buying and
      owning penny stocks.***





Rule
      15g-9 under the Securities Exchange Act of 1934 imposes additional sales
      practice requirements on broker-dealers that sell non-Nasdaq listed securities
      except in transactions exempted by the rule, including transactions meeting
      the
      requirements of Rule 506 of Regulation D under the Securities Act and
      transactions in which the purchaser is an institutional accredited investor
      (as
      defined) or an established customer (as defined) of the broker or dealer. For
      transactions covered by this rule, a broker-dealer must make a special
      suitability determination for the purchaser and have received the purchaser’s
      written consent to the transaction prior to sale. Consequently, this rule may
      adversely affect the ability of broker-dealers to sell our securities and may
      adversely affect your ability to sell any of the securities you
      own.








The
      Securities and Exchange Commission regulations define a “penny stock” to be any
      non-Nasdaq equity security that has a market price (as defined in the
      regulations) of less than $5.00 per share or with an exercise price of less
      than
      $5.00 per share, subject to some exceptions. For any transaction by a
      broker-dealer involving a penny stock, unless exempt, the rules require
      delivery, prior to any transaction in a penny stock, of a disclosure schedule
      prepared by the SEC relating to the penny stock market. Disclosure is also
      required to be made about commissions payable to both the broker-dealer and
      the
      registered representative and current quotations for the securities. Finally,
      monthly statements are required to be sent disclosing recent price information
      for the penny stock held in the account and information on the limited market
      in
      penny stocks. Our market liquidity could be severely adversely affected by
      these
      rules on penny stocks.





***We
      have commitments to issue a significant number of shares of our capital stock
      and we will likely need to issue many other shares in the future to finance
      our
      business. Your interest in Minghua will be significantly diluted as a result
      of
      all of these stock issuances.***





If
      the
      transactions contemplated by the Qiang Long Contracts are consummated, then
      we
      will have issued, in the aggregate, 155,000,000 shares of our common stock
      to
      Qiang Long at prices ranging between 0.21 and 0.40 per share. Upon the issuance
      of these shares you may experience dilution in the net tangible book value
      of
      your Minghua common stock.




**ITEM
      7.** **FINANCIAL
      STATEMENTS**




See
      the
      index to our financial statements and our financial statements following the
      Signature Page at the end of this Annual Report on Form 10-KSB.




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





On
      or
      about January 1, 2006, Child, Sullivan & Company, our independent auditor
      changed its accounting practice from a corporation to a professional limited
      liability company named Child, Van Wagoner & Bradshaw, PLLC. As this is
      viewed as a separate legal entity, we terminated our auditing arrangement with
      Child, Sullivan & Company as our independent auditor and engaged Child, Van
      Wagoner & Bradshaw, PLLC, as our independent auditor for our fiscal year
      ending December 31, 2005 and the interim periods for 2005 and 2006.





The
      decision to change principal accountants was approved by the Board of Directors
      of Minghua. None of the reports of Child, Sullivan & Company, on our
      financial statements for either of the past two years or subsequent interim
      period contained an adverse opinion or disclaimer of opinion, or was qualified
      or modified as to uncertainty, audit scope or accounting principles, except
      that
      the report for the fiscal year ended December 31, 2004 did contain a going
      concern paragraph.








There
      were no disagreements between us and Child, Sullivan & Company, on any
      matter of accounting principles or practices, financial statement disclosure,
      or
      auditing scope or procedure, which, if not resolved to the satisfaction of
      Child, Sullivan & Company, would have caused them to make reference to the
      subject matter of the disagreement in connection with its report. Further,
      Child, Sullivan & Company has not advised us that:





1)  internal
      controls necessary to develop reliable financial statements did not exist;
      or





2)  information
      has come to the attention of Child, Sullivan & Company which made it
      unwilling to rely upon management's representations, or made it unwilling to
      be
      associated with the financial statements prepared by management; or





3)  the
      scope
      of the audit should be expanded significantly, or information has come to the
      attention of Child, Sullivan & Company that they have concluded will, or if
      further investigated might, materially impact the fairness or reliability of
      a
      previously issued audit report or the underlying financial statements, or the
      financial statements issued or to be issued covering the fiscal year ended
      December 31, 2005.





On
      or
      about January 2, 2006 we engaged Child, Van Wagoner & Bradshaw, PLLC as our
      principal accountant to audit of our financial statements as successor to Child,
      Sullivan & Company. During the our two most recent fiscal years or
      subsequent interim period, have not consulted with the entity of Child, Van
      Wagoner & Bradshaw, PLLC regarding the application of accounting principles
      to a specific transaction, either completed or proposed, or the type of audit
      opinion that might be rendered on our financial statements, nor did the entity
      of Child, Van Wagoner & Bradshaw, PLLC provide advice to us, either written
      or oral, that was an important factor considered by us in reaching a decision
      as
      to the accounting, auditing or financial reporting issue.





Further,
      during our two most recent fiscal years or subsequent interim period, we have
      not consulted the entity of Child, Van Wagoner & Bradshaw, PLLC on any
      matter that was the subject of a disagreement or a reportable
      event.





**ITEM
      8A. CONTROLS AND PROCEDURES**





Within
        90
        days of the filing of this Form 10-KSB, an evaluation was carried out under
        the
        supervision and with the participation of our management, including Chang-de
        Li,
        our Interim Chief Executive Officer and Chief Financial Officer, of the
        effectiveness of our disclosure controls and procedures. Disclosure controls
        and
        procedures are procedures that are designed with the objective of ensuring
        that
        information required to be disclosed in our reports filed under the Securities
        Exchange Act of 1934, such as this Form 10-KSB, is recorded, processed,
        summarized and reported within the time period specified in the Securities
        and
        Exchange Commission’s rules and forms. Based on that evaluation, Mr. Li
        concluded that as of December 31, 2005, and as of the date that the evaluation
        of the effectiveness of our disclosure controls and procedures was completed,
        our disclosure controls and procedures were effective to satisfy the objectives
        for which they are intended.








There
      were no changes in our internal control over financial reporting identified
      in
      connection with the evaluation performed that occurred during the fiscal year
      covered by this report that has materially affected or is reasonably likely
      to
      materially affect, our internal control over financial reporting.





**ITEM
      9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
      WITH
      SECTION 16(a)** **OF THE EXCHANGE ACT**





***Directors
      and Executive Officers of Minghua***





The
      directors and executive officers of Minghua are as follows:





**Name**
            **Age**
            **Position**Chang-de
                Li
            49
            Chairman
                of the BoardHui
                Chen
            36
            DirectorLi
                Hong Liang
            44
            DirectorYun
                Dong Luan
            69
            DirectorJie
                Chen
            50
            Director





***Chang-de
      Li*** ** was
      appointed Chairman of the Board of Directors on May 10, 2004. Mr. Li has acted
      as the chairman of the Board of Directors of Qiang Long, a real estate
      development and investment company, since 1993. During his tenure as chairman,
      he has led the company to develop many holiday villages, hotels and business
      centers throughout China.




***Hui
      Chen*** was
      appointed to the Board of Directors on and effective December 2, 2005. Mr.
      Chen
      has been serving as the Vice General Manager of Beijing Qiang Long Real Estate
      Development Company, a real estate development and investment company, since
      1999.




***Li
      Hong Liang*** became a
      director on May 10, 2004. Mr. Li acted as vice general manager of Beijing JiuFa
      Industry Ltd., a company engaged in commerce and trade, from 1994 to 2003.
      He
      served as vice general manager of China Cardinal Limited from 2003 to 2004.
      China Cardinal Limited is engaged in the business of acting as an investment
      company.





***Yun
      Dong Luan*** ** became a
      director in February 2004. At such time he also became the General Manager
      of
      the Environmental Vehicle Company. He became the General Manager of China
      Cardinal on June 16, 2004 upon the incorporation of such company and he became
      the Chairman of the Bus Installation Company on March 13, 2003 in conjunction
      with the acquisition of that company by us. He is the Vice Chairman of the
      Zhang
      Xue-Liang Fund Association and has held various positions with such Association
      over the past five years. The Zhang Xue-Liang Fund Association is in the
      business of arranging meetings, conferences and exhibitions. It also provides
      public relations and investor relations support to its clients.








***Jie
      Chen*** became a
      director in February 2004. At such time she also became our Vice President
      of
      public relations. She is also a director of the Environmental Vehicle Company,
      the Bus Installation Company and China Cardinal, all of which are our
      subsidiaries. She is the Vice Secretary of the Zhang Xue-Liang Fund Association
      and has held such position and other positions with such Association over the
      past five years. The Zhang Xue-Liang Fund Association is in the business of
      arranging meetings, conferences and exhibitions. It also provides public
      relations and investor relations support to its clients. Prior to joining the
      Zhang Xue-Liang Fund Association, Ms. Chen held various key positions with
      television stations and public relations companies in China.





***Audit
      Committee Financial Expert***





We
      do not
      have any audit committee financial expert serving on our board of directors.
      We
      do not have sufficient capital to attract an independent board member with
      the
      requisite financial expertise to sit on our board (or an audit committee) and
      act as an Audit Committee Financial Expert. In addition, since we are a
      development stage company with no revenues, our financial statements are
      relatively simple and management believes that review of such financial
      statements by the entire board without any such expert is sufficient at this
      time.





***Code
      of Ethics***





On
      March
      8, 2004, our board of directors adopted a code of ethics that our principal
      financial officer, principal accounting officer or controller and any person
      who
      may perform similar functions is subject to. We have filed the code of ethics
      as
      exhibit 14 to this Annual Report on Form 10-KSB.





***Compliance
      with Section 16(a) of the Exchange Act***





Section
      16(a) of the Exchange Act required our executive officers and directors, and
      person who beneficially own more than ten percent of our equity securities,
      to
      file reports of ownership and changes in ownership with the Securities and
      Exchange Commission. Officers, directors and greater than ten percent
      shareholders are required by SEC regulation to furnish us with copies of all
      Section 16(a) forms they file. Based on its review of the copies of such forms
      received by us, we believe that during the year ended December 31, 2005, all
      such filing requirements applicable to its officers and directors were complied
      with, during the fiscal year ended December 31, 2005.




**ITEM
      10. EXECUTIVE COMPENSATION** ****





The
      following table sets forth information concerning all cash and non-cash
      compensation awarded to, earned by or paid to our Chairman and each of the
      next
      four highly compensated executive officers for services in all capacities to
      us,
      our subsidiaries and predecessors.











**SUMMARY
      COMPENSATION TABLE**








**Name**
              **And
                Principal**
              **Position**
            **Year**
            **Annual
                Compensation**
            **Long-Term
                Compensation****Salary**
              **($)**
            **Bonus**
              **($)**
            **Other**
              **Annual**
              **Comp-**
              **ensation**
              **($)**
            **Awards**
            **Payouts**
            **All**
              **Other**
              **Compen-**
              **Sation**
              **($)****Restricted**
              **Stock**
              **Awards**
              **($)**
            **Securities**
              **Under-lying**
              **Options/**
              **SARs**
              **(#)**
            **LTIP**
              **Payouts**
              **($)**Chang-de
                Li(1),
              Chairman
                & Interim CEO
            2005
            149,440
            0
            0
            0
            0
            0
            02004
            77,120
            0
            0
            0
            0
            0
            02003
            0
            0
            0
            0
            0
            0
            0





**OPTION/SARs
      GRANTS IN LAST FISCAL YEAR**





The
      following table sets forth the grant of stock options and stock appreciation
      rights (SARs) made during the year ended December 31, 2005, to the persons
      named
      in the Summary Compensation Table:





**Name**
            
            **Number
                of Securities Underlying Options/SARs Granted**
            
            **Percent
                of Total Options/SARs Granted to Employees in Fiscal
                Year**
            
            **Exercise
                of Base Price ($/Sh)**
            
            **Expiration
                Date****Chang-de
                Li,**
              **Chairman
                & Interim CEO**
            
            **_**
            
            **_**
            
            **_**
            
            **_**









**AGGREGATED
      OPTION/SAR EXERCISES IN LAST FISCAL YEAR**


**AND
      FISCAL YEAR-END OPTION/SAR VALUES**





The
      following table sets forth information with respect to unexercised stock options
      held by the persons named in the Summary Compensation Table at December 31,
      2005. No stock options were exercised in 2005 by those persons.





**Name**
            
            **Shares
                Acquired on Exercise**
            
            **Value
                Realized**
              **($)**
            
            **Number
                of Unexercised Securities Underlying Options/SARs at FY-End (#)
                Exercisable/ Unexercisable**
            
            **Value
                of Unexercised In-The-Money Option/SARs at FY-End ($) Exercisable/
                Unexercisable****Chang-de
                Li**
              **Chairman
                & Interim CEO**








**LONG-TERM
      INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR**





The
      following table sets forth information with respect to awards made to persons
      named in the Summary Compensation Table pursuant to a long-term incentive plan
      in the fiscal year ending December 31, 2005.





**Name**
            **Number
                of Shares, Units or Other Rights**
            **Performance
                or Other Period Under Maturation or Payout**
            **Estimated
                Future Payouts Under Non-Stock**
              **Price-Based
                Plans****Threshold**
            **Target**
            **Maximum****Chang-de
                Li,**
              **Chairman
                & Interim CEO**
            **0**
            **0**
            **0**
            **0**
            **0**





***Compensation
      of Directors***





All
      directors are reimbursed for out-of-pocket expenses in connection with
      attendance at board of director's and/or committee meetings, but are not
      otherwise compensated.








***Employment
      Agreements***




We
      do not
      have employment agreements with any of our other executive officers or
      directors. We have a verbal understanding with our Acting Chairman, Chang-de
      Li
      regarding the payment to him of an annual salary in the amount of $107,692
      and
      we have a verbal understanding with our Director and Vice President of Public
      Relations, Jie Chen regarding the payment to her of an annual salary of $92,318.








**ITEM
      11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      SHAREHOLDER MATTERS** ****





The
      following table sets forth, as of December 31, 2005, the number of shares of
      common stock owned of record and beneficially by any person who holds 5% or
      more
      of the outstanding common stock of Minghua.





******Name
                and Address Of Beneficial Owner**
            **Amount
                and Nature of Beneficial Ownership**
            **Percentage
                of Class(1)**Chuquan
                Li
              Guangdong
                Bian Fang Building, 10thFloor
              Futian
                District, Shenzhen, 518033
              People’s
                Republic of China
            16,200,000
            11.13%Kingsrich
                Development Limited
              Sincere
                Insurance Building
              4
                -
                6 Hennessey Road
              Wanchai,
                Hong Kong
            14,000,000
            9.6%China
                Cardinal Limited of Hong Kong
              Flat/Rm
                708
              7thFloor
              Dunnies
                House
              20
                Luard Road
              Wanchai
              HONG
                KONG
            10,000,000
            6.9%Beijing
                Qiang Long Real Estate Development Co. Ltd.
              No.
                95 Kangxi Road
              Ba
                Da Xia Industrial Development Zone
              Yanqing
                County, Beijing
              People’s
                Republic of China
            155,000,000(2)
            54.3%(2)Chang-de
                Li
              No.
                95 Kangxi Road
              Ba
                Da Xia Industrial Development Zone
              Yanqing
                County, Beijing
              People’s
                Republic of China
            155,000,000(3)
            54.3%(3)


(1)
      Calculated using the number of shares outstanding on February 15, 2005 of
      145,496,004.




(2)
      Consists of (i) 15,000,000 shares of common stock acquired pursuant to a
      subscription agreement with Minghua, dated September 29, 2003; and (ii) the
      right to purchase 140,000,000 shares of common stock for an aggregate purchase
      price of US$29,400,000, or a price per share of $0.21, pursuant to a contract
      with the Minghua, dated January 29, 2004. In determining the percentage of
      class
      represented in the table above 140,000,000 shares issuable pursuant to the
      January 29, 2004 contract were added to the total outstanding shares of the
      issuer's common stock of 145,496,004.




(3)
        Mr.
        Li is an affiliate of Beijing Qiang Long Real Estate Development Co., Ltd.
        and
        is therefore deemed to be the beneficial owner of the shares owned by such
        entity. See Note 2 above.










The
      following table sets forth, as of December 31, 2005, the number of shares of
      common stock owned of record and beneficially by all directors, each of the
      named officers in the Summary Compensation Table, and the directors and
      executive officers of the Company as a group:





**Name
                and Address Of Beneficial Owner**
            **Amount
                and Nature of Beneficial Ownership**
            **Percentage
                of Class(1)**Chang-de
                Li
              Chairman
                & Interim CEO
              8/F
                East Area
              Century
                Golden Resources Business Center
              69
                Banjing Road
              Haidian
                District
              Beijing,
                People’s Republic of China
              100089
            155,000,000(2)
            54.3%(2)Hui
                Chen
              Director
              8/F
                East Area
              Century
                Golden Resources Business Center
              69
                Banjing Road
              Haidian
                District
              Beijing,
                People’s Republic of China
              100089
            0
            0Li
                Hong Liang
              Director
              8/F
                East Area
              Century
                Golden Resources Business Center
              69
                Banjing Road
              Haidian
                District
              Beijing,
                People’s Republic of China
              100089
            0
            0Yun
                Dong Luan
              Director
              8/F
                East Area
              Century
                Golden Resources Business Center
              69
                Banjing Road
              Haidian
                District
              Beijing,
                People’s Republic of China
              100089
            0
            0











Jie
                Chen
              Director
              8/F
                East Area
              Century
                Golden Resources Business Center
              69
                Banjing Road
              Haidian
                District
              Beijing,
                People’s Republic of China
              100089
            0
            0Albert
                Wong
              former
                Chief Executive Officer, President, Secretary and Treasurer
              14/F.,
                West Wing, Sincere Insurance Bldg.,
              4-6
                Hennessy Road, Wanchai, Hong Kong
            500,000
            0.3%**All
                Directors and Executive Officers as a Group (5
                people)**
            **155,000,000(2)**
            **54.3%(2)**





(1)
      Calculated using the number of shares outstanding on February 15, 2005 of
      145,496,004.




(2)
      Mr.
      Li is an affiliate of Beijing Qiang Long Real Estate Development Co. Ltd. and
      accordingly, he is deemed to be the beneficial owner of stock held by Qiang
      Long. Mr. Li does not own any Minghua securities other than the securities
      he is
      deemed to be the beneficial owner of through Qiang Long. Consists of (i)
      15,000,000 shares of common stock acquired pursuant to a subscription agreement
      with Minghua, dated September 29, 2003; and (ii) the right to purchase
      140,000,000 shares of common stock for an aggregate purchase price of
      US$29,400,000, or a price per share of $0.21, pursuant to a contract with the
      Minghua, dated January 29, 2004. In determining the percentage of class
      represented in the table above 140,000,000 shares issuable pursuant to the
      January 29, 2004 contract were added to the total outstanding shares of the
      issuer's common stock of 145,496,004.




***Changes
      in Control***





As
      described above under “ITEM 6. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS - Liquidity and Capital Resources,” pursuant
      to the Qiang Long contracts, Qiang Long is obligated, subject to certain
      contingencies, to purchase 140,000,000 shares of our common stock for an
      aggregate purchase price of $29,400,000 or a price per share of $0.21. If and
      when the transactions contemplated by the Acquisition Agreement are consummated
      and after giving effect to certain issuances of common stock that we are
      otherwise obligated to issue, Qiang Long would become the owner of approximately
      51% of our then outstanding common stock. Accordingly, the transactions
      contemplated by the Qiang Long Contracts, when consummated, would effect a
      change in control of Minghua. The closing of the transactions contemplated
      by
      the Qiang Long Contracts is conditioned upon, among other things, our ability
      to
      obtain stockholder approval of an amendment to our certificate of incorporation
      that would authorize additional shares such that we will be able to issue all
      140,000,000 shares to Qiang Long.











**ITEM
      12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS** ****





Before
        moving into its current principal executive office in June 2004, the Company
        rented its old principal executive office at 10th Floor, Guangdong Bianfang
        Building, Fu Jing Road, Fu Tian District, Shenzhen, People's Republic of
        China.
        The office was owned by Minghua Real Estate (Shenzhen) Ltd., formerly known
        as
        Minghua Investment Co., Ltd. (“Minghua Real Estate”) which is owned by a British
        Virgin Island company whose sole shareholder is Chuquan Li, the ex-chairman
        and
        current shareholder of the Company. While at that location, we paid Minghua
        Real
        Estate an annual rental of $153,600 under our leasing arrangement for such
        space.





On
      January 19, 2004, our wholly-owned subsidiary, Minghua Hong Kong and Jinmou
      Li,
      the son of the ex-chairman and current shareholder of the Company, Chuquan
      Li,
      entered into a stock purchase agreement relating to the sale by Jinmou Li to
      Minghua Hong Kong of 100% of the equity in Asia Key for a purchase price of
      RMB
      8,200,000 (approximately, US$990,709) and 28,210,000 shares of the Company’s
      common stock. Asia Key’s only asset is a 15% equity interest in the
      Environmental Vehicle Company. The parties agreed upon a valuation of the
      Environmental Vehicle Company of RMB 273,000,000 (approximately,
      US$32,983,363.34), which was calculated based upon the paid-up capital,
      accumulated funds and the value of the production project and stock value.
      The
      parties further agreed that RMB 40,980,000 (approximately, US$4,951,121)
      constitutes the value of the 15% interest that Minghua Hong Kong acquired.
      The
      Company’s shares that were issued as partial consideration for the 15% equity
      interest were valued at a price of $0.14 per share.





Our
      Chairman and Interim CEO Chang-de Li is affiliated with Qiang Long. Qiang Long
      and Minghua are parties to the Qiang Long Contracts described above under “ITEM
      6. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS - Liquidity and Capital Resources.”





Our
      director Li, Hong Liang is also the Vice Manager of China Cardinal Limited.
      On
      January 13, 2004 Minghua and China Cardinal Limited entered into an investment
      Contract pursuant to which China Cardinal Limited purchased 16,483,514 shares
      of
      our common stock for an aggregate price of US$2,307,692.





**ITEM
        13. EXHIBITS**




The
        following exhibits are filed as part of this report or incorporated by
        reference:





***Exhibit
                  Number***
              ***Description****2.1
              Stock
                  Purchase Agreement, dated October 21, 2004, between the Company
                  and Mr.
                  Sin Keung Kok relating to the acquisition of Mr. Sin Keung Kok’s equity
                  interest in Ming Hua Environmental Protection Science and Technology
                  Limited [Incorporated by reference to Exhibit 10 of the Form 8-K
                  filed on
                  October 27, 2004 in Commission file number
                  0-30183]









*2.2
              Stock
                  Purchase Agreement, dated January 19, 2004, among the Company,
                  Minghua
                  Group International Holding (Hong Kong) Limited and Li Jinmou relating
                  to
                  the acquisition of Asia Key Group Limited [Incorporated by reference
                  to
                  Exhibit 10.3 of the Form 8-K filed on February 12, 2004 in Commission
                  file
                  number 0-30183]*2.3
              Stock
                  Purchase Agreement, dated April 27, 2001, among the Company, Minghua
                  Acquisition Corp., Li Chuquan and Chan Kuen Kwong [Incorporated
                  by
                  reference to Exhibit 2.1 of the Form 8-K filed on May 3, 2001 in
                  Commission file number 0-30183]*3.1
              Certificate
                  of Incorporation of the Company [Incorporated by reference to Exhibit
                  3.1
                  of the Form 10-KSB filed on April 15, 2002 in Commission file number
                  0-30183]*3.2
              Certificate
                  of Amendment of Certificate of Incorporation of the Company [Incorporated
                  by reference to Appendix A of the Definitive Proxy Statement of
                  the
                  Company filed on July 3, 2001 in Commission file number
                  0-30183]*3.3
              Amended
                  and Restated Bylaws of the Company [Incorporated by reference to
                  Exhibit
                  3.3 of the Form 10-KSB filed on April 15, 2002 in Commission file
                  number
                  0-30183 in Commission file number 0-30183]*4.1
              Warrant
                  to Purchase Common Stock, dated April 2, 2001, between the Company
                  and
                  First Pacific Capital, Ltd. [Incorporated by reference to Exhibit
                  10.9 of
                  the Form 10-QSB filed on August 20, 2001 in Commission file number
                  0-30183]*4.2
              Registration
                  Rights Agreement, dated June 22, 2001, among the Company, Li Chuquan
                  and
                  Chan Kuen Kwong [Incorporated by reference to Exhibit 4.2 of the
                  Form
                  10-KSB filed on April 15, 2002 in Commission file number
                  0-30183]*4.3
              Registration
                  Rights Agreement, dated July 23, 2001, among the Company and the
                  stockholders of the Company named in the Registration Rights Agreement
                  [Incorporated by reference to Exhibit 4.2 of the Form 10-KSB filed
                  on
                  April 15, 2002 in Commission file number 0-30183]*4.4
              Form
                  of Regulation D Subscription Agreement [Incorporated by reference
                  to
                  Exhibit 4.2 of the Form 10-KSB filed on April 15, 2002 in Commission
                  file
                  number 0-30183]*4.5
              Form
                  of Regulation S Subscription Agreement [Incorporated by reference
                  to
                  Exhibit 4.2 of the Form 10-KSB filed on April 15, 2002 in Commission
                  file
                  number 0-30183]*10.1
              Letter
                  Agreement, dated as of October 29, 2004, between the Company and
                  Qiang
                  Long Real Estate Development Co., Ltd. [Incorporated by reference
                  to
                  Exhibit 10 of the Form 8-K filed on November 3, 2004 in Commission
                  file
                  number 0-30183]*10.2
              Loan
                  Agreement, dated May 10, 2004, between ShenZhen Ruichijuntong Industry
                  Co., Ltd. and Minghua Environment Protection Vehicles Ltd. [Incorporated
                  by reference to Exhibit 10.1 of the Form 10-QSB filed on August
                  23, 2004
                  in Commission file number
                  0-30183]










*10.3
              Guangzhou
                  City View Bus Installation Company Limited Agreement
                [Incorporated
                  by reference to Exhibit 10.1 of the Form 8-K filed on March 28,
                  2003 in
                  Commission file number 0-30183]*10.4
              Kingsrich
                  Development Limited Loan Agreement [Incorporated by reference to
                  Exhibit
                  10.2 of the Form 8-K filed on March 28, 2003 in Commission file
                  number
                  0-30183]*10.5
              Kingsrich
                  Development Limited Convertible Promissory Note [Incorporated by
                  reference
                  to Exhibit 10.3 of the Form 8-K filed on March 28, 2003 in Commission
                  file
                  number 0-30183]*10.6
              Registration
                  Rights Agreement, dated March 17, 2003, between the Company and
                  Kingsrich
                  Development Limited [Incorporated by reference to Exhibit 10 of
                  the Form
                  10-QSB filed on August 28, 2003 in Commission file number
                  0-30183]*10.7
              Regulation
                  S Subscription Agreement, dated September 29, 2003, between the
                  Company
                  and Beijing Qiang Long Real Estate Development Company, Ltd. relating
                  to
                  subscription rights for 15,000,000 shares of the Company's Common
                  Stock
                  [Incorporated by reference to Exhibit 10.1 of the Form 10-QSB filed
                  on
                  December 2, 2003 in Commission file number 0-30183]*10.8
              Contract,
                  dated January 29, 2004, between Beijing Qiang Long Real Estate
                  Development
                  Co. Ltd. and the Company [Incorporated by reference to Exhibit
                  10.1 of the
                  Form 8-K filed on February 12, 2004 in Commission file number
                  0-30183]*10.9
              Contract,
                  dated January 13, 2004, between China Cardinal Limited and the
                  Company
                  [Incorporated by reference to Exhibit 10.2 of the Form 8-K filed
                  on
                  February 12, 2004 in Commission file number 0-30183]*10.10
              Employment/Co-Operation
                  Agreement, dated April 10, 2002, between the Company and Albert
                  Wong
                  [Incorporated by reference to Exhibit 99.1 of the Form 8-K filed
                  on May 2,
                  2002 in Commission file number 0-30183]*10.11
              Employment
                  Agreement, dated July 11, 2001, between the Company and Li Chuquan
                  [Incorporated by reference to Exhibit 10.1 of the Form 10-QSB filed
                  on
                  August 20, 2001 in Commission file number 0-30183]*10.12
              Non-Qualified
                  Stock Option Agreement, dated July 11, 2001, between the Company
                  and Li
                  Chuquan [Incorporated by reference to Exhibit 10.2 of the Form
                  10-QSB
                  filed on August 20, 2001 in Commission file number
                  0-30183]*10.13
              Stock
                  Option Agreement, dated July 11, 2001, between the Company and
                  Li Chuquan
                  [Incorporated by reference to Exhibit 10.3 of the Form 10-QSB filed
                  on
                  August 20, 2001 in Commission file number 0-30183]*10.14
              Employment
                  Agreement, dated April 5, 2001, between the Company and Ronald
                  C. H. Lui
                  [Incorporated by reference to Exhibit 10.4 of the Form 10-QSB filed
                  on
                  August 20, 2001 in Commission file number
                  0-30183]









*10.15
            Incentive
                Stock Option Agreement, dated April 5, 2001, between the Company
                and
                Ronald C. H. Lui [Incorporated by reference to Exhibit 10.5 of the
                Form
                10-QSB filed on August 20, 2001 in Commission file number
                0-30183]*10.16
            Non-qualified
                Stock Option Agreement, dated April 5, 2001, between the Company
                and
                Ronald C. H. Lui [Incorporated by reference to Exhibit 10.6 of the
                Form
                10-QSB filed on August 20, 2001 in Commission file number
                0-30183]*10.17
            Amendment
                to Stock Option Agreements, dated April 12, 2001, between the Company
                and
                Ronald C. H. Lui [Incorporated by reference to Exhibit 10.7 of the
                Form
                10-QSB filed on August 20, 2001 in Commission file number
                0-30183]*10.18
            Consulting
                Agreement, dated April 2, 2001, between the Company and First Pacific
                Capital Ltd. [Incorporated by reference to Exhibit 10.8 of the Form
                10-QSB
                filed on August 20, 2001 in Commission file number
                0-30183]*10.19
            Letter
                Agreement, dated April 5, 2001, between the Company and First Pacific
                Capital Ltd. [Incorporated by reference to Exhibit 10.10 of the Form
                10-QSB filed on August 20, 2001 in Commission file number
                0-30183]*10.20
            2001
                Stock Plan [Incorporated by reference to Appendix B of our Definitive
                Proxy Statement on Schedule 14A filed on July 3, 2001 in Commission
                file
                number 0-30183]*10.21
            Placement
                Agency Agreement, dated July 23, 2001, between the Company and Chicago
                Investment Group Incorporated [Incorporated by reference to Exhibit
                10.11
                of the Form 10-KSB filed on April 15, 2002 in Commission file number
                0-30183]*10.22
            Letter
                Agreement repayment of stockholder loan, dated December 11, 2001,
                between
                the Company and Li Chuquan [Incorporated by reference to Exhibit
                99.1 of
                the Form 8-K filed on December 20, 2001 in Commission file number
                0-30183]10.23
            Technology
                Development Contract, dated February 15, 2004, between Tsinghua University
                and the Company.10.24
            Sales
                Contract of Guangzhou Cityview Bus Installation Co., Ltd., dated
                August 6,
                2004, between Changsha United Electric Power Science and Technology
                Co.,
                Ltd. and Guangzhou Cityview Bus Installation Co., Ltd.10.25
            Lease
                Agreement, dated May 30, 2004, between Liu Gui Zhi and Beijing China
                Cardinal Real Estate Consulting Ltd.10.26
            Lease
                Agreement, dated May 20, 2004, between Shenzhen Minghua Environmental
                Protection Vehicle Co., Ltd. and Richard Zhang.*14
            Code
                of Ethics [incorporated by reference to Exhibit 14 of the Annual
                Report on
                Form 10-KSB of the Company for the fiscal year ended December 31,
                2003]









31.1
              Certification
                  of Principal Executive Officer filed pursuant to Section 302 of
                  the
                  Sarbanes-Oxley Act of 2002.31.2
              Certification
                  of Principal Financial Officer filed pursuant to Section 302 of
                  the
                  Sarbanes-Oxley Act of 2002.32
              Certifications
                  of Principal Executive Officer and Principal Financial Officer
                  furnished
                  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                  906 of
                  the Sarbanes-Oxley Act of
                  2002.





*  Incorporated
      by reference as indicated.





**ITEM
        14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**





***Audit
      Fees***





The
      aggregate fees billed for each of the fiscal years ended December 31, 2005
      and
      2004 for professional services rendered by the principal accountant for the
      audit of our annual financial statements and review of the financial statements
      included in our Form 10-QSB or services that are normally provided by the
      accountant in connection with statutory and regulatory filings or engagements
      for those fiscal years were $41,000 and $37,500, respectively.





***Audit-Related
      Fees***





The
      aggregate fees billed in each of the fiscal years ended December 31, 2005 and
      2004 for assurance and related services by the principal accountant that are
      reasonably related to the performance of the audit or review of the registrant’s
      financial statements and are not reported under the paragraph captioned “Audit
      Fees” above are $0 and $16,233, respectively.





***Tax
      Fees***





The
      aggregate fees billed in each of the fiscal years ended December 31, 2005 and
      2004 for professional services rendered by the principal accountant for tax
      compliance, tax advice, and tax planning were $0 and $5,000, respectively.





***All
      Other Fees***





The
      aggregate fees billed in each of the fiscal years ended December 31, 2005 and
      2004 for products and services provided by the principal accountant, other
      than
      the services reported above under other captions of this Item 14 are $0 and
      $0,
      respectively.








***Pre-Approval
      Policies and Procedures***





Our
      board
      of directors has 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, as amended, to be performed for us by our independent
      auditors, subject to the de minimus exception described in Section 10A(i)(1)(B)
      of the Exchange 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, 2005 and the quarterly reviews for the
      subsequent fiscal quarters of 2006 through the review for the quarter ended
      September 30, 2006 at which time additional pre-approvals for any additional
      services to be performed by our auditor would be sought from the Board. Our
      board of directors also appointed and authorized Chang-de Li 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.





The
      percentage of audit-related, tax and other services that were approved by the
      board of directors is 100%.










**SIGNATURES** ****





In
      accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
      this report to be signed on its behalf by the undersigned, thereunto duly
      authorized.




MINGHUA
                GROUP
                INTERNATIONAL HOLDINGS LIMITEDBy:
              /s/
                Jie
                ChenName:Jie
                ChenTitle:Chief
                Executive Officer




In
      accordance with the Exchange Act, this report has been signed below by the
      following persons on behalf of the registrant and in the capacities and on
      the
      dates indicated.





**SIGNATURE**
              **CAPACITY**
              **DATE**/s/Chang-de
                  Li
              Chairman
                  and Chief Financial Officer
              November
                  20, 2006Chang-de
                  Li/s/Jie
                  Chen
              Chief
                  Executive Officer and Director
              November
                  20, 2006Jie
                  Chen/s/Hui
                  Chen
              Director
              November
                  20, 2006Hui
                  Chen/s/Li
                  Hong Liang
              Director
              November
                  20, 2006Li
                  Hong Liang/s/Yun
                  Dong Luan
              Director
              November
                  20, 2006Yun
                  Dong Luan










MINGHUA
      GROUP INTERNATIONAL HOLDINGS LIMITED


(A
      DEVELOPMENT STAGE COMPANY)





CONSOLIDATED
      FINANCIAL STATEMENTS





DECEMBER 31,
      2005














MINGHUA
      GROUP INTERNATIONAL HOLDINGS LIMITED


(A
      DEVELOPMENT STAGE COMPANY)







INDEX
      TO
      CONSOLIDATED FINANCIAL STATEMENTS








PAGEINDEX
                TO CONSOLIDATED FINANCIAL STATEMENTS
            F-2REPORT
                OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
            F-3CONSOLIDATED
                BALANCE SHEET
            F-4CONSOLIDATED
                STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
            F-5CONSOLIDATED
                STATEMENTS OF CASH FLOWS
            F-6CONSOLIDATED
                STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
            F-7NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS
            F-8





F-2


Child,
      Van Wagoner & Bradshaw, PLLC


A
      Professional Limited Liability Company of CERTIFIED PUBLIC ACCOUNTANTS





5296
      S.
      Commerce Dr., Suite 300, Salt Lake City, UT 84107 PHONE: (801) 281-4700 FAX:
      (801) 281-4701







**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





To
      the
      Board of Directors and Stockholders


MINGHUA
      GROUP INTERNATIONAL HOLDINGS LIMITED


New
      York,
      New York





We
      have
      audited the accompanying consolidated balance sheet of MINGHUA GROUP
      INTERNATIONAL HOLDINGS LIMITED (a New York development stage company) and
      subsidiaries as of December 31, 2005, and the related consolidated statements
      of
      operations and comprehensive loss, stockholders’ equity (deficit), and cash
      flows for the years ended December 31, 2005 and 2004. 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 did
      not
      audit the consolidated financial statements of MINGHUA GROUP INTERNATIONAL
      HOLDINGS LIMITED for the period from June 4, 1997 (inception) to December 31,
      2003. Those statements were audited by other auditors whose report thereon,
      dated March 12, 2004, included an explanatory paragraph that described going
      concern considerations.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States of America). Those standards require
      that we plan and perform the audits to obtain reasonable assurance about whether
      the consolidated financial statements are free of material misstatement. The
      Company is not required to have, nor were we engaged to perform, an audit of
      its
      internal control over financial reporting. Our audits included consideration
      of
      internal control over financial reporting, as a basis for designing audit
      procedures that are appropriate in the circumstances, but not for the purpose
      of
      expressing an opinion on the effectiveness of the Company’s internal control
      over financial reporting. Accordingly, we express no such opinion. An audit
      includes examining, on a test basis, evidence supporting the amounts and
      disclosures in the consolidated financial statements. An audit also includes
      assessing the accounting principles used and significant estimates made by
      management, as well as evaluating the overall financial statement presentation.
      We believe that our audits provide a reasonable basis for our
      opinion.





In
      our
      opinion, the financial statements referred to above present fairly, in all
      material respects, the consolidated financial position of MINGHUA GROUP
      INTERNATIONAL HOLDINGS LIMITED (a development stage company) and subsidiaries
      as
      of December 31, 2005, and the consolidated results of its operations and its
      cash flows for the years ended December 31, 2005 and 2004, in conformity with
      accounting principles generally accepted in the United States of America.





The
      accompanying consolidated financial statements have been prepared assuming
      that
      the Company will continue as a going concern. As discussed in Note 1 to the
      consolidated financial statements, the Company has no established source of
      revenues and has suffered recurring losses from operations. Its difficulty
      in
      generating sufficient cash flow to meet its obligations and sustain its
      operations raises substantial doubt about its ability to continue as a going
      concern. Management’s plans in regard to these matters are also described in
      Note 1. The consolidated financial statements do not include any adjustments
      that might result from the outcome of this uncertainty.





Since
        our
        previous report dated April 18, 2006, as described in Note 14, the Company
        re-evaluated its presentation of business acquisitions. The Company has restated
        the financial statements to reflect those presentations.





Child,
      Van Wagoner & Bradshaw, PLLC


Salt
      Lake
      City, Utah


April
        8,
        2006, except Note 14 which is dated November 4, 2006




F-3
 MINGHUA
            GROUP INTERNATIONAL HOLDINGS LIMITED
 (A
            DEVELOPMENT STAGE COMPANY)
 
 CONSOLIDATED
            BALANCE SHEET




December
                  31,ASSETS
              
              2005Current
                  assetsCash
                  and cash equivalents
              
              $
              48,217Notes
                  receivable
              
              
              71,030Prepaid
                  expenses
              
              
              77,584Short
                  term investment
              
              
              1,769,473Total
                  current assets
              
              
              1,966,304Property,
                  plant and equipment (net)
              
              
              1,188,251Other
                  assetsInventories
              
              
              355,155Intangible
                  assets
              
              
              49,493Total
                  other assets
              
              
              404,648Total
                  assets
              
              $
              3,559,203LIABILITIES
                  AND STOCKHOLDERS' EQUITYCurrent
                  liabilitiesAccounts
                  payable
              
              $
              1,643,147Accrued
                  liabilities
              
              
              1,037,057Short-term
                  notes payable
              
              
              169,760Due
                  to directors
              
              
              171,724Other
                  payables
              
              
              255,230Total
                  current liabilities
              
              
              3,276,918Stockholders'
                  equityCommon
                  stock: par value $.01;
                  200,000,000 shares authorized; 145,496,004 shares issued and
                  outstanding
              
              
              1,454,960Common
                  stock subscribed
              
              
              29,400,000Additional
                  paid in capital
              
              
              27,342,990Deficit
                  accumulated during the development stage
              
              
              (28,938,715
              )Accumulated
                  other comprehensive loss
              
              
              (230,745
              )29,028,490Less:
                  stock subscription receivable
              
              
              (28,746,205
              )Total
                  stockholders' equity
              
              
              282,285Total
                  liabilities and stockholders' equity
              
              $
              3,559,203




The
        accompanying notes are an integral part
 of
        the
        consolidated financial statements




F-4
 MINGHUA
            GROUP INTERNATIONAL HOLDINGS LIMITED
 (A
            DEVELOPMENT STAGE COMPANY)
 
 CONSOLIDATED
            STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS




Year
                  ended December 31,
              
              Period
                    from June 4, 1997 (inception) toDecember 31,Restated
              
              Restated
              
              Restated2005
              
              2004
              
              2005RevenuesSales
                  revenues
              
              $
              353,478
              
              $
              83,733
              
              $
              437,211Cost
                  of sales
              
              
              569,785
              
              
              96,525
              
              
              666,310Gross
                  profit
              
              
              (216,307
              )
              
              (12,792
              )
              
              (229,099
              )Operating
                  expensesGeneral
                  and administrative expenses
              
              
              520,530
              
              
              3,673,698
              
              
              11,812,795Goodwill
                  impairment loss
              
              
              -
              
              
              5,408,584
              
              
              5,408,584Write-off
                  inventory and bus licenses
              
              
              1,010,046
              
              
              2,005,018
              
              
              3,015,064Research
                  and development costs
              
              
              34,455
              
              
              33,359
              
              
              8,843,543Total
                  operating expenses
              
              
              1,565,031
              
              
              11,120,659
              
              
              29,079,986Loss
                  from operations
              
              
              (1,781,338
              )
              
              (11,133,451
              )
              
              (29,309,085
              )Other
                  income (expense)Interest
                  income
              
              
              988
              
              
              42,745
              
              
              43,733Other
                  income (expense)
              
              
              358,832
              
              
              80,173
              
              
              855,115Loss
                  on asset disposal
              
              
              (4,823
              )
              
              -
              
              
              (4,823
              )Gain
                  on debt settlement
              
              
              156,018
              
              
              -
              
              
              156,018Acquisition
                  expense
              
              
              -
              
              
              -
              
              
              -Interest
                  expense
              
              
              (19,483
              )
              
              (13,682
              )
              
              (679,673
              )Total
                  other income (expense)
              
              
              491,532
              
              
              109,236
              
              
              370,370Net
                  loss before income taxes
              
              
              (1,289,806
              )
              
              (11,024,215
              )
              
              (28,938,715
              )Provision
                  for income taxes
              
              
              -
              
              
              -
              
              
              -Net
                  loss
              
              $
              (1,289,806
              )
              $
              (11,024,215
              )
              $
              (28,938,715
              )Foreign
                  currency translation adjustment
              
              
              (230,745
              )
              
              -Comprehensive
                  loss
              
              $
              (1,520,551
              )
              $
              (11,024,215
              )Basic
                  and diluted net loss per share
              
              $
              (0.01
              )
              $
              (0.10
              )Weighted
                  average number of shares outstanding
              
              
              145,211,456
              
              
              115,065,000




The
          accompanying notes are an integral part
 of
          the
          consolidated financial statements


F-5
 MINGHUA
              GROUP INTERNATIONAL HOLDINGS LIMITED
 (A
              DEVELOPMENT STAGE COMPANY)
 
 CONSOLIDATED
              STATEMENTS OF CASH FLOWS




Year
                    endedDecember 31,
              
              Period
                    from June 4, 1997 (inception) toDecember
                  31,Restated
              
              Restated
              
              Restated2005
              
              2004
              
              2005Cash
                  flows from operating activities:Net
                  loss
              
              $
              (1,289,806
              )
              $
              (11,024,215
              )
              $
              (28,938,715
              )Adjustments
                  to reconcile net loss tonet cash used in operations:Depreciation
                  and amortization
              
              
              57,896
              
              
              425,898
              
              
              810,811Impairment
                  loss on intangible assets
              
              
              771,922
              
              
              723,077
              
              
              1,494,999Inventory
                  write-off due to obsolete
              
              
              238,124
              
              
              1,622,039
              
              
              1,860,163Stock
                  issued for debt and services
              
              
              830,100
              
              
              480,000
              
              
              1,869,100(Gain)
                  loss on disposition of assets
              
              
              4,822
              
              
              -
              
              
              210,659Research
                  and development expense recorded in organization
              
              
              
              
              
              -
              
              
              8,612,730Issuance
                  stocks to acquire subsidiary
              
              
              -
              
              
              3,949,400
              
              
              3,949,400Reorganization
                  expenses recorded in organization
              
              
              -
              
              
              -
              
              
              455,830Changes
                  in operating liabilities and assets:Other
                  receivables
              
              
              -
              
              
              (264,459
              )
              
              (264,459
              )Prepaid
                  expense and deposits
              
              
              414,297
              
              
              (176,140
              )
              
              (199,073
              )Inventories
              
              
              314,772
              
              
              (2,530,090
              )
              
              (2,215,318
              )Accounts
                  payable and accrued liabilities
              
              
              (1,454,202
              )
              
              2,596,468
              
              
              2,805,473Net
                  cash used in operations
              
              
              (112,075
              )
              
              (4,198,022
              )
              
              (9,548,400
              )Cash
                  flows from investing activities:Reorganization
                  - net of cash acquired
              
              
              -
              
              
              -
              
              
              (320,579
              )Redemption
                  (purchase) of short term investment
              
              
              165,699
              
              
              (1,935,172
              )
              
              (1,769,473
              )Purchase
                  of intangibles: patent rights, license
              
              
              -
              
              
              (1,555,768
              )
              
              (1,851,482
              )Sales/purchases
                  of property and equipment
              
              
              9,433
              
              
              (976,317
              )
              
              (597,668
              )Released
                  deposit on acquisition of a company
              
              
              -
              
              
              1,088,585
              
              
              967,585Net
                  cash provided by (used in) investing activities
              
              
              175,132
              
              
              (3,378,672
              )
              
              (3,571,617
              )Cash
                  flows from financing activities:Due
                  to stockholders and related parties - net
              
              
              18,833
              
              
              (3,186
              )
              
              (265,478
              )Proceeds
                  from issuance of stock
              
              
              -
              
              
              7,700,620
              
              
              11,849,352Proceeds
                  from convertible promissory note
              
              
              -
              
              
              -
              
              
              3,128,225Business
                  acquisition
              
              
              -
              
              
              -
              
              
              (967,585
              )Dividends
                  paid
              
              
              
              
              
              -
              
              
              (1,000,000
              )Notes
                  payable -bank - net
              
              
              (479,732
              )
              
              -
              
              
              36,910Deposit
                  for common stock subscribed
              
              
              -
              
              
              51,385
              
              
              656,272Net
                  cash provided by (used in) financing activities
              
              
              (460,899
              )
              
              7,748,819
              
              
              13,437,696Effect
                  of rate changes on cash
              
              
              (269,462
              )
              
              -
              
              
              (269,462
              )Increase(decrease)
                  in cash and cash equivalents
              
              
              (667,304
              )
              
              172,125
              
              
              48,217Cash
                  and cash equivalents, beginning of period
              
              
              715,521
              
              
              543,396
              
              
              -Cash
                  and cash equivalents, end of period
              
              $
              48,217
              
              $
              715,521
              
              $
              48,217Supplemental
                  disclosures of cash flow information:Cash
                  paid for interest
              
              $
              6,600
              
              $
              -Cash
                  paid for income taxes
              
              $
              -
              
              $
              -Supplemental
                  disclosures of non-cash investing and financing
                  activities:Common
                  stock issued for debt
              
              $
              830,100
              
              $
              3,128,225


The
          accompanying notes are an integral part
 of
          the
          consolidated financial statements


F-6
 MINGHUA
            GROUP INTERNATIONAL HOLDINGS LIMITED
 (A
            DEVELOPMENT STAGE COMPANY)
  CONSOLIDATED
              STATEMENTS OF CHANGES IN STOCKHOLDERS'
              EQUITY


Development
            
            AccumulatedCommon
                Stock
            
            Additional
            
            Stage
            
            OtherCommon
                Stock
            
            Common
                Stock
            
            Subscribed
            
            Paid
                In
            
            Accumulated
            
            Comprehensive
            
            Subscription$.12834
                Par Value
            
            $.01
                Par Value
            
            $.01
                Par Value
            
            Capital
            
            Deficit
            
            Income
            
            Receivable
            
            TotalCommon
                stock issued - June 4, 1997
            
            
            10,000
            
            $
            1,283
            
            
            
            
            $
            -
            
            
            
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            1,283Net
                loss for the period
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (289
            )
            
            -
            
            
            -
            
            
            (289
            )Balance
                December 31, 1997
            
            
            10,000
            
            
            1,283
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (289
            )
            
            -
            
            
            -
            
            
            994Net
                loss for the year
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (3,209
            )
            
            -
            
            
            -
            
            
            (3,209
            )Balance
                December 31, 1998
            
            
            10,000
            
            
            1,283
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (3,498
            )
            
            -
            
            
            -
            
            
            (2,215
            )Shares
                issued at par value Mar 30
            
            
            990,000
            
            
            127,057
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            127,057Net
                loss for the period
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (302
            )
            
            -
            
            
            -
            
            
            (302
            )Balance
                December 31, 1999
            
            
            1,000,000
            
            
            128,340
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (3,800
            )
            
            -
            
            
            -
            
            
            124,540Net
                loss for the year
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (9,876,193
            )
            
            -
            
            
            -
            
            
            (9,876,193
            )Balance
                December 31, 2000
            
            
            1,000,000
            
            
            128,340
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (9,879,993
            )
            
            -
            
            
            -
            
            
            (9,751,653
            )Shares
                issued at $.20 Apr 5
            
            
            
            
            
            
            
            
            385,685
            
            
            3,857
            
            
            
            
            
            
            
            
            73,280
            
            
            
            
            
            
            
            
            
            
            
            77,137Shares
                issued at $.20 Apr 17
            
            
            
            
            
            
            
            
            7,500,000
            
            
            75,000
            
            
            
            
            
            
            
            
            1,425,000
            
            
            
            
            
            
            
            
            
            
            
            1,500,000Shares
                at par value Jun 22
            
            
            
            
            
            
            
            
            28,000,000
            
            
            280,000
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            280,000Recapitalization
                Jun 22
            
            
            (1,000,000
            )
            
            (128,340
            )
            
            3,600,000
            
            
            36,000
            
            
            
            
            
            
            
            
            (498,280
            )
            
            
            
            
            
            
            
            
            
            
            (590,620
            )Dividend
                paid Jun 22
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,000,000
            )
            
            
            
            
            
            
            
            
            
            
            (1,000,000
            )Shares
                issued at $2.00 Jul 23
            
            
            
            
            
            
            
            
            473,500
            
            
            4,735
            
            
            
            
            
            
            
            
            942,265
            
            
            
            
            
            
            
            
            
            
            
            947,000Shares
                issued at $2.00 Oct 1
            
            
            
            
            
            
            
            
            10,000
            
            
            100
            
            
            
            
            
            
            
            
            19,900
            
            
            
            
            
            
            
            
            
            
            
            20,000Shares
                issued for debt conversion
            
            
            
            
            
            
            
            
            8,500,000
            
            
            85,000
            
            
            
            
            
            
            
            
            8,415,000
            
            
            
            
            
            
            
            
            
            
            
            8,500,000Capital
                contributed debt to equity conversion
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,500,000
            
            
            
            
            
            
            
            
            
            
            
            1,500,000Net
                loss for the year
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (2,492,318
            )
            
            -
            
            
            -
            
            
            (2,492,318
            )Balance
                December 31, 2001
            
            
            -
            
            
            -
            
            
            48,469,185
            
            
            484,692
            
            
            -
            
            
            -
            
            
            10,877,165
            
            
            (12,372,311
            )
            
            -
            
            
            -
            
            
            (1,010,454
            )Shares
                issued at $.20 Feb 20
            
            
            
            
            
            
            
            
            372,807
            
            
            3,728
            
            
            
            
            
            
            
            
            70,833
            
            
            
            
            
            
            
            
            (74,561
            )
            
            -Shares
                issued at par option exercise Apr 24 for svcs
            
            
            
            
            
            
            
            
            540,260
            
            
            5,403
            
            
            
            
            
            
            
            
            410,597
            
            
            
            
            
            
            
            
            
            
            
            416,000Shares
                issued at $.13 Nov 27 for services
            
            
            
            
            
            
            
            
            1,100,000
            
            
            11,000
            
            
            
            
            
            
            
            
            132,000
            
            
            
            
            
            
            
            
            
            
            
            143,000Net
                loss for the year
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (2,490,990
            )
            
            -
            
            
            -
            
            
            (2,490,990
            )Balance
                December 31, 2002
            
            
            -
            
            
            -
            
            
            50,482,252
            
            
            504,823
            
            
            -
            
            
            -
            
            
            11,490,595
            
            
            (14,863,301
            )
            
            -
            
            
            (74,561
            )
            
            (2,942,444
            )Shares
                issued at $.12 Mar 31
            
            
            
            
            
            
            
            
            1,513,969
            
            
            15,139
            
            
            
            
            
            
            
            
            166,537
            
            
            
            
            
            
            
            
            
            
            
            181,676Shares
                subscribed at $.40 Sep 29
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            15,000,000
            
            
            6,000,000
            
            
            
            
            
            
            
            
            
            
            
            (6,000,000
            )
            
            -Shares
                issued at $.40 Oct 3
            
            
            
            
            
            
            
            
            1,511,488
            
            
            15,115
            
            
            (1,511,488
            )
            
            (604,595
            )
            
            589,480
            
            
            
            
            
            
            
            
            1,209,482
            
            
            1,209,482Net
                loss for the year
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,761,393
            )
            
            -
            
            
            -
            
            
            (1,761,393
            )Balance
                December 31, 2003
            
            
            -
            
            
            -
            
            
            53,507,709
            
            
            535,077
            
            
            13,488,512
            
            
            5,395,405
            
            
            12,246,612
            
            
            (16,624,694
            )
            
            -
            
            
            (4,865,079
            )
            
            (3,312,679
            )Shares
                issued at $.40 Jan 9 Qian Long
            
            
            
            
            
            
            
            
            3,023,998
            
            
            30,240
            
            
            (3,023,998
            )
            
            (1,209,599
            )
            
            1,179,359
            
            
            
            
            
            
            
            
            604,712
            
            
            604,712Shares
                issued at $.13 for debt conversion
            
            
            
            
            
            
            
            
            24,036,269
            
            
            240,363
            
            
            
            
            
            
            
            
            2,887,862
            
            
            
            
            
            
            
            
            
            
            
            3,128,225Shares
                subscribed at $.21 Jan 29 Qian Long
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            140,000,000
            
            
            29,400,000
            
            
            
            
            
            
            
            
            
            
            
            (29,400,000
            )
            
            -Shares
                subscribed at $.14 Jan 13 China Cardinal
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            16,483,514
            
            
            2,307,692
            
            
            
            
            
            
            
            
            
            
            
            (2,307,692
            )
            
            -Shares
                issued at $.14 May 28 China Cardinal
            
            
            
            
            
            
            
            
            4,733,229
            
            
            47,332
            
            
            (4,733,229
            )
            
            (662,652
            )
            
            615,320
            
            
            
            
            
            
            
            
            662,652
            
            
            662,652Shares
                issued at $.14 May 28 China Cardinal
            
            
            
            
            
            
            
            
            11,750,285
            
            
            117,503
            
            
            (11,750,285
            )
            
            (1,645,040
            )
            
            1,527,537
            
            
            
            
            
            
            
            
            1,645,040
            
            
            1,645,040Shares
                issued at $.14 Mar 31 purch of Asia Key
            
            
            
            
            
            
            
            
            28,210,000
            
            
            282,100
            
            
            
            
            
            
            
            
            3,667,300
            
            
            
            
            
            
            
            
            
            
            
            3,949,400Options
                exercised at $.12 in lieu of salary
            
            
            
            
            
            
            
            
            2,500,000
            
            
            25,000
            
            
            
            
            
            
            
            
            275,000
            
            
            
            
            
            
            
            
            
            
            
            300,000Options
                exercised at $.12 in lieu of salary
            
            
            
            
            
            
            
            
            500,000
            
            
            5,000
            
            
            
            
            
            
            
            
            55,000
            
            
            
            
            
            
            
            
            
            
            
            60,000Options
                exercised at $.12 in lieu of salary
            
            
            
            
            
            
            
            
            1,000,000
            
            
            10,000
            
            
            
            
            
            
            
            
            110,000
            
            
            
            
            
            
            
            
            
            
            
            120,000Qian
                Long subscription at $.40 Dec 12
            
            
            
            
            
            
            
            
            10,464,514
            
            
            104,645
            
            
            (10,464,514
            )
            
            (4,185,806
            )
            
            4,081,161
            
            
            
            
            
            
            
            
            4,839,601
            
            
            4,839,6012002
                stock subscription deemed to be uncollectible
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (74,561
            )
            
            
            
            
            
            
            
            74,561
            
            
            -Net
                loss for the year
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (11,024,215
            )
            
            -
            
            
            -
            
            
            (11,024,215
            )Balance
                December 31, 2004
            
            
            -
            
            
            -
            
            
            139,726,004
            
            
            1,397,260
            
            
            140,000,000
            
            
            29,400,000
            
            
            26,570,590
            
            
            (27,648,909
            )
            
            -
            
            
            (28,746,205
            )
            
            972,736Shares
                issued at $.14 for debt
            
            
            
            
            
            
            
            
            5,770,000
            
            
            57,700
            
            
            
            
            
            
            
            
            772,400
            
            
            
            
            
            
            
            
            
            
            
            830,100Net
                loss for the year
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,289,806
            )
            
            
            
            
            
            
            
            (1,289,806
            )Foreign
                currency translation adjustment
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (230,745
            )
            
            -
            
            
            (230,745
            )Balance
                December 31, 2005
            
            
            -
            
            $
            -
            
            
            145,496,004
            
            $
            1,454,960
            
            
            140,000,000
            
            $
            29,400,000
            
            $
            27,342,990
            
            $
            (28,938,715
            )
            $
            (230,745
            )
            $
            (28,746,205
            )
            $
            282,285


The
          accompanying notes are an integral part
 of
          the
          consolidated financial statements


F-7


1.
            BUSINESS
                DESCRIPTION AND ORGANIZATION





NAME
      CHANGE AND REORGANIZATION





The
      consolidated financial statements of Minghua Group International Holdings
      Limited, include the accounts of the parent company and its wholly-owned and
      majority-owned subsidiaries. All material intercompany accounts and transactions
      have been eliminated in consolidation.





On
        August
        2, 2001, an amendment to the certificate of incorporation was made changing
        the
        name of the Company from Panagra International Corporation (“Panagra”) to
        Minghua Group International Holdings Limited (“Minghua USA”). This amendment
        also increased the authorized common shares of Minghua USA from 40,000,000
        shares to 200,000,000 shares.





Panagra,
        formerly United Network Technologies, Inc., was incorporated under the laws
        of
        the State of New York on February 29, 1996. The Company and its subsidiary
        Minghua Acquisition Corp., a Delaware Corporation (“Acquisition Corp.”)
        incorporated June 2001, acquired in June 2001 all the outstanding stock of
        Ming
        Hua Group International Holding (Hong Kong) Limited (“Minghua Hong Kong”).
        Minghua Hong Kong was incorporated under the laws of the Hong Kong Special
        Administrative Region of the Peoples Republic of China on June 4,
        1997.





The
      acquisition was effected by paying to the Minghua Hong Kong stockholders
      $1,000,000 and issuing 28,000,000 additional Minghua USA common shares that
      resulted in the Minghua Hong Kong shareholders owning approximately 70% of
      the
      outstanding shares of Minghua USA and having control of Minghua USA after this
      transaction. For financial reporting purposes, this transaction was recorded
      as
      a recapitalization of Minghua Hong Kong. Minghua Hong Kong is deemed to be
      the
      continuing, surviving entity for accounting purposes, but through
      reorganization, was deemed to have adopted the capital structure of Minghua
      USA.





At
        that
        time, the sole asset of Minghua Hong Kong was an 85% equity interest in the
        Shenzhen Minghua Environmental Protection Vehicle Co., Ltd. (“Minghua China”), a
        Peoples Republic of China (PRC) corporation. The remaining 15% equity minority
        interest in Minghua China is owned by a related party, Asia Key Group Limited,
        through its wholly-owned subsidiary Minghua Real Estate (Shenzhen) Ltd.,
        formerly known as Minghua Investment Co., Ltd. (“Minghua Real Estate”). On
        January 29, 2004, the Company acquired this 15% minority interest held by
        Minghua Real Estate, in a related party transaction by paying $990,638 in
        cash
        and issuing 28,210,000 common shares of Minghua USA.





F-8


1.
            BUSINESS
                DESCRIPTION AND ORGANIZATION
                (Continued)





TECHNOLOGY





Minghua
        China is the owner of patented technology (“Technology”) relating to hybrid
        vehicles powered by a combination of a combustion diesel engine and an electric
        power system. Minghua China produced its first prototype hybrid vehicle
        (“Minghua Hybrid Vehicle”) in 2000. Minghua China has sold no Minghua Hybrid
        Vehicles to date. All manufacturing by Minghua China of the Minghua Hybrid
        Vehicle is done in China. Minghua Hong Kong and Minghua China entered into
        an
        agreement in 2003 to acquire Guangzhou City View Bus Installation Company
        Limited (“Guangzhou”), a PRC corporation, which owns a license to manufacture
        buses in China. All production is presently being done in one non-automated
        (labor intensive) production facility in Guangzhou.





In
        1999,
        the rights to the result of the Research and Development (“R&D”)
        expenditures to develop the technology (pending patent rights), which were
        substantially complete, were transferred to Minghua China from Mr. Chuquan
        Li
        (“Chairman”) and Mr. Chun Fu Wang (collectively “Developers”) who were also
        stockholders who had effective control of Minghua China. This transfer was
        deemed to be a transfer between entities under common control and was therefore
        recorded on Minghua China's records at the Developers' accumulated historical
        cost basis. The Developers accumulated R&D expenditures at the time of
        transfer was approximately $8.6 million, which was expensed by Minghua China
        as
        R&D with a corresponding note payable to the Developers recorded as due to
        stockholders. The R&D activities to develop the technology started in
        1994.





CAPITAL
      RESOURCES, BUSINESS RISKS AND GOING CONCERN





The
      Company remains in the development stage and all future business operations
      are
      subject to all of the risks inherent in the establishment of a new business
      enterprise. The Company has no proven revenue stream from the sales of its
      products. Additional capital resources through current and future offerings
      of
      securities will be needed in order to accomplish the Company's present
      marketing, technology development and manufacturing plans. The Company plans
      to
      make the following expenditures: i) producing Minghua Hybrid Vehicles in 2005
      and (ii) advertising and marketing. The manufacturing facilities and other
      operations in China, as well as the business financial conditions and results
      of
      operations are, to a significant degree, subject to economic, political and
      social events in China.





F-9


1.
            BUSINESS
                DESCRIPTION AND ORGANIZATION
                (Continued)





CAPITAL
      RESOURCES, BUSINESS RISKS AND GOING CONCERN (Continued)





The
      limited performance history of the Minghua Hybrid Vehicle and the emerging
      nature of the target hybrid vehicle markets make future sales unpredictable
      for
      the Company. Negative developments in these or other business risk factors
      will
      have a material adverse effect on the Company's future financial position,
      results of operations and cash flows, thus raising substantial doubt about
      the
      Company's ability in the future to continue as a going concern.





The
      Company has obtained patents in China, Germany and Japan and has filed
      additional patent applications in various countries, including the United States
      of America, the European Union, Republic of Korea and Singapore. Intellectual
      property protection measures may not be sufficient to prevent misappropriation
      of the technology or competitors may independently develop technologies that
      are
      substantially equivalent or superior to the Company's technology. Legal systems
      of many foreign countries, including China, do not protect intellectual property
      rights to the same extent as the legal system of the United States. If the
      Company cannot adequately protect its proprietary information and hybrid power
      technology, the business financial condition and results of operations could
      be
      materially adversely affected in the future.





RESTRICTIONS
      ON TRANSFER OF ASSETS OUT OF CHINA





Dividend
      payments by Minghua China, are limited by certain statutory regulations in
      China. No dividends may be paid by Minghua China without first receiving prior
      approval from the Foreign Currency Exchange Management Bureau. Dividend payments
      are restricted to 85% of profits, after tax. Repayments of loans or advances
      from Minghua China to Minghua USA, unless certain conditions are met, will
      be
      restricted by the Chinese government.





CONTROL
      BY PRINCIPAL STOCKHOLDERS





The
      directors, executive officers, their affiliates and related parties own,
      beneficially and in the aggregate, the majority of the voting power of the
      outstanding shares of the common stock of the Company. Accordingly, directors,
      executive officers and their affiliates, if they voted their shares uniformly,
      would have the ability to control the approval of most corporate actions,
      including increasing the authorized capital stock of Minghua USA and the
      dissolution, merger or sale of the Company's assets.




F-10


2.
            SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES





PRINCIPLES
      OF CONSOLIDATION AND BASIS OF PRESENTATION





The
        consolidated financial statements for all periods presented include the
        financial statements of Minghua USA, Acquisition Corp., Minghua Hong Kong,
        Top
        Team Holdings Limited, Ming Hua Environmental Protection Science and Technology
        Limited, Minghua China, Asia Key Group Limited, Euromax International
        Investments Limited, Beijing China Cardinal Real Estate Consulting Co., Ltd.,
        Good View Bus Manufacturing Company Limited, Eagle Bus Development Limited,
        and
        Guangzhou. The consolidated statements have been prepared in accordance with
        accounting principles generally accepted in the United States of America.
        All
        significant intercompany transactions have been eliminated.





The
      Company has determined The Peoples Republic of China Chinese Yuan Renminbi
      to be
      the functional currency of Minghua China. The accompanying consolidated
      financial statements are presented in United States (US) dollars. The
      consolidated financial statements are translated into US dollars from RMB at
      year-end exchange rates for assets and liabilities, and weighted average
      exchange rates for revenues and expenses. Capital accounts are translated at
      their historical exchange rates when the capital transactions
      occurred.





RMB
      is
      not freely convertible into the currency of other nations. All such exchange
      transactions must take place through authorized institutions. There is no
      guarantee the RMB amounts could have been, or could be, converted into US
      dollars at rates used in translation.





MINORITY
      INTEREST IN SUBSIDIARIES





The
        Company records minority interest expense, which reflects the portion of
        the
        earnings of Guangzhou, which are applicable to Guangzhou Public Automobile
        Company (10.2% - December 31, 2005). The minority stockholders are not required
        to fund the Company's deficits; therefore, no minority interest in subsidiaries
        was recorded on the balance sheet and statements of operations at December
        31,
        2005 and 2004. See also Notes 1 and 3 relating to the Minority
        Interest.





START-UP
      COSTS





The
        Company, in accordance with the provisions of the American Institute of
        Certified Public Accountants' Statement of Position (SOP) 98-5, “Reporting on
        the Costs of Start-up Activities”, expenses all start-up and organizational
        costs as they are incurred. Preproduction design and development costs are
        expensed as incurred. Costs incurred to design and develop molds, dies and
        other
        tools are capitalized as equipment.





F-11


2.
            SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES
                (Continued)





USE
      OF
      ESTIMATES





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America 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 reported amounts of revenues and expenses during
      the reporting period. Actual results could differ from those
      estimates.





SIGNIFICANT
      ESTIMATES





Several
      areas require significant management estimates relating to uncertainties for
      which it is reasonably possible that there will be a material change in the
      near
      term. The more significant areas requiring the use of management estimates
      related to the valuation of acquired companies, equipment, patent rights,
      accrued liabilities and stock options, and the useful lives for amortization
      and
      depreciation.





REVENUE
      RECOGNITION





Revenues
      are recognized as earned when the following four criteria are met: (1) a
      customer issues purchase orders or otherwise agrees to purchase products; (2)
      products are delivered to the customer; (3) pricing is fixed or determined
      in
      accordance with the purchase order or agreement; and (4) collectibility is
      reasonably assured.





CASH
      AND
      CASH EQUIVALENTS





The
      Company invests idle cash primarily in money market accounts, certificates
      of
      deposits and short-term commercial paper. Money market funds and all highly
      liquid debt instruments with an original maturity of three months or less are
      considered cash equivalents.





PROPERTY
      AND EQUIPMENT





Impairment
        of long-lived assets is recognized when events or changes in circumstances
        indicate that the carrying amount of the asset, or related groups of assets,
        may
        not be recoverable. Under the provisions of SFAS No. 144, “Accounting for the
        Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
        Of”,
        the Company recognizes an “impairment charge” when the expected net undiscounted
        future cash flows from an asset's use and eventual disposition are less than
        the
        asset's carrying value and the asset's carrying value exceeds its fair value.
        Measurement of fair value for an asset or group of assets may be based on
        appraisal, market values of similar assets or estimated discounted future
        cash
        flows resulting from the use and ultimate disposition of the asset or
        assets.




F-12


2.
            SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES
                (Continued)





PROPERTY
      AND EQUIPMENT (Continued)





Expenditures
      for maintenance, repairs and betterments, which do not materially extend the
      normal useful life of an asset, are charged to operations as incurred. Upon
      sale
      or other disposition of assets, the cost and related accumulated depreciation
      are removed from the accounts and any resulting gain or loss is reflected in
      income.





Depreciation
      and amortization are provided for financial reporting purposes primarily on
      the
      straight-line method over the estimated useful lives of the respective assets
      as
      follows:





**Estimated****Useful
                Life*****Transportation
                equipment***
            **5
                years*****Office,
                computer software and equipment***
            **5
                years*****Furniture
                and fixtures***
            **5
                years*****Production
                equipment***
            **10
                years*****Building
                and improvements***
            **20
                years*****Construction
                in progress***
            **20
                years**








INTANGIBLE
      ASSETS





The
      Company adopted the provisions of SFAS No. 142, Goodwill and Other Intangible
      Assets (SFAS 142), effective January 1, 2002. Under SFAS 142, goodwill and
      indefinite lived intangible assets are not amortized, but are reviewed annually
      for impairment, or more frequently, if indications of possible impairment exist.
      The Company has performed the requisite annual transitional impairment tests
      on
      intangible assets and made the impairment adjustments as necessary.





The
      intangible asset ‘patent rights’ was to be amortized beginning when placed in
      service. The Company examined the carrying value of its patent rights to
      determine if there was any impairment loss. Indicators of impairment were
      present in the patent rights used in operations and future cash flows were
      not
      expected to be sufficient to recover the assets' carrying amount. An impairment
      loss equal to the previous carrying value was charged to expense during
      2004.





F-13


2.
            SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES
                (Continued)





INTANGIBLE
      ASSETS (Continued)





As
      a
      result of the acquisition of Ghangzhou, the Company acquired certain licenses
      from the PRC. These licenses have finite lives and are being amortized ratably
      over their useful lives using the historical cost of Ghangzhou. Components
      of
      intangible assets in the consolidated balance sheet at December 31, 2005
      consisted of:




Life
              
              Cost
              
              Accumulated
                  Amortization
              
              NetIndustrial
                  property rights
              
              
              15
                  year
              
              $
              138,595
              
              $
              100,047
              
              $
              38,548Land
                  use rights
              
              
              5
                  year
              
              
              24,782
              
              
              13,837
              
              
              10,945$
              163,377
              
              $
              113,884
              
              $
              49,493




Amortization
      expense totaled $21,014 and $254,531 for the years ended December 31, 2005
      and
      2004.





During
        2005 management determined that it would no longer produce traditional buses,
        but would focus on its hybrid technology. Consequently, an impairment loss
        was
        recognized for the full carrying amount of $771,922 for the 21 models of
        traditional buses.




ADVERTISING
      COSTS





All
      costs
      associated with advertising and promoting the buses are expensed in the period
      incurred. Advertising expense was $250 and $24,357 for the years ended December
      31, 2005 and 2004, respectively and $299,384 for the period from June 4, 1997
      (inception) to December 31, 2005.





INCOME
      TAXES





Income
        tax expense is based on reported income before income taxes. Deferred income
        taxes reflect the effect of temporary differences between assets and liabilities
        that are recognized for financial reporting purposes and the amounts that
        are
        recognized for income tax purposes. In accordance with Statement of Financial
        Accounting Standard (SFAS) No. 109, “Accounting for Income Taxes,” these
        deferred taxes are measured by applying currently enacted tax
        laws.





The
      Company did not provide any current or deferred income tax provision or benefit
      for any period presented to date because it has experienced operating losses
      since inception. The benefit of any tax loss carryforwards is fully offset
      by a
      valuation allowance, as there is a more than fifty percent chance that the
      Company will not realize those benefits.





F-14


2.
            SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES
                (Continued)





RESEARCH
      AND DEVELOPMENT COSTS





Company
      sponsored research and development costs, related to both present and future
      products, are charged to operations when incurred and are included in operating
      expenses. Expenditures for research and development for the years ended December
      31, 2005 and 2004 were $34,455 and $33,359, respectively and a cumulative amount
      of $8,843,543 for the period from June 4, 1997 (inception) to December 31,
      2005.
      Of this cumulative amount, $8,612,730 was the amount spent by Minghua Hong
      Kong
      shareholders to develop the patent, prior to the reverse merger.





RELATED
      PARTY TRANSACTIONS AND STOCKHOLDER'S LOANS





The
        caption “Due to Stockholders” and “Due to Related Company” are loans that are
        unsecured, non-interest bearing and have no fixed terms of repayment, therefore,
        deemed payable on demand. The Company rents office space from the related
        company.





LOSS
      PER
      SHARE





Basic
        loss per common share (“LPS”) is calculated by dividing net loss by the weighted
        average number of common shares outstanding during the year. Diluted earnings
        per common share are calculated by adjusting the weighted average outstanding
        shares, assuming conversion of all potentially dilutive stock
        options.





The
      numerator and denominator used in the basic and diluted LPS of common stock
      computations are presented in the following table:




Year
                  ended December 31,2005
              
              2004NUMERATOR
                  FOR BASIC AND DILUTED LPSNet
                  loss to common stockholders
              
              $
              (1,289,806
              )
              $
              (11,024,215
              )DENOMINATOR
                  FOR BASIC AND DILUTED LPSWeighted
                  average shares of common stock outstanding
              
              
              145,211,456
              
              
              115,065,000LPS
                  - Basic and diluted
              
              $
              (0.01
              )
              $
              (0.10
              )





There
      were no potentially dilutive securities outstanding at December 31,
      2005.





F-15


2.
            SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES
                (Continued)





EQUITY
      BASED COMPENSATION





The
        Company accounts for employee stock options in accordance with Accounting
        Principles Board Opinion No. 25 (APB), “Accounting for Stock Issued to
        Employees.” Under APB No.25 the Company recognized no compensation expense
        related to employee stock options, as no options are granted at a price below
        the market price on the day of grant.





COMPREHENSIVE
      LOSS





The
      accompanying financial statements are presented in United States (US) dollars.
      The functional currency is the Renminbi (RMB). The financial statements are
      translated into US dollars from RMB at year-end exchange rates for assets and
      liabilities, and weighted average exchange rates for revenues and expenses.
      Capital accounts are translated at their historical exchange rates when the
      capital transactions occurred.





RMB
      is
      not freely convertible into the currency of other nations. All such exchange
      transactions must take place through authorized institutions. There is no
      guarantee the RMB amounts could have been, or could be, converted into US
      dollars at rates used in translation.





3.
            BUSINESS
                ACQUISITIONS





On
        March
        13, 2003, Minghua’s indirect subsidiary, Ming Hua Environmental Protection
        Science and Technology Limited, a Hong Kong limited company (Minghua EPST),
        entered into the Acquisition Agreement with Good View Bus
        Manufacturing(Holdings) Company Limited, a Hong Kong limited company (Good
        View), Eagle Bus Development Limited, a Hong Kong limited company (Eagle),
        and
        Mr. Sin Keung Kok (Mr. Kok), relating to the acquisition of an 89.8% equity
        interest in the Guangzhou City View Bus Installation Company, a People's
        Republic of China limited company (the Guangzhou Bus Installation Company).
        The
        Guangzhou Bus Installation Company manufactures motor coaches for domestic
        sale
        in China and for export under the “Eagle” brand name.





The
      acquisition of the equity interest was effective on January 2004 after obtaining
      certain governmental approvals. The parties to the Acquisition Agreement entered
      into, and simultaneously consummated the transactions contemplated by, a
      supplemental agreement (the Supplemental Agreement), which replaced the original
      Acquisition Agreement. Pursuant to the Supplemental Agreement, instead of
      acquiring the Guangzhou Bus Installation Company directly, Minghua EPST acquired
      a controlling interest in the entities that control the Guangzhou City View
      Bus
      Installation Company. More specifically, Minghua EPST acquired Good View (which
      owns 23.8% of the Guangzhou Bus Installation Company) and Eagle (which owns
      66%
      of the Guangzhou Bus Installation Company), respectively. Therefore, Minghua
      EPST is now the indirect owner of an 89.8% equity interest in the Guangzhou
      Bus
      Installation Company. The remaining 10.2% is held by Guangzhou Public Automobile
      No. 2 Company.





The
      purchase price of RMB14,000,000 (US$1,690,474) was determined by the parties
      based upon the market value of the assets and business potential of Guangzhou
      Bus Installation Company.





F-16


3.
            BUSINESS
                ACQUISITIONS (Continued)





The
      purchase price was allocated to assets and liabilities as follows on the
      designated effective date on January 1, 2004:




Accounts
                  receivable
              
              $
              4,227Inventories
              
              
              1,714,957Other
                  receivables
              
              
              523,857Property,
                  plant and equipment
              
              
              1,295,170Intangible
                  - 28 bus licenses
              
              
              1,018,125Bank
                  note payable
              
              
              (66,425
              )Accounts
                  payable
              
              
              (2,055,941
              )Accrued
                  liabilities
              
              
              (816,482
              )Due
                  to related parties
              
              
              (281,131
              )Due
                  to director
              
              
              (84,519
              )Other
                  accounts payable
              
              
              (29,910
              )1,221,928Good
                  will (cost excess FMV)
              
              
              468,546Total
                  purchase price paid
              
              
              1,690,474




Goodwill
        in the amount of $468,546 was written to zero at the year end and was reported
        as goodwill impairment loss.





In
        January, 2004, Minghua Hong Kong entered into a stock purchase agreement
        with
        Jinmou Li, the son of the Company’s former Chairman, to acquire 100% of the
        equity in Asia Key Group Limited (“Asia Key”) a Hong Kong corporation, in which
        Jinmou Li is the sole stockholder. Asia Key’s only asset at the time was a 15%
        equity interest in Shenzhen Minghua Environmental Protection Vehicle Co.,
        Ltd.
        (“Minghua China”). Upon the consummation of this acquisition, Minghua China
        become a 100% wholly owned subsidiary of the Company. The acquisition required
        $990,638 in cash and issuance of 28,210,000 shares of common stock at US$.14
        per
        share of Minghua USA for an aggregate price of $4,940,038. The book value
        of the
        net assets transferred at the time of acquisition has a negative balance.
        In
        this regard, the purchase of the 15% minority interest was recorded to goodwill.
        The Company subsequently recorded the entire amount of $4,940,038 as impairment
        loss.





On
        June
        16, 2004, Minghua Hong Kong formed a wholly owned subsidiary in the PRC,
        named
        Beijing China Cardinal Real Estate Consulting Co., Ltd. (“Beijing Cardinal Real
        Estate”). The Company intends to use Beijing Cardinal Real Estate as a vehicle
        to make future real estate investments in the PRC. At December 31, 2005,
        Beijing
        Cardinal Real Estate had not begun significant operations.





In
        2002,
        Citic Worldwide Limited (“Citic”) was engaged as a consultant for the Company.
        The Company agreed to issue 800,000 shares of the Company's common stock
        for
        services rendered in connection with the acquisition of the Guangzhou City
        View
        Bus Installation Company Limited. The shares to be issued will be valued
        at an
        approximate market value of $.30 per share for a total





F-17


3.
                BUSINESS
                    ACQUISITIONS
                    (Continued)





consideration
      of $240,000 for its services. This amount is included in accrued liabilities
      on
      the balance sheet at December 31, 2005.





On
        December 5, 2002, the Company entered into a stock purchase agreement with
        Beijing Win-Win Oversea Scholars Innovation Investment Corporation, (“Beijing
        Win-Win”) and paid $121,000 as a deposit for a 51% interest in Beijing Win-Win.
        The original terms and conditions of this agreement have not been finalized
        and
        the Company is currently working with Beijing Win-Win to amend the original
        stock purchase agreement. It is unknown as of the date of these financial
        statements whether this stock purchase will be effected.





4.
            STOCKHOLDERS'
                EQUITY





ISSUANCE
      OF COMMON STOCK





In
      February 2002, the Company issued 372,807 shares of the Company's common stock
      at $.20 per share in a private placement. The total amount due of $74,561 was
      determined to be uncollectible during 2004 and was charged to additional paid
      in
      capital.




In
        April
        2002, 540,260 options were exercised by a former director at a cashless exercise
        amount of $416,000. The balance of the 2,000,000 options granted to this
        former
        director was forfeited in 2002.





In
      November 2002, 1,100,000 shares were issued to the Board of Directors at $.13
      per share, for a total consideration of $143,000, for services provided to
      the
      Company in 2002.





In
      March
      2003, the Company issued 1,513,969 shares of common stock for $.12 per share,
      for a total consideration of $181,676 to settle various debts with third party
      vendors and a loan payable to a former Director of the Company.





On
        September 29, 2003, the Company entered into its first stock subscription
        agreement with the Beijing Qiang Long Real Estate Development Co., Ltd. (“Qiang
        Long”), relating to the purchase of 15,000,000 shares of the Company's common
        stock at a purchase price of $.40 per share, for an aggregate consideration
        amount of $6,000,000. In 2003, 3,023,705 shares of stock were purchased under
        the subscription agreement for an aggregate consideration of $1,209,482.
        In
        2003, 1,511,488 shares of the 3,023,705 shares purchased were issued under
        this
        subscription agreement. In January 2004, Qiang Long funded $1,204,820 and
        received an additional 3,023,998 shares of the Company's common stock. During
        December 2004 Qiang Long funded the remaining $3,585,698 due on the subscription
        and received the remaining 10,464,514 shares.





On
      January 29, 2004 a second stock subscription agreement was entered into with
      Qiang Long. The second agreement calls for the purchase of 140,000,000 shares
      of
      the Company's common stock at a purchase price of $.21 per share, for an
      aggregate consideration of $29,400,000. Qiang Long will become the controlling
      stockholder of the Company as a result of this second agreement. The agreement
      has been amended several times to extend the due dates of the payments.
      Accordingly, Qiang Long is to pay in the first required installment, $12,600,000
      for 60,000,000 shares on or before December 1, 2006. The final installment
      of
      $16,800,000 is due by June 30, 2007. During 2004 the Company received $653,795
      as a partial payment toward the first installment. Prior to the issuance of
      the
      shares, the Company is required to hold a stockholders meeting to increase
      the
      number of common shares authorized, in order to have enough common shares to
      satisfy its stock obligations to Qiang Long. Qiang Long does not have
      the





F-18





4.
              STOCKHOLDERS'
                  EQUITY (Continued)





ISSUANCE
        OF COMMON STOCK (Continued)





right
      to
      cancel its subscription and the consideration is not refundable.





In
        January 2004 the Company issued 24,036,269 shares of its common stock to
        Kingsrich Development Limited in satisfaction of debt in accordance with
        a prior
        agreement. See Note 8 for details of the transaction.





On
        January 29, 2004 the Company issued 28,210,000 shares of its common stock
        in the
        acquisition of the 15% minority interest in Minghua China. The shares were
        valued at $.14 per share. The transaction is further discussed in Note
        1.





In
      February 2004, the Company issued 4,000,000 shares of its common stock in
      exercise of stock options. The exercise price was paid in services to the
      Company. Compensation expense of $480,000 was charged to current expense as
      a
      result of the transaction.





During
      May of 2004 the Company issued 16,483,514 shares of its common stock to China
      Cardinal Limited, of Hong Kong, in satisfaction of a subscription agreement.
      The
      stock was sold at a price of $.14 per share, for an aggregate amount of
      $2,307,692.





Luck
        Pond
        Enterprises Limited by Hong Kong (“Luck Pond”) had provided consulting services
        and acted as a finder in connection with the above-mentioned two subscription
        agreements with Qiang Long and an investment that was made in January 2004
        by
        China Cardinal Limited of Hong Kong. In consideration of those services,
        Luck
        Pond will receive a ten percent commission on the total investment proceeds
        from
        both investors, payable in common stock of the Company and was determined
        by
        management to be equivalent to 28,390,531 common shares. This commission
        is
        contingent upon final funding of 100% of all the three above-mentioned
        subscription agreements. During 2004, at the completion of two of the
        agreements, the Company charged $830,100 to expense. The amount was included
        in
        accrued liabilities at December 31, 2004, and in January 2005, the Company
        issued 5,770,000 shares of its common stock in payment of the
        liability.





COMMON
      STOCK





The
      Company's capital structure as of December 31, 2005 and 2004 was as
      follows:





***Common
                stock - par value $0.01***
            
            ***Authorized***
            
            ***Issued
                and outstanding******December
                31, 2005***
            
            ***200,000,000***
            
            ***145,496,004******December
                31, 2004***
            
            ***200,000,000***
            
            ***139,726,004***





The
      Company has agreements with some of the stockholders that contain restrictions
      on the transfer and other disposition of the stock.





F-19




4.
            STOCKHOLDERS'
                EQUITY (Continued)





STOCK
      OPTION PLAN





On
      April
      5, 2001, the Company's 2001 Stock Option Plan was adopted by the board of
      directors and was approved by the Company's shareholders at the stockholders'
      annual meeting on August 2, 2001. Pursuant to the 2001 option plan, the Company
      may grant incentive and nonstatutory (nonqualified) stock options to key
      employees and directors of the Company. A total of 20,000,000 shares of common
      stock have been reserved for issuance under the Plan. No employee may be granted
      options for more than 2,000,000 restricted shares under the Plan in any one
      fiscal year.





The
      maximum term of options granted under the 2001 Stock Option Plan is ten years.
      Options granted are nontransferable and generally expire within three months
      after the termination of the grantee's services.





The
      exercise price of incentive stock options must not be less than the fair value
      of the common stock on the date of the grant. The authority to grant new options
      under the Plan will terminate on April 5, 2011, unless the Plan is terminated
      prior to that time by the board of directors.





In
      2001,
      the Company granted 2,000,000 stock options to the Chairman under the 5 year
      nonqualified stock option plan, and these options are exercisable at $1.75
      per
      share.





The
      aforementioned options have fully vested at December 31, 2005 according to
      the
      following vesting schedule:





a.
            20%
                of the shares vest on the first day of the sixth month following
                the date
                of grant.


b.
            20%
                of the shares vest on the first annual anniversary of the date of
                grant.


c.
            2.5%
                of the shares vest on the first day of each month following the first
                annual anniversary of the date of
                grant.





In
      2001,
      2,000,000 nonqualified performance stock options were issued outside the stock
      option plan to the Chairman at $1.75 per share that vest only if the Company's
      annual revenues reach $50,000,000. At December 31, 2005, none of these options
      had vested.





All
      4,000,000 options were  forfeited
      on May 10, 2004 when the chairman resigned.





The
      Board
      of Directors on February 24, 2003 granted 4,000,000 stock options to five
      directors, to purchase shares of common stock of Minghua USA for $.012 per
      share, from March 1, 2003 to February 29, 2004. During this period, they may
      choose to exercise the right of purchasing common stock or to waive the right
      no
      matter what the fair market stock price shall be at that time. Partial
      purchasing is allowed. But once the right is exercised, the amount of common
      stock purchased must not be sold within six months from the exercising date.
      All
      of these 4,000,000 stock options were exercised in February 2004 in non-cash
      transactions; the $480,000, or $.12 per share was recorded as compensation
      expense.




F-20




4.
              STOCKHOLDERS'
                  EQUITY (Continued)





STOCK
        OPTION PLAN (Continued)





Stock
      option transactions are summarized as follows:




Stock
                  Options2005
              
              2004Outstanding
                  - beginning of year
              
              
              -
              
              
              8,000,000Granted
              
              
              -
              
              
              -Exercised
              
              
              -
              
              
              4,000,000Forfeited
              
              
              -
              
              
              4,000,000Outstanding
                  - end of year
              
              
              -
              
              
              -Shares
                  exercisable - end of year
              
              
              -
              
              
              -





The
      weighted-average fair values at date of grant for options granted during 2003
      and 2001 were $.17 and $1.75, respectively and were estimated using the
      Black-Scholes option valuation model with the following weighted-average
      assumptions:




***Expected
                life in years***
            **1
                - 5*****Interest
                rate***
            **3
                - 4.8%*****Volatility***
            **200
                - 276.7%*****Dividend
                yield***
            **0%**





In
      electing to continue to follow APB No. 25 for expense recognition purposes,
      the
      Company is obliged to provide the expanded disclosures required under SFAS
      No.
      148 for stock-based compensation granted in 2001 and thereafter, including
      if
      materially different from reported results, disclosure of pro forma net loss
      and
      loss per share had compensation expense relating to the 2003 grants been
      measured under the fair value recognition provision of SFAS No.
      123.





F-21


4.
            STOCKHOLDERS'
                EQUITY (Continued)





STOCK
      OPTION PLAN (Continued)





The
      Company's pro forma information for the years ended December 31, 2005 and 2004
      prepared in accordance with the provisions of SFAS No. 148, is provided below.
      For purposes of pro forma disclosures, stock-based compensation is amortized
      to
      expense on a straight-line basis over the requisite
      service period.




2005
              
              2004Net
                  loss, as reported
              
              $
              (1,289,806
              )
              $
              (11,024,215
              )Deduct:
                  total stock-based employee compensationdetermined
                  under fair value based method forall
                  awards, net of related tax effects
              
              
              -
              
              
              (525,000
              )Pro
                  forma net loss
              
              
              (1,289,806
              )
              
              (11,549,215
              )Basic
                  and diluted LPS - as reported
              
              $
              (0.01
              )
              $
              (0.10
              )Basic
                  and diluted LPS - pro forma
              
              $
              (0.01
              )
              $
              (0.10
              )





5.
            INVESTMENT





The
      Company has a one year deposit certificate with a financial institution in
      the
      PRC. The certificate earns interest at 8% per annum. The principal amount at
      December 31, 2005 is $1,769,473 and is recorded on the balance sheet as a short
      term investment.





6.
            INVENTORIES





Due
      to
      the Company’s low inventory turnover rate in recent years, inventory has been
      classified as a non-current asset. Inventories at December 31 consisted of
      :




2005Materials
              
              $
              807,363Low
                  value consumables
              
              
              42,769Costs
                  of production
              
              
              484,354Finished
                  goods
              
              
              30,203Subtotal
              
              
              1,364,689Less:
                  reserve for obsolescence
              
              
              (1,009,534
              )Net
                  inventories
              
              $
              355,155




F-22




7.
            PROPERTY
                AND EQUIPMENT





Property
      and equipment at cost consisted of:




2005Transportation
                  equipment
              
              $
              340,832Furniture
                  and office equipment
              
              
              412,616Production
                  equipment
              
              
              193,151Buildings
                  and improvements
              
              
              1,536,723Construction
                  in progress
              
              
              -Idle
                  equipment
              
              
              31,325Subtotal
              
              
              2,514,647Less:
                  accumulated depreciation
              
              
              (1,326,396
              )Net
                  property and equipment
              
              $
              1,188,251




Depreciation
      expense for the years ended December 31, 2005 and 2004 was $36,882 and $130,184,
      respectively.





8.
            NOTES
                PAYABLE





SHORT-TERM
      NOTES PAYABLE





The
      short-term notes payable consists of a credit line agreement with an interest
      rate of 9% per annum, denominated in Chinese Yuan Renminbi, from a Chinese
      bank.
      The loan is secured by a guarantee given by a third party. The US dollar
      equivalent of the outstanding loans balance at December 31, 2005 was
      $169,760.





As
      of
      December 31, 2004, Minghua China was in default with all of its notes payable,
      with a total principal balance past due of $649,492. On March 1, 2005, the
      Company settled a bank note, which settlement resulted in gain on debt
      settlement in the amount of $156,018. Company assets are not subject to lien
      from these notes payable in default.





CONVERTIBLE
      PROMISSORY NOTE





To
      finance the acquisition of the Guangzhou City View Bus Installation Company
      Limited and to provide working capital to the operations of the Company in
      2003,
      Kingsrich Development Limited, a BVI limited company, loaned the company
      $3,128,225. The Company signed a promissory note, dated March 17, 2003 in the
      sum of $3,128,225, bearing an interest rate of 5% per annum compounded
      quarterly, with the accrued interest and the principal due on March 31, 2008,
      the maturity date. If the principal amount shall become due and payable prior
      to
      the maturity date (whether by acceleration or otherwise), accrued interest
      on
      the principal amount shall also become due and payable on such earlier
      date.





F-23


8.
            NOTES
                PAYABLE (Continued)





CONVERTIBLE
      PROMISSORY NOTE (Continued)





The
        proceeds from this note were disbursed directly by Kingsrich Development
        Limited, to the Chairman of the Company who on behalf of the Company, paid
        the
        seller of the Guangzhou City View Bus Installation Company Limited $967,585
        (refer to Note 3). The balance of $2,160,640 was also paid directly to the
        Company's Chairman to pay off his outstanding loan balance owed by the Company
        and certain other accounts payable and accrued liabilities of the
        Company.





The
      promissory note could be converted into shares of the Company's common stock,
      anytime during the term of the promissory note, at the discretion of Kingsrich
      Development Limited, at the conversion rate of $0.13 per share. This conversion
      rate was based on the market price of the Company's stock at the time of this
      agreement. The promissory note was converted into 24,036,269 shares of common
      stock in January 2004.





Total
      interest expense incurred and charged to expense was $19,483 and $13,682 for
      the
      years ended December 31, 2005 and 2004 respectively, and $679,673 for the period
      from June 4, 1997 (inception) to December 31, 2005.





9.
            INCOME
                TAXES





The
        Company accounts for income taxes in accordance with the provisions of SFAS
        No.
        109, “Accounting for Income Taxes.





Income
        tax expense is based on reported income before income taxes. Deferred income
        taxes reflect the effect of temporary differences between assets and liabilities
        that are recognized for financial reporting purposes and the amounts that
        are
        recognized for income tax purposes. In accordance with SFAS No. 109, “Accounting
        for Income Taxes”, these deferred income taxes are measured by applying
        currently enacted tax laws.





The
      Company has a United States federal net operating loss carryforward of
      approximately $5.2 million expiring in the years 2021 - 2025. The tax benefit
      of
      this net operating loss has been offset by a full valuation allowance. A portion
      of the net operating loss carryforward will be subject to a limitation due
      to
      the “Change of ownership provisions” under Section 382 of the Internal Revenue
      Code and similar state provisions.





There
      are
      net operating loss carryforwards allowed under the Hong Kong and China
      governments' tax systems. In China, the previous five years net operating losses
      are allowed to be carried forward five years to offset future taxable income.
      In
      Hong Kong, prior years' net operating losses can be carried forward indefinitely
      to offset future taxable income. The Company has available approximately
      $19,527,485 of unused operating losses carryforwards. A deferred tax asset
      of
      $5,858,246 arising from these net operating losses and deferred start up costs,
      the only significant deferred tax assets or liabilities, has been fully offset
      by a valuation allowance due to the uncertainty of the Company having future
      taxable profits. The change in the valuation allowance, based on an estimated
      30% tax rate, was approximately $232,557 for the year ended December 31,
      2005.





Minghua
      China withholds and pays income taxes on its employees' wages, which funds
      the
      Chinese government's sponsored health and retirement programs of all Minghua
      China employees. For Minghua China employees, Minghua China was obligated to
      make contributions to the social insurance bureau under the laws of the PRC
      for
      pension and retirement benefits.





F-24


10.
            COMMITMENTS
                AND CONTINGENCIES





LEGAL
      PROCEEDINGS





From
      time
      to time, the Company has disputes that arise in the ordinary course of its
      business. Currently, according to management, there are no material legal
      proceedings to which the Company is party of or to which any of their property
      is subject, that will have a material adverse effect on the Company's financial
      condition.





11.
            SUPPLEMENTAL
                CASH FLOW INFORMATION





NON-CASH
      TRANSACTIONS





The
      Company issued 1,513,969 shares of common stock for $.12 per share on March
      31,
      2003, to settle debts with third party vendors and pay off $181,676 of a loan
      payable to its former President.





The
      Company issued 4,000,000 shares of common stock at $.12 per share in February
      2004, in the exercise of outstanding stock options. The amount of $480,000
      was
      recorded as compensation expense.





In
        January 2004 the Company issued 24,036,269 shares of common stock at $.13
        per
        share in satisfaction of a convertible note payable (see Note
        8).





The
        Company issued 28,210,000 shares of common stock at $.14 per share in the
        acquisition of the previous minority interest of Minghua China, for a total
        non-cash value of $3,949,400.





In
      January 2005, the Company issued 5,770,000 common shares for the satisfaction
      of
      $830,100 in accrued liabilities.





12.
            FAIR
                VALUE OF FINANCIAL INSTRUMENTS





Statement
        of Financial Accounting Standards No. 107, “Disclosures about Fair Value of
        Financial Instruments” (“SFAS 107”) requires entities to disclose the fair
        values of financial instruments except when it is not practicable to do so.
        Under SFAS No. 107, it is not practicable to make this disclosure when the
        costs
        of formulating the estimated values exceed the benefit when considering how
        meaningful the information would be to financial statement
        users.





As
      a
      result of the difficulties presented in the valuation of the loans payable
      to
      related entities/parties because of their related party nature, estimating
      the
      fair value of these financial instruments is not considered practical. The
      fair
      values of all other assets and liabilities do not differ materially from their
      carrying amounts. None of the financial instruments held are derivative
      financial instruments and none were acquired or held for trading purposes in
      2005 and 2004.





F-25




13.
            NEW
                ACCOUNTING PRONOUNCEMENTS





In
      February 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
      155, “Accounting for Certain Hybrid Financial Instruments - an amendment of FASB
      Statements No. 133 and 140”. The statement permits fair value remeasurement for
      any hybrid financial instrument that contains an embedded derivative that
      otherwise would require bifurcation, clarifies which interest-only strips are
      not subject to the requirements of Statement 133, establishes a requirement
      to
      evaluate interests in securitized financial assets to identify interests that
      are freestanding derivatives or that are hybrid financial instruments that
      contain an embedded derivative requiring bifurcation, clarifies that
      concentrations of credit risk in the form of subordination are not embedded
      derivatives, and amends Statement 140 to eliminate the prohibition on a
      qualifying special-purpose entity from holding a derivative financial instrument
      that pertains to a beneficial interest other than another derivative financial
      instrument. The Statement is effective for financial instruments acquired or
      issued after the beginning of the first fiscal year that begins after September
      15, 2006. The Company expects that the Statement will have no material impact
      on
      its financial statements.





In
      February 2006, the FASB issued Staff Position No. FAS 123(R)-4, “Classification
      of Options and Similar Instruments Issued as Employee Compensation That Allow
      for Cash Settlement upon the Occurrence of a Contingent Event”. This position
      addresses the classification of options and similar instruments issued as
      employee compensation that allow for cash settlement upon the occurrence of
      a
      contingent event, amending paragraphs 32 and A229 of SFAS No. 123 (revised
      2004), “Share-Based Payment”. The Company’s statement of operations will be
      impacted in the event that the Company compensates its employees with equity
      securities in the future.





In
      October 2005, the FASB issued Staff Position No. FAS 13-1, “Accounting for
      Rental Costs Incurred during a Construction Period”. This position addresses the
      accounting for rental costs associated with operating leases that are incurred
      during a construction period. Management believes that this position has no
      application to the Company.





In
      May
      2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections
      (“SFAS No. 154”), which replaced Accounting Principles Board Opinion No. 20,
      Accounting Changes and SFAS No. 3, Reporting Accounting Changes in Interim
      Financial Statements. SFAS No. 154 changes the requirements for the accounting
      for and reporting of a change in accounting principles. It requires
      retrospective application to prior periods’ financial statements of changes in
      accounting principles, unless it is impracticable to determine either the
      period-specific effects or the cumulative effect of the change. This statement
      is effective for accounting changes and corrections of errors made in fiscal
      years beginning after December 15, 2005. The impact on the Company’s operations
      will depend on future accounting pronouncements or changes in accounting
      principles.





In
      March
      2005, the FASB issued FASB Interpretation (“FIN”) No. 47, “Accounting for
      Conditional Asset Retirement Obligations.” FIN 47 clarifies that the term
“Conditional Asset Retirement Obligation” as used in FASB Statement No. 143,
“Accounting for Asset Retirement Obligations,” refers to a legal obligation to
      perform an asset retirement activity in which the timing and/or method of
      settlement are conditional on a future event that may or may not be within
      the
      control of the entity. Accordingly, an entity is required to recognize a
      liability for the fair value of a Conditional Asset Retirement Obligation if
      the
      fair value of the liability can be reasonably estimated. FIN 47 is effective
      no
      later than the end of the fiscal year ending after December 15, 2005. Management
      does not believe the adoption of FIN 47 will have a material effect on the
      Company’s financial position, results of operations or cash flows.





F-26




14.
            RESTATEMENT





Subsequent
        to the issuance of the financial statements, management reevaluated its
        presentation related to our 2004 acquisitions. The result of the restatement
        is
        that the “acquisition expense” on the “other income (expense)” should be
        reclassified to operation expense as “impairment loss”. The restatement had no
        effect on the balance sheet. The impairment loss represents goodwill from
        the
        acquisitions which was subsequently impaired.





The
        goodwill impairment loss includes acquisition of the 15% minority interest
        of
        Shenzhen Minghua Environmental Protection Vehicle Co., Ltd for $4,940,038
        and
        $468,546 from the acquisition of Guanzhou City View. (See Note 3, business
        combination.)




Period
                  from
                June
                  4, 1997
                (inception)
                  to
              
              Period
                  from
                June
                  4, 1997
                (inception)
                  toYear
                  ended December 31,
              
              December
                  31,
              
              December
                  31,Restated
              
              Original
              
              Restated
              
              Original
              
              Restated
              
              Original2005
              
              2005
              
              2004
              
              2004
              
              2005
              
              2005RevenuesSales
                  revenues
              
              $
              353,478
              
              $
              353,478
              
              $
              83,733
              
              $
              83,733
              
              $
              437,211
              
              $
              437,211Cost
                  of sales
              
              
              569,785
              
              
              569,785
              
              
              96,525
              
              
              96,525
              
              
              666,310
              
              
              666,310Gross
                  profit
              
              
              (216,307
              )
              
              (216,307
              )
              
              (12,792
              )
              
              (12,792
              )
              
              (229,099
              )
              
              (229,099
              )Operating
                  expensesGeneral
                  and administrative expenses
              
              
              520,530
              
              
              1,171,556
              
              
              3,673,698
              
              
              5,424,185
              
              
              11,812,795
              
              
              14,214,308Good
                  will impairment loss
              
              
              -
              
              
              -
              
              
              5,408,584
              
              
              -
              
              
              5,408,584
              
              
              -Write-off
                  inventory and bus licenses
              
              
              1,010,046
              
              
              -
              
              
              2,005,018
              
              
              -
              
              
              3,015,064
              
              
              -Research
                  and development costs
              
              
              34,455
              
              
              34,455
              
              
              33,359
              
              
              33,359
              
              
              8,843,543
              
              
              8,843,543Total
                  operating expenses
              
              
              1,565,031
              
              
              1,206,011
              
              
              11,120,659
              
              
              5,457,544
              
              
              29,079,986
              
              
              23,057,851Loss
                  from operations
              
              
              (1,781,338
              )
              
              (1,422,318
              )
              
              (11,133,451
              )
              
              (5,470,336
              )
              
              (29,309,085
              )
              
              (23,286,950
              )Other
                  income (expense)Interest
                  income
              
              
              988
              
              
              988
              
              
              42,745
              
              
              42,745
              
              
              43,733
              
              
              43,733Other
                  income (expense)
              
              
              358,832
              
              
              (188
              )
              
              80,173
              
              
              80,173
              
              
              855,115
              
              
              496,095Loss
                  on asset disposal
              
              
              (4,823
              )
              
              (4,823
              )
              
              -
              
              
              -
              
              
              (4,823
              )
              
              (4,823
              )Gain
                  on debt settlement
              
              
              156,018
              
              
              156,018
              
              
              -
              
              
              -
              
              
              156,018
              
              
              156,018Acquisition
                  expense
              
              
              -
              
              
              -
              
              
              -
              
              
              (5,663,115
              )
              
              -
              
              
              (5,663,115
              )Interest
                  expense
              
              
              (19,483
              )
              
              (19,483
              )
              
              (13,682
              )
              
              (13,682
              )
              
              (679,673
              )
              
              (679,673
              )Total
                  other income (expense)
              
              
              491,532
              
              
              132,512
              
              
              109,236
              
              
              (5,553,879
              )
              
              370,370
              
              
              (5,651,765
              )Net
                  loss before income taxes
              
              
              (1,289,806
              )
              
              (1,289,806
              )
              
              (11,024,215
              )
              
              (11,024,215
              )
              
              (28,938,715
              )
              
              (28,938,715
              )Provision
                  for income taxes
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Net
                  loss
              
              $
              (1,289,806
              )
              $
              (1,289,806
              )
              $
              (11,024,215
              )
              $
              (11,024,215
              )
              $
              (28,938,715
              )
              $
              (28,938,715
              )Foreign
                  currency translation adjustment
              
              
              (230,745
              )
              
              (230,745
              )
              
              -
              
              
              -Comprehensive
                  loss
              
              $
              (1,520,551
              )
              $
              (1,520,551
              )
              $
              (11,024,215
              )
              $
              (11,024,215
              )Basic
                  and diluted net loss per share
              
              $
              (0.01
              )
              $
              (0.01
              )
              $
              (0.10
              )
              $
              (0.10
              )Weighted
                  average number of shares outstanding
              
              
              145,211,456
              
              
              145,211,456
              
              
              115,065,000
              
              
              115,065,000




F-27
 
 **EXHIBITS**


*Exhibit
                Number*
            *Description**2.1
            Stock
                Purchase Agreement, dated October 21, 2004, between the Company and
                Mr.
                Sin Keung Kok relating to the acquisition of Mr. Sin Keung Kok’s equity
                interest in Ming Hua Environmental Protection Science and Technology
                Limited [Incorporated by reference to Exhibit 10 of the Form 8-K
                filed on
                October 27, 2004 in Commission file number 0-30183]*2.2
            Stock
                Purchase Agreement, dated January 19, 2004, among the Company, Minghua
                Group International Holding (Hong Kong) Limited and Li Jinmou relating
                to
                the acquisition of Asia Key Group Limited [Incorporated by reference
                to
                Exhibit 10.3 of the Form 8-K filed on February 12, 2004 in Commission
                file
                number 0-30183]*2.3
            Stock
                Purchase Agreement, dated April 27, 2001, among the Company, Minghua
                Acquisition Corp., Li Chuquan and Chan Kuen Kwong [Incorporated by
                reference to Exhibit 2.1 of the Form 8-K filed on May 3, 2001 in
                Commission file number 0-30183]*3.1
            Certificate
                of Incorporation of the Company [Incorporated by reference to Exhibit
                3.1
                of the Form 10-KSB filed on April 15, 2002 in Commission file number
                0-30183]*3.2
            Certificate
                of Amendment of Certificate of Incorporation of the Company [Incorporated
                by reference to Appendix A of the Definitive Proxy Statement of the
                Company filed on July 3, 2001 in Commission file number
                0-30183]*3.3
            Amended
                and Restated Bylaws of the Company [Incorporated by reference to
                Exhibit
                3.3 of the Form 10-KSB filed on April 15, 2002 in Commission file
                number
                0-30183 in Commission file number 0-30183]*4.1
            Warrant
                to Purchase Common Stock, dated April 2, 2001, between the Company
                and
                First Pacific Capital, Ltd. [Incorporated by reference to Exhibit
                10.9 of
                the Form 10-QSB filed on August 20, 2001 in Commission file number
                0-30183]*4.2
            Registration
                Rights Agreement, dated June 22, 2001, among the Company, Li Chuquan
                and
                Chan Kuen Kwong [Incorporated by reference to Exhibit 4.2 of the
                Form
                10-KSB filed on April 15, 2002 in Commission file number
                0-30183]*4.3
            Registration
                Rights Agreement, dated July 23, 2001, among the Company and the
                stockholders of the Company named in the Registration Rights Agreement
                [Incorporated by reference to Exhibit 4.2 of the Form 10-KSB filed
                on
                April 15, 2002 in Commission file number 0-30183]*4.4
            Form
                of Regulation D Subscription Agreement [Incorporated by reference
                to
                Exhibit 4.2 of the Form 10-KSB filed on April 15, 2002 in Commission
                file
                number 0-30183]*4.5
            Form
                of Regulation S Subscription Agreement [Incorporated by reference
                to
                Exhibit 4.2 of the Form 10-KSB filed on April 15, 2002 in Commission
                file
                number 0-30183]*10.1
            Letter
                Agreement, dated as of October 29, 2004, between the Company and
                Qiang
                Long Real Estate Development Co., Ltd. [Incorporated by reference
                to
                Exhibit 10 of the Form 8-K filed on November 3, 2004 in Commission
                file
                number 0-30183]









*10.2
            Loan
                Agreement, dated May 10, 2004, between ShenZhen Ruichijuntong Industry
                Co., Ltd. and Minghua Environment Protection Vehicles Ltd. [Incorporated
                by reference to Exhibit 10.1 of the Form 10-QSB filed on August 23,
                2004
                in Commission file number 0-30183]*10.3
            Guangzhou
                City View Bus Installation Company Limited Agreement
              [Incorporated
                by reference to Exhibit 10.1 of the Form 8-K filed on March 28, 2003
                in
                Commission file number 0-30183]*10.4
            Kingsrich
                Development Limited Loan Agreement [Incorporated by reference to
                Exhibit
                10.2 of the Form 8-K filed on March 28, 2003 in Commission file number
                0-30183]*10.5
            Kingsrich
                Development Limited Convertible Promissory Note [Incorporated by
                reference
                to Exhibit 10.3 of the Form 8-K filed on March 28, 2003 in Commission
                file
                number 0-30183]*10.6
            Registration
                Rights Agreement, dated March 17, 2003, between the Company and Kingsrich
                Development Limited [Incorporated by reference to Exhibit 10 of the
                Form
                10-QSB filed on August 28, 2003 in Commission file number
                0-30183]*10.7
            Regulation
                S Subscription Agreement, dated September 29, 2003, between the Company
                and Beijing Qiang Long Real Estate Development Company, Ltd. relating
                to
                subscription rights for 15,000,000 shares of the Company's Common
                Stock
                [Incorporated by reference to Exhibit 10.1 of the Form 10-QSB filed
                on
                December 2, 2003 in Commission file number 0-30183]*10.8
            Contract,
                dated January 29, 2004, between Beijing Qiang Long Real Estate Development
                Co. Ltd. and the Company [Incorporated by reference to Exhibit 10.1
                of the
                Form 8-K filed on February 12, 2004 in Commission file number
                0-30183]*10.9
            Contract,
                dated January 13, 2004, between China Cardinal Limited and the Company
                [Incorporated by reference to Exhibit 10.2 of the Form 8-K filed
                on
                February 12, 2004 in Commission file number 0-30183]*10.10
            Employment/Co-Operation
                Agreement, dated April 10, 2002, between the Company and Albert Wong
                [Incorporated by reference to Exhibit 99.1 of the Form 8-K filed
                on May 2,
                2002 in Commission file number 0-30183]*10.11
            Employment
                Agreement, dated July 11, 2001, between the Company and Li Chuquan
                [Incorporated by reference to Exhibit 10.1 of the Form 10-QSB filed
                on
                August 20, 2001 in Commission file number 0-30183]*10.12
            Non-Qualified
                Stock Option Agreement, dated July 11, 2001, between the Company
                and Li
                Chuquan [Incorporated by reference to Exhibit 10.2 of the Form 10-QSB
                filed on August 20, 2001 in Commission file number
                0-30183]*10.13
            Stock
                Option Agreement, dated July 11, 2001, between the Company and Li
                Chuquan
                [Incorporated by reference to Exhibit 10.3 of the Form 10-QSB filed
                on
                August 20, 2001 in Commission file number 0-30183]*10.14
            Employment
                Agreement, dated April 5, 2001, between the Company and Ronald C.
                H. Lui
                [Incorporated by reference to Exhibit 10.4 of the Form 10-QSB filed
                on
                August 20, 2001 in Commission file number
                0-30183]









*10.15
              Incentive
                  Stock Option Agreement, dated April 5, 2001, between the Company
                  and
                  Ronald C. H. Lui [Incorporated by reference to Exhibit 10.5 of
                  the Form
                  10-QSB filed on August 20, 2001 in Commission file number
                  0-30183]*10.16
              Non-qualified
                  Stock Option Agreement, dated April 5, 2001, between the Company
                  and
                  Ronald C. H. Lui [Incorporated by reference to Exhibit 10.6 of
                  the Form
                  10-QSB filed on August 20, 2001 in Commission file number
                  0-30183]*10.17
              Amendment
                  to Stock Option Agreements, dated April 12, 2001, between the Company
                  and
                  Ronald C. H. Lui [Incorporated by reference to Exhibit 10.7 of
                  the Form
                  10-QSB filed on August 20, 2001 in Commission file number
                  0-30183]*10.18
              Consulting
                  Agreement, dated April 2, 2001, between the Company and First Pacific
                  Capital Ltd. [Incorporated by reference to Exhibit 10.8 of the
                  Form 10-QSB
                  filed on August 20, 2001 in Commission file number
                  0-30183]*10.19
              Letter
                  Agreement, dated April 5, 2001, between the Company and First Pacific
                  Capital Ltd. [Incorporated by reference to Exhibit 10.10 of the
                  Form
                  10-QSB filed on August 20, 2001 in Commission file number
                  0-30183]*10.20
              2001
                  Stock Plan [Incorporated by reference to Appendix B of our Definitive
                  Proxy Statement on Schedule 14A filed on July 3, 2001 in Commission
                  file
                  number 0-30183]*10.21
              Placement
                  Agency Agreement, dated July 23, 2001, between the Company and
                  Chicago
                  Investment Group Incorporated [Incorporated by reference to Exhibit
                  10.11
                  of the Form 10-KSB filed on April 15, 2002 in Commission file number
                  0-30183]*10.22
              Letter
                  Agreement repayment of stockholder loan, dated December 11, 2001,
                  between
                  the Company and Li Chuquan [Incorporated by reference to Exhibit
                  99.1 of
                  the Form 8-K filed on December 20, 2001 in Commission file number
                  0-30183]10.23
              Technology
                  Development Contract, dated February 15, 2004, between Tsinghua
                  University
                  and the Company.10.24
              Sales
                  Contract of Guangzhou Cityview Bus Installation Co., Ltd., dated
                  August 6,
                  2004, between Changsha United Electric Power Science and Technology
                  Co.,
                  Ltd. and Guangzhou Cityview Bus Installation Co., Ltd.10.25
              Lease
                  Agreement, dated May 30, 2004, between Liu Gui Zhi and Beijing
                  China
                  Cardinal Real Estate Consulting Ltd.10.26
              Lease
                  Agreement, dated May 20, 2004, between Shenzhen Minghua Environmental
                  Protection Vehicle Co., Ltd. and Richard Zhang.*14
              Code
                  of Ethics [incorporated by reference to Exhibit 14 of the Annual
                  Report on
                  Form 10-KSB of the Company for the fiscal year ended December 31,
                  2003]21
              A
                  description of the subsidiaries of the registrant31.1
              Certification
                  of Principal Executive Officer filed pursuant to Section 302 of
                  the
                  Sarbanes-Oxley Act of 2002.










31.2
              Certification
                  of Principal Financial Officer filed pursuant to Section 302 of
                  the
                  Sarbanes-Oxley Act of 2002.32
              Certifications
                  of Principal Executive Officer and Principal Financial Officer
                  furnished
                  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                  906 of
                  the Sarbanes-Oxley Act of
                  2002.





*  Incorporated
      by reference as indicated.