U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   FORM 10-KSB


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

For the fiscal year ended December 31, 2003       Commission File No. 000-30183


                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                 (Name of small business issuer in its charter)

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

Guangdong Bian Fang Building, 10th Floor
    Futian District, Shenzhen, 518033
                                                          +852-6011-6767
      People's Republic of China                   (Registrant's telephone no.
(Address of principal executive office)                including area code)


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

Securities registered pursuant to Section 12(g) of the Act: Common stock, $.01
par value

      Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for at least the past 90 days.

YES   X    NO

      Indicate by check mark 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.

YES        NO  X

      The issuer did not have any revenues for its most recent fiscal year.

      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 March 15, 2004 is: $9,514,526

The number of outstanding shares of the issuer's common stock as of March 15,
2004: 80,567,976.


<PAGE>

                           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 June 22, 2001, we
were relatively inactive with limited operations. To date we have not generated
any revenues.

      On June 22, 2001 our direct wholly-owned subsidiary, Minghua Acquisition
Corp., a Delaware corporation, acquired all of the outstanding capital stock of
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) for $1,000,000 and 28,000,000 shares of
our common stock. Minghua Hong Kong then had, as its sole material asset, an 85%
equity interest in the 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 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 now
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 June 22, 2001. Our hybrid
vehicles are powered by a combination of a combustion diesel engine and electric
power systems based upon our patented technology. A prototype hybrid vehicle was
produced in 2000 but to date we have not made any sales.

      We aim to become China's leading manufacturer of hybrid electric vehicles
and a key competitor in the global market. For our investors, our goal is to
deliver high shareholder value, excellent quantitative returns in the future,
and the satisfaction of contributing to an important environmental cause. We are
committed to our role as a major contributor to worldwide research and
development efforts of environmentally compatible vehicles.



<PAGE>

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 a
prototype hybrid electric bus MH6720. The MH6720 model was presented at China's
Hi Tech Fair where the Environmental Vehicle Company's hybrid technology project
received recognition as a Key Industrial Project by the Shenzhen municipal
government. Tests were conducted by institutions such as the Shenzhen Academy of
Metrology and Quality Inspection, and the MH6720 received excellent reviews.

      Our prototype hybrid electric bus MH6720 is a 21 passenger bus that is
powered by an advanced parallel composite system that combines a diesel engine
and an electric power system. This configuration is coupled with a switch that
allows the driver to select the energy source (diesel or electric) depending on
travel conditions. For instance, lower speeds and short distances in urban areas
will only require battery operation. When using the battery power system, our
vehicle is virtually silent and totally emission free.

      We believe that our hybrid power technology is our competitive advantage.
Our hybrid electric vehicle combines fuel efficiency with high performance. The
prototype hybrid electric bus MH6720 is equipped with a fuel-efficient diesel
engine that conforms to European II emission standards and an electric power
system which consists of low maintenance batteries that recharge themselves when
the vehicle is running on diesel fuel. According to tests conducted by Shenzhen
Academy of Metrology and Quality Inspection in December 2000, our hybrid
electric bus has twice the gas mileage of conventional diesel buses. Moreover,
unlike other hybrid vehicles that require the use of fuel sources not readily
available to the public, such as hydrogen powered fuel cells, our vehicle uses
diesel fuel which can be purchased in gas stations. Consequently, no additional
infrastructure is required to support the hybrid technology used by our busses.

      Performance parameters for the MH6720 are as follows:

                                             Diesel                Electric
Max vehicle speed                            90 kph                 75 kph
Continuous driving distance                  800 km                 100 km
Maximum incline                                n/a                    30%
Fuel consumption per 100 km            Less than 10 liters            N/A


PRODUCT DEVELOPMENT

      In 2002, we successfully developed and produced a luxury hybrid electric
coach (MH6120) with 12-meter long and 40 comfortable seats.

      In July, 2002, the State Key New Product Certificate was issued jointly by
State departments of the People's Republic of China to the Environmental Vehicle
Company. The 5 departments are as follows:

      (i)   Ministry of Science & Technology of the People's Republic of China;

      (ii)  State Taxation General Administration Bureau;

      (iii) Ministry of Foreign Trade and Economic Cooperation;

      (iv)  State Quality Supervision, Inspection & Quarantine General
            Administration Bureau; and

      (v)   State Environmental Protection General Administration Bureau.



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<PAGE>

      This recognition and ratification of our product reaffirms the social
value of our product and inspires us to continue to create innovative
environmental protection solutions within the automotive industry.

      After launching of MH6720 and MH6120, we plan on developing several
additional models, including a 22-passenger mini bus and a 54-passenger deluxe
coach. We believe that the proposed deluxe model will boast a comfortable ride
with plush seats and state-of-the-art accessories. In addition, we intend to be
equipped to customize each bus according to the customers' individual
specifications.

MANUFACTURING OUR PRODUCT

      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 motorcoaches for domestic sale in China and
for export under the "Eagle" brand name.

      The acquisition of the equity interest was subject to certain governmental
approvals, which have still not been obtained. Due to the delay in obtaining the
required governmental approvals, on January 27, 2004, 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 9,999 of the total 10,000 authorized share
capital of Good View (which owns 23.8% of the Guangzhou Bus Installation
Company) and 1,999,999 of the total 1,200,000 authorized share capital of Eagle
(which owns 66% of the Guangzhou Bus Installation Company) from the stockholders
of Good View and Eagle, 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 deposit of RMB 8,000,000 (US$967,585) that had previously been paid
upon entering into the original Acquisition Agreement was distributed to the
prior stockholders of Good View and Eagle. Furthermore, Minghua EPST issued to
Mr. Kok, a former stockholder of Good View, a 43% equity interest in Minghua
EPST. Accordingly, we now indirectly own 57% of Minghua EPST, which in turn owns
89.8% of the Guangzhou Bus Installation Company.

      The amount of the consideration payable by Minghua EPST was determined by
the parties based upon the market value of the assets and business potential of
Guangzhou Bus Installation Company. The price was determined based on arms'
length negotiations between Minghua EPST and the stockholders of Eagle and Good
View.

      As a result of the acquisition of the Guangzhou Bus Installation Company,
we now have the ability to manufacture our products. We expect to begin
manufacturing our hybrid busses and potentially other products in fiscal year
2004. We expect that prior to making any sales of our products we will have to
provide our customers with the use of our products on a one to three month pilot
basis. If our clients are satisfied with the results of the pilots, then we
would begin taking orders for busses and we expect to manufacture busses using
the facilities of the Guangzhou Bus Installation Company.



                                       4
<PAGE>

MARKET

      We believe that the global market is favorable for the introduction of
hybrid electric 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.

      In the United States, a prototype 40-ft. hybrid transit bus, built by Nova
Bus using Lockheed Martin's HybriDrive TM Propulsion System, was introduced in
Boston in January 2001. Nova's hybrid bus was the product of over three years of
research funded by the Demonstration of Universal Electric Transportation
Subsystems Consortium and the Federal Transit Administration. Nova Bus is also
working with the New York City Metropolitan Transit Authority on a pilot program
that includes placing several diesel-electric hybrid buses into service.

      A few projects are currently in place within the European Union. Research
and development efforts are primarily geared towards the mass transit systems.
The Netherlands and Luxembourg began running some hybrid buses as part of their
mass transit system so that these vehicles can be tested in normal service
conditions for several years. In Germany, hybrid buses are presently used to
provide regular service between the Alpine cities of Oberstdorf, Sonthofen and
Kempten.

      In Japan, Honda and Toyota have introduced their hybrid vehicles to the
public.

      Given this demonstrated world-wide interest in developing and using
environmentally friendly mass transit vehicles, we believe our hybrid busses
will be well received in China and other countries world-wide. 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 license 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

      Since the completion of the MH6720 prototype, our team has been exhibiting
it at trade shows in China. The vehicle has received excellent reviews. Another
prototype, the MH6120, has been completed and is currently being tested. Both
the MH6720 and MH6120 will be exhibited at future trade shows.

      Additional exposure will be achieved through print media. To date,
articles regarding our buses have been printed in newspapers in China as well as
in the United States. Our management team has also met with Chinese officials
who have expressed interest in ordering our vehicles because they conform to
environmental standards, although no orders have been placed to date.

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


                                       5
<PAGE>

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.

      We believe that our product is superior to other types of environmentally
protective vehicles in China based on the following features:

      1.    Our product is equipped with an advanced parallel composite power
            system. This means that the diesel engine and the electric power
            system can be used alternatively or independently, depending on the
            travel conditions. A switch allows the driver to change from diesel
            fuel to electric power for optimum fuel efficiency.

      2.    When our vehicle is operating on its battery, it achieves
            zero-emissions.

      3.    The diesel engine's emission levels comply with existing European II
            environmental standards.

      4.    The batteries used in our vehicles can be recharged while the
            vehicle is running on diesel fuel, thus allowing the vehicle to run
            for longer periods on electric power than other hybrid or electric
            vehicles.

      5.    Our hybrid electric vehicle has a power monitoring system that
            prevents the occurrence of short circuits.

      6.    Diesel fuel consumption in our vehicle is 40% to 50% lower than
            conventional diesel buses when used together with the battery.

      Additionally, we believe the opportunities for our business development
are promising due to (i) the global market for high performance, energy
efficient, hybrid powered buses, (ii) the exposure we hope to receive during the
2008 Olympic Games, to be held in Beijing, China (iii) the fact that our buses
have been tested and are ready for commercial production, and (iv) the potential
for licensing and royalty agreements world-wide.

RESEARCH AND DEVELOPMENT

      On November 18, 2001 we established the Environmental Protection Electric
Vehicle Research and Development Center in Shenzhen, China. The research and
development center has retained 10 researchers and other staff members who are
currently working on a second generation electric battery for use in Minghua's
hybrid vehicles. The Environmental Vehicle Company has invested approximately
US$116,554 in the research and development in fiscal year 2002 and -0- was
invested during the last fiscal year ending December 31, 2003.



                                       6
<PAGE>

REGULATION

      Other than the requirement to obtain a vehicle production permit from the
national government that is issued by the China National Committee, the
production and sale of our products in China is not subject to any significant
regulation. Production and sale of our products and the exportation of our
products to foreign jurisdictions is potentially subject to significant
regulations depending on the jurisdiction where the sale is made.

EMPLOYEES

      As of March 24, 2004, we had a total of 388 employees (excluding
consultants and temporary help). Of these employees, 28 are management
personnel, 7 are in accounting, 27 are administrative staff, 10 are engaged in
research and development, 298 are involved in our newly acquired manufacturing
operations and 18 are involved in sales and related support.

      None of our employees is represented by a labor union, and 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 PROPERTY



      Our business is conducted at our executive offices, which are located at
Guangdong Bian Fang Building, 10th Floor, Futian District, Shenzhen, 518033,
People's Republic of China. Our executive offices consist of approximately 4,500
square meters consisting entirely of administrative office space. We utilize
this space on a month to month basis pursuant to a verbal arrangement with our
Chairman, Chuquan Li, the owner of the building where the space is located. We
pay a rental fee of approximately $12,800 per month for this space.

      Minghua Hong Kong uses the mailing address of a corporate service company.
This mailing address is 14th Floor, Sincere Insurance Building West Wing, 4-6
Hennessy Road, Wanchai, Hong Kong. Minghua utilizes this mailing address as its
registered office in Hong Kong pursuant to a verbal agreement with the corporate
service company at a rate of $385 per year.

      On November 18, 2001 we established the Environmental Protection Electric
Vehicle Research and Development Center in Shenzhen, China. The Environmental
Vehicle Company owns all of the assets of the research and development center
and will be responsible for operating the center. Management believes this
facility is adequate and satisfactory for the research and development
activities of the Environmental Vehicle Company. The office space utilized by
the Environmental Protection Electric Vehicle Research and Development Center
consists of 2,000 square meters consisting of administrative space and research
facilities.

      The Guangzhou Bus Installation Company owns a facility consisting of
400,000 square meters of space consisting of administrative space and a
manufacturing facility.



                                       7
<PAGE>

ITEM 3. LEGAL PROCEEDINGS

      On May 9, 2003, a civil proceeding in The Jurisdiction of the Intermediate
People's Court of Shenzhen Municipality in the People's Republic of China was
commenced by Mr. Chun Fu Wang against the Environmental Vehicle Company as the
second defendant arising from the dispute as to Patent No. ZI992112168. The
Environmental Vehicle Company filed a counterclaim against Mr. Wang for, inter
alia, breach of duties and declaration of annulment of the Transfer of Patents
and License to Use the Patent Agreements. The Shenzhen Municipal Court ruled in
favor of the Environmental Vehicle Company on October 21, 2003. On January 13,
2004, Mr. Wang filed an appeal with the appellate division of the same court.
The court has not yet rendered a decision on the matter.



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 2003.

                                     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

2003             December 31, 2003            $0.62        $0.12

                 September 30, 2003           $0.64        $0.08

                 June 30, 20023               $0.15        $0.05

                 March 31, 2003               $0.17        $0.12

2002             December 31, 2002            $0.30        $0.13

                 September 30, 2002           $0.15        $0.36

                 June 30, 2002                $0.85        $0.15

                 March 31, 2002               $2.04        $1.01

HOLDERS

      The number of holders of record of our common stock as of March 15, 2004
was 251.



                                       8
<PAGE>

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

<TABLE>
<CAPTION>
PLAN CATEGORY
                                NUMBER OF SECURITIES TO BE   WEIGHTED-AVERAGE EXERCISE    NUMBER OF SECURITIES
                                ISSUED UPON EXERCISE OF      PRICE OF OUTSTANDING         REMAINING AVAILABLE FOR
                                OUTSTANDING OPTIONS,         OPTIONS, WARRANTS AND        FUTURE ISSUANCE
                                WARRANTS AND RIGHTS          RIGHTS
<S>                             <C>                          <C>                          <C>
                                         4,000,000                      $0.12                     16,000,000
EQUITY COMPENSATION PLANS
APPROVED BY SECURITY HOLDERS
EQUITY COMPENSATION PLANS NOT            2,000,000                      $1.75                          0
APPROVED BY SECURITY HOLDERS
TOTAL                                    6,000,000                                                16,000,000
</TABLE>

RECENT SALES OF UNREGISTERED SECURITIES

      The following sets forth information regarding all sales of our
unregistered securities during past year.

      On March 13, 2003, we issued 800,000 shares to Citic Worldwide Limited for
consulting assistance in connection with our entry into an acquisition agreement
relating to the acquisition of the Guangzhou Bus Installation Company. These
shares were issued in reliance on Section 4(2) of the Securities Act.

      To finance our agreement with the principals of the Guangzhou Bus
Installation Company, on March 13, 2003, Kingsrich Development Limited
(Kingsrich) loaned us RMB 14,382,961.42 (US$ 1,739,594.00) and HK$10,831,321.05
(US$ 1,388,631.00 ). In connection with this loan we issued Kingsrich a
convertible debenture in the amount of $3,128,225 bearing interest at the
interest rate of 5% per annum. The conversion rate of the note is $0.13 per
share. We issued this convertible note in reliance on Section 4(2) of the
Securities Act.

      On January 2, 2004, Kingsrich converted all of the outstanding principal
and accrued interest under its convertible promissory note into 24,063,269
shares of our common stock in reliance on Section 3(a)(9) of the Securities Act.

      On January 8, 2004 Beijing Qiang Long Real Estate Development Co., Ltd.
(Qiang Long) invested $1,204,820 and was issued 3,023,998 shares of our common
stock. We relied upon Section 4(2) in issuing the shares to Qiang Long.

      On January 13, 2004, we entered into an agreement with China Cardinal
Limited of Hong Kong (China Cardinal) relating to the purchase by China Cardinal
of a total of 16,483,514 shares of our common stock at a purchase price per
share of $0.14 for aggregate gross proceeds of $2,307,692. China Cardinal
purchased 4,733,229 of those shares on January 18, 2004, and is obligated to
purchase the remaining 11,750,285 shares by March 31, 2004. These shares are
issued in reliance on Section 4(2) of the Securities Act.



                                       9
<PAGE>

      On January 19, 2004, we, our wholly-owned subsidiary, Minghua Hong Kong,
and Jinmou Li, the son of our Chairman, 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 Asia Key for a purchase price of RMB 8,200,000
(approximately, US$990,709) and 28,210,000 shares of our common stock. We issued
the 28,210,000 shares of our common stock in reliance on Regulation S of the
Securities Act of 1933.

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

OVERVIEW

      Form 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.

      Patents have already been received from China, Germany, Hong Kong Special
Administrative Region, Taiwan, Republic of Korea, Australia and Japan and we
shall continue 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. During our 2003 fiscal
year we entered into several contingent financing arrangements with different
parties and if we are able to close on these financing arrangements we will have
enough capital to begin manufacturing vehicles. Our goal is to begin
manufacturing and selling vehicles in fiscal year 2004. We expect that 2004 will
be a break through year in that we expect it will be the first year that we
generate revenues. However, many barriers exist to reaching this goal, including
the potential that the financial arrangements that we have with various
investors may not be consummated either because of a breach by those investors
or because of a failure to meet conditions to such closings.

RECENT DEVELOPMENTS

Amendments to Qiang Long and China Cardinal Investment Agreements - Resignation
of Directors

      We and Qiang Long are parties to the following contracts which will result
in a change of control of us as described elsewhere in this report: (i) that
certain Regulation S Subscription Agreement, dated September 29, 2003 (the
"September 29 Contract"), between Minghua and Qiang Long and (ii) that certain
contract, dated January 29, 2004 (the "January 29 Contract" and together with
the September 29 Contract, the "Contracts"), between Minghua and Qiang Long.

      Pursuant to the September 29 Contract Qiang Long is obligated to purchase
15,000,000 shares of our Common Stock for US$6,000,000, in the aggregate. Upon
signing the September 29 Contract Qiang Long funded US$602,410 of the
subscription price and we issued to Qiang Long 1,511,488 shares of our common
stock for such funds. Qiang Long then funded an additional US$1,204,820 on
January 9, 2004 and received 3,023,998 additional shares of our common stock for
such funds. The September 29 Contract also required that Qiang Long fund
US$4,192,770 on February 29, 2004. To date, Qiang Long has not made this final
payment (the "February Payment").

      Pursuant to the January 29 Contract, Qiang Long agreed to purchase
140,000,000 shares of our Common Stock at an aggregate purchase price of
US$29,400,000. The January 29 Contract requires that the acquisition of these
shares take place in two installments. On April 15, 2004, Qiang Long is required
to pay (the "April Payment") US$12,600,000 for 60,000,000 shares of our Common


                                       10
<PAGE>

Stock. Thereafter, we were to hold an annual stockholders meeting at which the
stockholders would vote upon an amendment to our Certificate of Incorporation
that would increase the number of authorized shares to a higher number such that
we would have enough authorized shares to satisfy our obligations under the
January 29 Contract. Qiang Long would then pay (the "Final Payment") the second
installment of US$16,800,000 within 15 days of the effective date of such
amendment and receive the remaining 80,000,000 shares of our Common Stock at
that time.

      On April 14, 2004, we and Qiang Long entered into a letter agreement (the
"Qiang Long Letter Agreement") providing for an extension of the time within
which Qiang Long is required to make each of the February Payment, the April
Payment and the Final Payment. The due date for the February Payment was
extended from February 29, 2004 to May 31, 2004. The due date for the April
Payment was extended from April 15, 2004 to October 15, 2004 and the due date
for the Final Payment was extended to November 30, 2004.

      In connection with entering into the Qiang Long Letter Agreement, Chu Quan
Li, our Chairman, Albert Wong, our CEO and a director, and Kuen Kwong Chan, a
director, each agreed to resign as our directors and from all other offices that
they hold with us effective upon the tenth day following the mailing to our
stockholders of an information statement that complies with the requirements of
Rule 14f-1 of the Exchange Act of 1934.

      On January 13, 2004 we entered into an investment contract (the "January
13 Contract") with China Cardinal Limited ("China Cardinal"). Pursuant to the
January 13 Contract, China Cardinal agreed to purchase 16,483,514 shares of our
Common Stock for an aggregate price of US$2,307,692. China Cardinal funded
US$662,652 of the purchase price on January 18, 2004 and received 4,733,229
shares of our Common Stock. China Cardinal was then required to fund the
remaining US$1,640,040 and receive 11,750,185 shares of our Common Stock on
March 31, 2004 (the "March Payment"). To date, China Cardinal has not yet made
the March Payment.

      On April 14, 2004, we and China Cardinal entered into a letter agreement
that amends the January 13 Contract to extend the due date of the March Payment
to May 31, 2004.

Acquisition of Assets

      On January 27, 2004, Minghua EPST, a 57% owned indirect subsidiary of
ours, acquired an 89.8% indirect equity interest in the Guangzhou Bus
Installation Company. This equity interest cost us approximately $967,585 and
43% of the equity of Minghua EPST. As a result of this acquisition, we now have
the ability to manufacture our products. See "BUSINESS - Manufacturing our
Product."

      On January 19, 2004, we, our wholly-owned subsidiary, Minghua Hong Kong,
and Jinmou Li, the son of our Chairman, 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 our main operating
subsidiary, the Environmental Vehicle Company. The remaining 85% of the
outstanding equity of the Environmental Vehicle Company is held indirectly by
us. Upon consummation of this acquisition, which occurred on January 19, 2004,
we became the indirect owner of all of the outstanding equity of the
Environmental Vehicle Company.

Financing Activities

      On January 2, 2004, Kingsrich converted all of the outstanding principal
under a convertible promissory note, dated March 13, 2003, in the principal
amount of $3,247,225. The conversion rate applicable under the promissory note
was $0.13. We issued Kingsrich 24,063,269 shares of our common stock upon
conversion of the note.



                                       11
<PAGE>

      On January 8, 2004, Qiang Long paid us $1,204,820 for 3,023,998 shares of
our common stock.

      On January 13, 2004, we entered into an agreement with China Cardinal
relating to the purchase by China Cardinal of a total of 16,483,514 shares of
our common stock at a purchase price per share of $0.14 for aggregate gross
proceeds of $2,307,692. China Cardinal funded $662,652 of the total purchase
price on January 18, 2004 and received 4,733,229 shares. China Cardinal is
obligated to fund the remaining $1,645,040 in exchange for the remaining
11,750,285 shares of our common stock on or before March 31, 2004.

      On January 29, 2004, we entered into a contract (the Acquisition
Agreement) with Qiang Long relating to the purchase of 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. The transactions contemplated by the Acquisition Agreement, when
consummated, would effect a change in control of Minghua.

      The acquisition is to be consummated in two installments. On or before
April 15, 2004, Qiang Long must pay us $12,600,000 and in consideration of such
payment, we would then issue Qiang Long 60,000,000 shares of our common stock.
Thereafter, we will convene a stockholders meeting at which we will propose that
our stockholders approve an amendment to our certificate of incorporation that
would increase the number of shares that are authorized for issuance by us such
that we will have sufficient authorized, but unissued, shares to satisfy our
obligations under the Acquisition Agreement. Within fifteen days following such
stockholders meeting, Qiang Long is obligated to pay us $16,800,000 and Qiang
Long will then receive the remaining 80,000,000 shares issuable under the
Acquisition Agreement.

      Pursuant to the Acquisition Agreement, Qiang Long paid us a deposit in the
amount of $602,410, which will be applied to the first installment due from
Qiang Long under the Acquisition Agreement and which will be forfeited by Qiang
Long if such first installment is not paid.

      We used the funds that we received to date in the transactions described
above for (a) the acquisition of Asia Key as described above, (b) the
acquisition of certain fixed assets, (c) the payment of outstanding debts, (d)
the payment of accounts payable, (e) accrued director emoluments, (f) accrued
payroll expenses, (g) accrued professional fees, and (h) accrued administrative
expenses. After using the proceeds for the foregoing purposes, we have not
retained any significant portion of the funded amounts as cash on hand.

Appointment of New Directors

      Effective February 10, 2004 and as of February 25, 2004, Messrs. Ji-Kuan
Li and Wen-Zhi Zhou have resigned from our board of directors, respectively. Our
board of directors has selected Mr. Yun Dong Luan to take the place of Mr.
Ji-Kuan Li and Ms. Jie Chen to take the place of Mr. Wen-Zhi Zhou. The
resignation of the directors and appointment of new directors was effected
pursuant to the September 29, 2003 subscription agreement with Qiang Long, which
gave Qiang Long the right to elect two directors.

PLAN OF OPERATION

      If the proposed financing transaction with Qiang Long relating to the
issuance by us of an aggregate 140,000,000 shares of our common stock for
$29,400,000 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 transaction. We are relying on
stockholder loans and limited financing from Qiang Long 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.



                                       12
<PAGE>

      Pursuant to a subscription agreement with Qiang Long that we entered into
on September 29, 2004, Qiang Long was obligated to fund $4,192,770 on February
29, 2004. To date this payment has not been made. Management is assessing what
action to take against Qiang Long as a result of its failure to timely make this
payment. management is also concerned that as a result of Qiang Long's failure
to make this payment it may not satisfy its funding obligations under the
aforementioned January 29, 2004 subscription agreement. If Qiang Long does not
satisfy its obligations under that agreement, then we will not have the funding
necessary to fully implement our business plan.

      Any discussion of our Plan of Operation regarding capital investments
assumes that we will be able to consummate the aforementioned Qiang Long
financing or to raise enough capital from other sources to effect such capital
investments. No assurance can be given that we will be able to raise capital for
such investments. To date, we have not been able to raise any significant amount
of capital through the private placement of our securities or otherwise.

      If we are able to raise sufficient funds through the proposed Qiang Long
financing or otherwise, we will continue with our research and development
efforts in the field of hybrid vehicles and attempt to commercially produce our
existing models of hybrid vehicles.

RESULTS OF OPERATIONS

Comparison of 2003 and 2002

      For the year ended December 31, 2003, we had no revenues and incurred a
net loss of $1,761,393, as compared to a net loss of $2,490,990 for the year
ended December 31, 2002. Expenses in fiscal year 2003 related primarily to
professional fees, operating costs, salaries, and other general and
administrative expenses.

Liquidity and Capital Resources

      We had $543,396 in cash, cash equivalents and short-term investments as of
December 31, 2003. As of such date we also had total assets of $2,547,027. Since
inception, we have accumulated a deficit (net loss) of $16,624,694.

      Over the next twelve months we expect that we will need $500,000 to fund
our current operations at a very minimal level without making any significant
capital expenditures. Our existing current assets are not sufficient to fund our
current or planned operations. We require additional capital immediately in
order to sustain our current operations.

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.


                                       13
<PAGE>

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 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, 2003 or December 31, 2002.

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

      THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. BEFORE YOU INVEST YOU
SHOULD CAREFULLY CONSIDER THE RISKS AND UNCERTAINTIES DESCRIBED BELOW AND THE
OTHER INFORMATION IN THIS PROSPECTUS. 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. THIS MEANS YOU COULD LOSE ALL
OR A PART OF YOUR INVESTMENT.

      Risks Relating to Our Financial Condition

      WE ARE AN EARLY STAGE DEVELOPMENT COMPANY AND WE HAVE A LIMITED OPERATING
HISTORY. WE HAVE NEVER EARNED ANY 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


                                       14
<PAGE>

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 six 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.


      On January 29, 2004, we entered into a contract (the Acquisition
Agreement) with Beijing Qiang Long Real Estate Development Co., Ltd. (Qiang
Long) relating to the purchase of 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. The
transactions contemplated by the Acquisition Agreement, when consummated, would
effect a change in control of Minghua. The transactions contemplated by the
Acquisition Agreement are scheduled to close in the third quarter of this year.
If we obtain this financing, then we will be in a much better financial
condition and we will have enough funding to fully implement our business plan.
However, as discussed below, management has significant reservations about
whether the transactions contemplated by the Acquisition Agreement will close.


      Qiang Long is currently the beneficial owner of 4,535,486 shares of our
common stock and has the obligation to purchase an additional 10,464,514 shares
of our common stock at a price of $0.40 per share pursuant to a separate
subscription agreement that was entered into on September 29, 2003. Pursuant to
that subscription agreement Qiang Long irrevocably subscribed to purchase
15,000,000 shares of our common stock at a purchase price per share of $0.40 or
for aggregate consideration of $6,000,000. This subscription agreement required
Qiang Long to fund an additional $4,192,770 on or prior to February 29, 2004. To
date, this payment has not been made. Management is assessing what action to
take against Qiang Long as a result of its failure to timely make this payment.
Management is also concerned that as a result of Qiang Long's failure to make
this payment, it may not satisfy its obligations under the aforementioned
January 29, 2004 subscription agreement. If Qiang Long does not satisfy its
obligations under that agreement, then we will not have the funding necessary to
implement our business plan.

      We may seek to satisfy our future funding requirements through new
offerings of securities, with collaborative or other strategic alliances or
arrangements with corporate partners 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


                                       15
<PAGE>

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 and expanding
our direct sales organization in China and our indirect distribution channels
outside of China. We may not be able to successfully expand our 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:

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



                                       16
<PAGE>

      o     further developing our operating, administrative, financial and
            accounting systems and controls;
      o     maintaining close coordination among our engineering, accounting,
            finance, marketing, sales and operations organizations;
      o     expanding, training and managing our employee base; and
      o     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:

      o     new laws and regulations or new interpretations of those laws and
            regulations;
      o     the introduction of measures to control inflation or stimulate
            growth;
      o     changes in the rate or method of taxation;
      o     the imposition of additional restrictions on currency conversion and
            remittances abroad; and



                                       17
<PAGE>

      o     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.

      China's entry into the WTO creates uncertainty.

      China formally became the 143rd member of the World Trade Organization
(WTO), the multilateral trade body, on December 11, 2001. Entry into the WTO
will require China to further reduce tariffs and eliminate other trade
restrictions. While China's entry into the WTO and the related relaxation of
trade restrictions may lead to increased foreign investment, it may also lead to
increased competition in China's markets from international companies. The
impact of China's entry into the WTO on China's economy and our business is
uncertain.

      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


                                       18
<PAGE>

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:

      o     actual or anticipated fluctuations in operating results;
      o     changes in expectations as to future financial performance or
            changes in financial estimates or buy/sell recommendations of
            securities analysts;
      o     changes in governmental regulations or policies in China;
      o     our, or a competitor's, announcement of new products or
            technological innovations; and
      o     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 Acquisition Agreement are
consummated, then we will issue 140,000,000 shares of our common stock to Qiang
Long at $0.21 per share. In addition, pursuant to a separate subscription
agreement with Qiang Long, we are obligated to issue them an additional
10,481,925 shares at a price per share equal to $0.40. Qiang Long is currently
in default of this obligation. We are also committed, pursuant to a subscription
agreement, to issue another investor 16,483,514 shares of our common stock at a
price per share of $0.14. Upon the issuance of these shares you will experience
dilution in the net tangible book value of your Minghua common stock.



                                       19
<PAGE>

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

      There have been no disagreements regarding accounting and financial
disclosure matters with our independent certified public accountants.

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 Albert Wong, our Chief Executive 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. Wong concluded that
as of December 31, 2003, 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.


                                       20
<PAGE>

                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(A)



Directors and Executive Officers of Minghua

         The directors and executive officers of Minghua are as follows:

Name                    Age                        Position

Li Chuquan               46              Chairman of the Board

Albert Wong              52              Director, Chief Executive Officer,
                                         Secretary and Treasurer

Chan Kuen Kwong          41              Director

Yun Dong Luan            67              Director

Jie Chen                 48              Director

      LI CHUQUAN was appointed Chairman of the Board of Directors on June 23,
2001. Mr. Li, in addition to serving as Chairman of the Board of Minghua and the
Shenzhen Minghua Environmental Protection Vehicles Co., Ltd, also acts as
Chairman of the Minghua Real Estate (Shenzhen) Ltd. and other related companies.
Mr. Li also owns various businesses engaged in property development, hotel
operations and trading. Mr. Li's primary responsibilities involve business
acquisitions, business development and strategic planning. Prior to establishing
the Minghua companies in the early 1990's, he was general manager of various
companies engaged in manufacturing, shipping, trading and service industries.

      ALBERT WONG has served as Chief Executive Officer, President, Secretary
and Treasurer of Minhgua since April 30, 2002. Since October 16, 2002, he has
also served as a director. Mr. Wong is a Canadian national and a qualified
professional accountant and registered financial planner with various related
professional designations. For the past 5 years prior to joining us, Mr. Wong
worked for Charise Financial Consultants Limited, a corporate financial planning
company, as its Managing Director and Chief Executive Officer.

      CHAN KUEN KWONG became a director on August 2, 2001. He is responsible for
marketing and business development activities. From October 1994 to July 2001,
Mr. Chan worked for KYW Steel Co Ltd as a sales manager.

      YUN DONG LUAN became a director in February 2004. 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. 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.



                                       21
<PAGE>

KEY EMPLOYEES

      MR. JIN GUODONG, technical principal of Shenzhen Minghua Environmental
Protection. Mr. Jin is the Professor and engineer and is well-known in electric
hybrid vehicle research manufacturing field in China.

      LIAO CUI QUAN, Assistant Chief Engineer. Prior to becoming the Assistant
Chief Engineer he was the technical manager of an electronics company. He was
involved in the making process of two prototype vehicles, the MH6720 and MH6120.

AUDIT COMMITTEE FINANCIAL EXPERT

      We do not have any audit committee financial expert serving on our board
of directors other than Albert Wong, our Chief Executive Officer, who is not
independent. After we are successful in either closing our capital raising
transaction with Qiang Long or otherwise raising capital, we will seek to retain
an independent audit committee financial expert.

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, 2003,
all such filing requirements applicable to its officers and directors were
complied with, except that various directors, officers and others were late in
filing Form 3, Form 4 and other reports during the fiscal year ended December
31, 2003.


                                       22
<PAGE>

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, our Chief
Executive Officer and each of the next four highly compensated executive
officers for services in all capacities to us, our subsidiaries and
predecessors. SUMMARY COMPENSATION TABLE


<TABLE>
<CAPTION>
                                 ANNUAL COMPENSATION                   LONG-TERM COMPENSATION AWARDS
                                ----------------------                 ----------------------------- PAYOUTS
                                                                                      SECURITIES     -------
                                                           OTHER                      UNDER-LYING                 ALL
                                                           ANNUAL       RESTRICTED    OPTIONS/                    OTHER
NAME                                                       COMP-        STOCK         SARS           LTIP         COMPEN-
AND PRINCIPAL                   SALARY           BONUS     ENSATION     AWARDS        (#)            PAYOUTS      SATION
POSITION               YEAR     ($)              ($)       ($)          ($)                          ($)          ($)
<S>                    <C>      <C>              <C>       <C>          <C>           <C>            <C>          <C>
Albert Wong, Chief     2003     30,769           2,564      0           0             500,000        0            0
Executive Officer      2002     23,077           2,564      0           60,000        0              0            0
and President          2001     0                0          0           0             0              0            0

Chuquan Li, Chairman   2003     153,846          12,821     0           0             2,000,000      0            0
                       2002     153,846          12,821     0           0             0              0            0
                       2001     153,846          12,821     0           0             0              0            0


Kuen Kwong Chan,       2003     61,538           5,128      0           0             500,000        0            0
Director               2002     61,538           5,128      0           0             0              0            0
                       2001     61,538           5,128      0           0             0              0            0

Ji-Kuan Li             2003     21,951           0          0           0             500,000        0            0
Director               2002     14,634           0          0           36,000        0              0            0
                       2001     0                0          0           0             0              0            0

Wen Zhi Zhou           2003     26,927           0          0           0             500,000        0            0
Director               2002     26,927           0          0           36,000        0              0            0
                       2001     26,927           0          0           0             0              0            0
</TABLE>




                                       23
<PAGE>

                     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, 2003, to the
persons named in the Summary Compensation Table:

<TABLE>
<CAPTION>
                                                       Percent of Total
                          Number of Securities       Options/SARs Granted          Exercise of
                               Underlying              to Employees in              Base Price         Expiration
Name                      Options/SARs Granted           Fiscal Year                  ($/Sh)              Date
<S>                       <C>                        <C>                           <C>                 <C>
Albert Wong
Chief Executive                                              12.5%                    $0.12              2/29/04
Officer, President,              500,000
Secretary and Treasurer
Chuquan Li                      2,000,000                     50%                     $0.12              2/29/04
Chairman
Kuen Kwong Chan                  500,000                     12.5%                    $0.12              2/29/04
Director
Ji-Kuan Li                       500,000                     12.5%                    $0.12              2/29/04
Director
Wen Zhi Zhou                     500,000                     12.5%                    $0.12              2/29/04
Direcotr
</TABLE>


               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, 2003. No stock options were exercised in 2003 by those persons.

<TABLE>
<CAPTION>
                                                                 Number of Unexercised      Value of Unexercised
                                                                 Securities Underlying          In-The-Money
                                                                 Options/SARs at FY-End    Option/SARs at FY-End
                          Shares Acquired    Value Realized         (#) Exercisable/          ($) Exercisable/
          Name              on Exercise            ($)               Unexercisable             Unexercisable
<S>                       <C>                <C>                 <C>                       <C>
Albert Wong
Chief Executive                  0                  0                   500,000                   $60,000
Officer, President,
Secretary and Treasurer
Chuquan Li                       0                  0                  2,000,000                  $240,000
Chairman
Kuen Kwong Chan                  0                  0                   500,000                   $60,000
Director
Ji-Kuan Li                       0                  0                   500,000                   $60,000
Director
Wen Zhi Zhou                     0                  0                   500,000                   $60,000
Director
</TABLE>


                                       24
<PAGE>



<PAGE>


             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, 2003.

<TABLE>
<CAPTION>
        Name              Number of        Performance or            Estimated Future Payouts Under Non-Stock
                      Shares, Units or      Other Period                        Price-Based Plans
                        Other Rights      Under Maturation
                                             or Payout          Threshold            Target             Maximum
<S>                   <C>                 <C>                   <C>                  <C>                <C>
Albert Wong                   0                  0                   0                  0                   0
Chief Executive
Officer, President,
Secretary and
Treasurer
Chuquan Li                    0                  0                   0                  0                   0
Chairman
Kuen Kwong Chan               0                  0                   0                  0                   0
Director
Ji-Kuan Li                    0                  0                   0                  0                   0
Director
Wen Zhi Zhou                  0                  0                   0                  0                   0
Director
</TABLE>


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

      On April 16, 2002 we entered into an employment agreement with Mr. Albert
Wong as Chief Executive Officer. The agreement expired on April 9, 2003 and has
been extended for a further year. Mr. Wong receives monthly compensation under
the agreement equal to HK$20,000 (approximately US$2,564) and is reimbursed for
any expenses that he incurs on behalf of Minghua. In addition, on October 16,
2002, the Board of Directors agreed to issue 500,000 shares of Minghua's common
stock to Mr. Wong.

      We do not have employment agreements with any of our other executive
officers or directors.


                                       25
<PAGE>

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

      The following table sets forth, as of December 31, 2003, 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.

<TABLE>
<CAPTION>
Name and Address Of Beneficial Owner              Amount and Nature of Beneficial          Percentage of Class
                                                            Ownership
<S>                                               <C>                                      <C>
Chuquan Li
Chairman                                                     23,700,000                           29.41%
Guangdong Bian Fang Building, 10th Floor
Futian District, Shenzhen, 518033
People's Republic of China

Kingsrich Development Limited                                24,036,269                           29.83%
Sincere Insurance Building
4 - 6 Hennessey Road
Wanchai, Hong Kong

Beijing Qiang Long Real Estate Development Co.               4,535,486                            5.63%
Ltd.
No. 95 Kangxi Road
Ba Da Xia Industrial Development Zone
Yanqing County, Beijing
People's Republic of China
</TABLE>





                                       26
<PAGE>

      The following table sets forth, as of December 31, 2003, 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.

<TABLE>
<CAPTION>
Name and Address Of Beneficial Owner              Amount and Nature of Beneficial          Percentage of Class
                                                             Ownership
<S>                                               <C>                                      <C>
Chuquan Li
Chairman                                                     23,700,000                           29.41%
Guangdong Bian Fang Building, 10th Floor
Futian District, Shenzhen, 518033
People's Republic of China

Kuen Kwong Chan                                              2,800,000                            3.48%
Director
Guangdong Bian Fang Building, 10th Floor
Futian District, Shenzhen, 518033
People's Republic of China

Albert Wong
Chief Executive Officer, President, Secretary                 500,000                             0.62%
and Treasurer
Guangdong Bian Fang Building, 10th Floor
Futian District, Shenzhen, 518033
People's Republic of China

Ji-Kuan Li                                                    300,000                             0.37%
Director
Guangdong Bian Fang Building, 10th Floor
Futian District, Shenzhen, 518033
People's Republic of China

Wen-Zhi Zhou                                                  300,000                             0.37%
Director
Guangdong Bian Fang Building, 10th Floor
Futian District, Shenzhen, 518033
People's Republic of China

All Directors and Executive Officers as a                    27,600,000                           34.26%
Group (5 people)
</TABLE>

CHANGES IN CONTROL

      On January 29, 2004, we entered into the Acquisition Agreement with Qiang
Long relating to the purchase of 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
(assuming that Qiang Long exercises its subscription right to purchase an
additional 10,464,514 shares of our common stock pursuant to a separate
unrelated agreement described below) and after giving effect to certain
issuances of common stock that we are obligated to issue, Qiang Long would
become the owner of approximately 51% of our then outstanding common stock.
Accordingly, the transactions contemplated by the Acquisition Agreement, when
consummated, would effect a change in control of us. The closing of the
transactions contemplated by the Acquisition Agreement 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

      The Company has rented the office at 10th Floor, Guangdong Bianfang
Building, Fu Jing Road, Fu Tian District, Shenzhen, People's Republic of China.
The office is owned by Minghua Real Estate (Shenzhen) Ltd. which is owned by a
British Virgin Island company whose sole shareholder is our Chairman, Chuquan
Li. We pay Minghua Real Estate (Shenzhen) Ltd. an annual rental of $153,600
under our leasing arrangement for such space.



                                       27
<PAGE>

      On January 19, 2004, our wholly-owned subsidiary, Minghua Hong Kong and
Jinmou Li, the son of our Chairman, 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.

      The parties agreed upon a valuation of SZ Minghua 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.

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

      (a) Financial Statements

      The financial statement of the Company as set forth in the Index to
Consolidated Financial Statements under Part II, Item 7 of this Form 10-KSB are
hereby incorporated by reference.

                                    EXHIBITS


EXHIBIT NUMBER          DESCRIPTION

2.1                     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]

2.2                     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]

                                       28
<PAGE>

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                    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]

10.2                    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]

10.3                    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]

10.4                    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]

10.5                    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]

10.6                    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]

10.7                    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]

10.8                    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]

10.9                    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]

10.10                   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]

10.11                   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]

10.12                   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]



                                       29
<PAGE>

10.13                   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]

10.14                   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]

10.15                   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]

10.16                   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]

10.17                   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]

10.18                   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]

10.19                   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]

10.20                   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]

14*                     Code of Ethics

21*                     A description of the subsidiaries of the registrant

31*                     Rule 13a-14/15d-14(a) Certifications

32*                     Section 1350 Certifications

*     Filed with this report. Otherwise, incorporated by reference as indicated.

      (B) REPORTS ON FORM 8-K

      A Current Report on Form 8-K dated February 12, 2004, was filed by the
Company with the Securities and Exchange Commission to report a change of
control transaction and certain other material events, including contingent
financing transactions and the appointment of two directors.

ITEM 14  PRINCIPAL ACCOUNTANT FEES AND SERVICES

AUDIT FEES

      The aggregate fees billed for each of the fiscal year ended December 31,
2003 and 2002 for professional services rendered by the principal accountant for
the audit of our annual financial statements and review of the financial


                                       30
<PAGE>

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 $45,000 and $32,961, respectively.

AUDIT RELATED FEES

      The aggregate fees billed in the fiscal year ended December 31, 2003 and
2002 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 $0, respectively.

TAX FEES

      The aggregate fees billed in the fiscal years ended December 31, 2003 and
2002 for professional services rendered by the principal accountant for tax
compliance, tax advice and tax planning were $10,000 and $0, respectively.

ALL OTHER FEES

      The aggregate fees billed in the fiscal years ended December 31, 2002 and
2001 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

      On March 8, 2004 our board of directors adopted resolutions in accordance
with the Sarbanes-Oxley Act of 2002 requiring pre-approval of all auditing
services and all audit related, tax or other services not prohibited under
Section 10A(g) of the Securities Exchange Act of 1934, 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, 2003 and the quarterly reviews for the subsequent fiscal quarters
of 2004 through the review for the quarter ended September 30, 2004 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 Albert Wong 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 zero (-0-).


                                       31
<PAGE>

                                   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 LIMITED




                           By:             /s/ Albert Wong
                                ----------------------------------------
                                Name: Albert Wong
                                Title: Director, 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.

<TABLE>
<CAPTION>
SIGNATURE                                            CAPACITY                                   DATE
----------                                           --------                                   ----
<S>                                 <C>                                                    <C>
/s/ Li Chuquan                      Chairman of the Board of Directors                     April 13, 2004
------------------
Li Chuquan

/s/ Albert Wong                     Director, Chief Executive Officer                      April 13, 2004
---------------------------
Albert Wong

/s/ Chan Kuen Kwong                 Director                                               April 13, 2004
---------------------------
Chan Kuen Kwong

/s/Yun Dong Luan                    Director                                               April 13, 2004
------------------
Yun Dong Luan

/s/ Jie Chen                        Director                                               April 13, 2004
---------------------------
Jie Chen
</TABLE>


                                       32
<PAGE>
                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)




                 I N D E X TO CONSOLIDATED FINANCIAL STATEMENTS








                                                                PAGE

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS                      F - 1


INDEPENDENT AUDITORS' REPORT - CURRENT AUDITOR                  F - 2


INDEPENDENT AUDITORS' REPORT - PREDECESSOR AUDITOR              F - 3


CONSOLIDATED FINANCIAL STATEMENTS:

         BALANCE SHEET                                          F - 4

         STATEMENTS OF OPERATIONS                               F - 5

         STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY      F - 6 - F - 7

         STATEMENTS OF CASH FLOWS                               F - 8

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                  F - 9 - F -  32





<PAGE>

To the Board of Directors and Shareholders
Minghua Group International Holdings Limited
New York, New York

                          INDEPENDENT AUDITORS' REPORT


We have audited the accompanying consolidated balance sheet of Minghua Group
International Holdings Limited (a development stage company) and subsidiaries as
of December 31, 2003 and the related consolidated statements of operations,
stockholders' deficiency and cash flows for the year ended December 31, 2003 and
for the period from June 4, 1997 (Inception) to December 31, 2003. 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 audits. The financial statements of Minghua Group International Holdings
Limited as of December 31, 2002 and for the year then ended were audited by
other auditors whose audit report thereon have been furnished to us. Our opinion
expressed herein on the period June 4, 1997 (inception) to December 31, 2003, as
it relates to 2002 and for the period June 4, 1997 to December 31, 1999 is based
solely upon the audit report and work of other auditors.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Minghua
Group International Holdings Limited (a development stage company) and
subsidiaries as of December 31, 2003 and the consolidated results of its
operations, changes in stockholders deficiency and its consolidated cash flows
for the year ended December 31, 2003 and for the period from June 4, 1997
(Inception) to December 31, 2003, 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, has suffered recurring losses from operations and has a net capital
deficiency that 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.



/s/ Livingston, Wachtell & Co., LLP
CERTIFIED PUBLIC ACCOUNTANTS
New York, N.Y.
March 12, 2004


                                     F - 2
<PAGE>

To the Board of Directors and Shareholders
Minghua Group International Holdings Limited
New York, New York

                          INDEPENDENT AUDITORS' REPORT

We have audited the accompanying consolidated balance sheet of Minghua Group
International Holdings Limited (a development stage company) as of December 31,
2002 and the related consolidated statements of operations, stockholders'
deficiency and cash flows for the year ended December 31, 2002 and the period
from June 4, 1997 (Inception) to December 31, 2002. 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 audits. The
financial statements of Minghua Group International Holdings Limited as of
December 31,2001 and for the period June 4,1997 (Inception) to December 31,2001
were audited by other auditors whose report dated March 25, 2002, on these
financial statements included an explanatory paragraph describing conditions
that raise substantial doubt about the company's ability to continue as a going
concern.

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

In our opinion, the 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) as of December 31,
2002 and the consolidated results of its operations and its cash flows for the
year ended December 31, 2002 and the period from June 4, 1997 (Inception) to
December 31, 2002, 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
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that 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.



/s/ KND & CO. CPA LIMITED
CERTIFIED PUBLIC ACCOUNTANTS
Hong Kong
April 14, 2003


                                     F - 3
<PAGE>

                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)

                           CONSOLIDATED BALANCE SHEET

                                DECEMBER 31, 2003

                                     Assets
Current assets
      Cash and cash equivalents                                 $    543,396
      Due from related company                                       132,744
      Prepaid expenses and other current assets                      122,312
                                                                ------------

               Total current assets                                  798,452
                                                                ------------

Property, plant and equipment - at cost                              658,299
      Less: accumulated depreciation                                (294,023)
                                                                ------------

                                                                     364,276
Other assets
      Deposits on pending business acquisitions                    1,088,585
       Patent rights                                                 295,714
                                                                ------------

                                                                   1,384,299

               Total assets                                     $  2,547,027
                                                                ============

                    Liabilities and Stockholders' Deficiency

Current liabilities
      Notes payable - bank                                      $    649,492
      Accrued liabilities                                          1,793,168
      Due to stockholders                                            219,347
      Due to related company                                          69,474
                                                                ------------

               Total current liabilities                           2,731,481

Long-term debt convertible promissory note payable                 3,128,225
                                                                ------------

               Total liabilities                                   5,859,706
                                                                ------------

Commitments and contingencies

Stockholders' deficiency
      Common stock                                                   535,077
      Common stock subscribed                                      5,395,405
      Additional paid in capital                                  12,246,612
      Deficit accumulated during the development stage           (16,624,694)
                                                                ------------
                                                                   1,552,400
      Less: stock subscription receivable                         (4,865,079)
                                                                ------------

               Total stockholders' deficiency                     (3,312,679)
                                                                ------------

               Total liabilities and stockholders' deficiency   $  2,547,027
                                                                ============

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


                                     F - 4
<PAGE>

                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)

                      CONSOLIDATED STATEMENTS OF OPERATIONS



<TABLE>
<CAPTION>
                                                                            Cumulative Amounts Since
                                                                                   Inception,
                                                       For the Year Ended         June 4,1997 To
                                                          December 31,             December 31,
                                                          ------------
                                                       2003            2002            2003
                                                       ----            ----            ----

<S>                                                <C>             <C>             <C>
Cost and expenses
      General and administrative expenses          $  1,388,705    $  2,590,384    $  7,618,567
      Research and development costs                         --         116,554       8,775,729
                                                   ------------    ------------    ------------

Operating loss                                       (1,388,705)     (2,706,938)    (16,394,296)


Other income (expense)
      Other income                                      119,562         296,548         416,110
      Interest expense                                 (492,250)        (80,600)       (646,508)
                                                   ------------    ------------    ------------

                                                     (1,761,393)   $ (2,490,990)   $(16,624,694)
                                                   ============    ============    ============

   Basic and diluted net loss per share            $       (.03)   $       (.05)
                                                   ============    ============

Weighted average number of common
            shares outstanding                       52,032,906      49,269,403
                                                   ============    ============
</TABLE>


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


                                     F - 5
<PAGE>

         CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY

                FROM INCEPTION JUNE 4, 1997 TO DECEMBER 31, 2003

<TABLE>
<CAPTION>



                                                              Common Stock                    Common Stock
                                                             $.12834 Par Value               $.01 Par Value
                                                             -----------------               --------------

<S>                                                          <C>       <C>             <C>            <C>
Common stock issued - June 4, 1997                           10,000    $      1,283              --   $         --
     Net loss for the period                                     --              --              --             --
                                                       ------------    ------------    ------------   ------------

Balance - December 31, 1997                                  10,000           1,283              --             --
     Net loss for the year                                       --              --              --             --
                                                       ------------    ------------    ------------   ------------

Balance - December 31, 1998                                  10,000           1,283              --             --
     Shares issued at par value March 30, 1999              990,000         127,057              --             --
     Net loss for the year                                       --              --              --             --
                                                       ------------    ------------    ------------   ------------

Balance - December 31, 1999                               1,000,000         128,340              --             --
     Net loss for the year                                       --              --              --             --
                                                       ------------    ------------    ------------   ------------

Balance - December 31, 2000                               1,000,000         128,340              --             --
     Shares issued at $.20 - April 5                             --              --         385,685          3,857
     Shares issued at $.20 - April 17                            --              --       7,500,000         75,000
     Shares issued at par value - June 22                        --              --      28,000,000        280,000
     Recapitalization - June 22*                         (1,000,000)       (128,340)      3,600,000         36,000
     Dividend paid - June 22                                     --              --              --             --
     Shares issued at $2.00 -  July 23                           --              --         473,500          4,735
     Shares issued at $2.00 -  October 1                         --              --          10,000            100
     Shares issued - per debt for equity exchange
        agreement - December 26 issuance
                                                                 --              --       8,500,000         85,000
     Capital contributed - debt to equity
        conversion - December 26                                 --              --              --             --
     Net loss for the year                                       --              --              --             --
                                                       ------------    ------------    ------------   ------------

Balance - December 31, 2001 (carry forward)                      --    $         --      48,469,185   $    484,692
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                                                                                        Deficit
                                                                                                     Accumulated
                                                             Common Stock             Additional       During the
                                                             Subscribed                Paid In       Development
                                                            $.01 Par Value             Capital          Stage
                                                            --------------
                                                                     Amount           TOTAL            AMOUNT
<S>                                                    <C>            <C>            <C>             <C>
Common stock issued - June 4, 1997                               --   $         --   $         --    $         --
     Net loss for the period                                     --             --             --            (289)
                                                       ------------   ------------   ------------    ------------

Balance - December 31, 1997                                      --             --             --            (289)
     Net loss for the year                                       --             --             --          (3,209)
                                                       ------------   ------------   ------------    ------------

Balance - December 31, 1998                                      --             --             --          (3,498)
     Shares issued at par value March 30, 1999                   --             --             --              --
     Net loss for the year                                       --             --             --            (302)
                                                       ------------   ------------   ------------    ------------

Balance - December 31, 1999                                      --             --             --          (3,800)
     Net loss for the year                                       --             --             --      (9,876,193)
                                                       ------------   ------------   ------------    ------------

Balance - December 31, 2000                                      --             --             --      (9,879,993)
     Shares issued at $.20 - April 5                             --             --         73,280              --
     Shares issued at $.20 - April 17                            --             --      1,425,000              --
     Shares issued at par value - June 22                        --             --             --              --
     Recapitalization - June 22*                                 --             --       (498,280)             --
     Dividend paid - June 22                                     --             --     (1,000,000)             --
     Shares issued at $2.00 -  July 23                           --             --        942,265              --
     Shares issued at $2.00 -  October 1                         --             --         19,900              --
     Shares issued - per debt for equity exchange
        agreement - December 26 issuance
                                                                 --             --      8,415,000              --
     Capital contributed - debt to equity
        conversion - December 26                                 --             --      1,500,000              --
     Net loss for the year                                       --             --             --      (2,492,318)
                                                       ------------   ------------   ------------    ------------

Balance - December 31, 2001 (carry forward)                      --   $         --   $ 10,877,165    $(12,372,311)
</TABLE>

<PAGE>


<TABLE>
<CAPTION>



                                                       Subscription
                                                        Receivable

                                                         AMOUNT         TOTAL
<S>                                                    <C>            <C>
Common stock issued - June 4, 1997                     $         --   $      1,283
     Net loss for the period                                     --           (289)
                                                       ------------   ------------

Balance - December 31, 1997                                      --            994
     Net loss for the year                                       --         (3,209)
                                                       ------------   ------------

Balance - December 31, 1998                                      --         (2,215)
     Shares issued at par value March 30, 1999                   --        127,057
     Net loss for the year                                       --           (302)
                                                       ------------   ------------

Balance - December 31, 1999                                      --        124,540
     Net loss for the year                                       --     (9,876,193)
                                                       ------------   ------------

Balance - December 31, 2000                                      --     (9,751,653)
     Shares issued at $.20 - April 5                             --         77,137
     Shares issued at $.20 - April 17                            --      1,500,000
     Shares issued at par value - June 22                        --        280,000
     Recapitalization - June 22*                                 --       (590,620)
     Dividend paid - June 22                                     --     (1,000,000)
     Shares issued at $2.00 -  July 23                           --        947,000
     Shares issued at $2.00 -  October 1                         --         20,000
     Shares issued - per debt for equity exchange
        agreement - December 26 issuance
                                                                 --      8,500,000
     Capital contributed - debt to equity
        conversion - December 26                                 --      1,500,000
     Net loss for the year                                       --     (2,492,318)
                                                       ------------   ------------

Balance - December 31, 2001 (carry forward)            $         --   $ (1,010,454)
</TABLE>

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


                                     F - 6
<PAGE>

                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)

         CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY

                   INCEPTION JUNE 4, 1997 TO DECEMBER 31, 2003


<TABLE>
<CAPTION>



                                                              Common Stock                Common Stock
                                                            $.12834 Par Value            $.01 Par Value
                                                            -----------------            --------------
                                                           Shares       Amount        Shares         Amount
<S>                                                        <S>        <C>           <C>           <C>
Balance - December 31, 2001 (brought forward)                    --   $       --     48,469,185   $    484,692
Shares issued at $.20 - February 20                              --           --        372,807          3,728
Shares issued at par - exercise of stock options
     - April 24 - for services                                   --           --        540,260          5,403
Shares issued at $.13 -
     For services rendered November 27                           --           --      1,100,000         11,000
     Net loss for the year                                       --           --             --             --
                                                         ----------   ----------   ------------   ------------

Balance - December 31, 2002                                      --           --     50,482,252        504,823
Shares issued at $.12 -  March 31                                --           --      1,513,969         15,139
Shares subscribed at $.40 - September 29                         --           --             --             --
Shares issued at $.40 - October 3                                --           --      1,511,488         15,115
Cash received - September, October and December 2003
                                                                 --           --             --             --
Net loss for the year                                            --           --             --             --
                                                         ----------   ----------   ------------   ------------

Balance - December 31, 2003                                      --   $       --     53,507,709   $    535,077
                                                         ==========   ==========   ============   ============
</TABLE>


<PAGE>

<TABLE>
<CAPTION>
                                                                                                            Deficit
                                                                                                          Accumulated
                                                                  Common Stock              Additional     During the
                                                                   Subscribed                Paid In       Development
                                                                  $.01 Par Value             Capital          Stage
                                                                 --------------
                                                              Shares          Amount          Amount         Amount
<S>                                                         <C>             <C>              <C>           <C>
Balance - December 31, 2001 (brought forward)                         --    $         --    $ 10,877,165   $(12,372,311)
Shares issued at $.20 - February 20                                   --              --          70,833             --
Shares issued at par - exercise of stock options
     - April 24 - for services                                        --              --         410,597             --
Shares issued at $.13 -
     For services rendered November 27                                --              --         132,000             --
     Net loss for the year                                            --              --              --     (2,490,990)
                                                            ------------    ------------    ------------   ------------

Balance - December 31, 2002                                           --              --      11,490,595    (14,863,301)
Shares issued at $.12 -  March 31                                     --              --         166,537             --
Shares subscribed at $.40 - September 29                      15,000,000       6,000,000              --             --
Shares issued at $.40 - October 3                             (1,511,488)       (604,595)        589,480             --
Cash received - September, October and December 2003
                                                                      --              --              --             --
Net loss for the year                                                 --              --              --     (1,761,393)
                                                            ------------    ------------    ------------   ------------

Balance - December 31, 2003                                   13,488,512    $  5,395,405    $ 12,246,612   $(16,624,694)
                                                            ============    ============    ============   ============
</TABLE>

<PAGE>

<TABLE>
<CAPTION>



                                                       Subscription
                                                        Receivable

                                                          Amount           Total
<S>                                                    <C>             <C>
Balance - December 31, 2001 (brought forward)          $         --    $ (1,010,454)
Shares issued at $.20 - February 20                         (74,561)             --
Shares issued at par - exercise of stock options
     - April 24 - for services                                   --         416,000
Shares issued at $.13 -
     For services rendered November 27                           --         143,000
     Net loss for the year                                       --      (2,490,990)
                                                       ------------    ------------

Balance - December 31, 2002                                 (74,561)     (2,942,444)
Shares issued at $.12 -  March 31                                --         181,676
Shares subscribed at $.40 - September 29                 (6,000,000)             --
Shares issued at $.40 - October 3                                --              --
Cash received - September, October and December 2003
                                                          1,209,482       1,209,482
Net loss for the year                                            --      (1,761,393)
                                                       ------------    ------------

Balance - December 31, 2003                            $ (4,865,079)   $ (3,312,679)
                                                       ============    ============
</TABLE>


*SEE FOOTNOTE 1 REGARDING RECAPITALIZATION OF MINGHUA GROUP INTERNATIONAL
HOLDING (HONG KONG) LIMITED


                                     F - 7
<PAGE>

                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                         (A DEVELOPMENT STAGE COMPANY)

                     CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                                     Cumulative
                                                                                    Amounts Since
                                                                                      Inception
                                                          For the Year Ended       June 4, 1997 To
                                                              December 31,           December 31,
                                                          2003           2002            2003
                                                          ----           ----            ----
<S>                                                  <C>             <C>             <C>
Cash Flows From Operating Activities
Net loss                                             $ (1,761,393)   $ (2,490,990)   $(16,624,694)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation                                              163,943          77,058         327,017
Common stock issued for services                               --         559,000         559,000
(Gain) loss on disposition of assets                      (46,559)        146,621         205,837
Research and development expenses recorded
in reorganization                                              --              --       8,612,730
Reorganization expenses recorded in
reorganization                                                 --              --         455,830
Changes in operating assets and liabilities:
Prepaid expenses and other assets                          44,160           6,340        (612,200)
Accrued liabilities                                     1,000,630       1,022,608       2,887,885

Net cash used in operating activities                    (599,219)       (679,363)     (4,188,595)

Cash Flows From Investing Activities
Reorganization - net of cash acquired                          --              --        (320,579)
Purchase of patent rights                                      --              --        (295,714)
Sales/purchases of property and equipment                  10,285         (66,656)       (910,454)
Deposit on acquisition of a company                      (121,000)       (121,000)

Net cash used in investing activities                    (110,715)        (66,656)     (1,647,747)

Cash Flows From Financing Activities
Due to stockholders and related parties - net          (2,128,654)        723,800        (184,013)
Proceeds from issuance of common stock                    604,595              --       4,148,732
Proceeds from convertible promissory note               3,128,225              --       3,128,225
Business acquisition                                     (967,585)             --        (967,585)
Dividends paid                                                 --              --      (1,000,000)
Notes payable - bank - net                                  5,436          (5,410)        649,492
Deposit - for common stock subscribed                     604,887              --         604,887

Net cash provided by financing activities               1,246,904         718,390       6,379,738

Net increase (decrease) in cash and cash
equivalents                                               536,970         (27,629)        543,396


Cash and cash equivalents - end of period            $    543,396    $      6,426    $    543,396
</TABLE>


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



                                      F - 8
<PAGE>

                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


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.

      Minghua Hong Kong's sole asset is an 85% equity interest in the Shenzhen
      Minghua Environmental Protection Vehicle Co., Ltd. ("Minghua China"), a
      Peoples Republic of China corporation, (collectively with all the
      subsidiaries consolidated, the "Company"). The transaction 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, has deemed to have adopted the capital structure
      of Minghua USA.

      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 19, 2004, Minghua Hong Kong
      acquired this 15% minority interest held by Minghua Real Estate, in a
      related party transaction (refer to footnote 12).


                                     F - 9
<PAGE>

                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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 and will initially
      attempt to sell the Minghua Hybrid Vehicle to the public transportation
      market in China in 2004. Minghua China has not made any sales of Minghua
      Hybrid Vehicles to date. All manufacturing by Minghua China of the Minghua
      Hybrid Vehicle will be done in China. Minghua Hong Kong and Minghua China
      entered into an agreement in 2003 to acquire Guangzhou City View Bus
      Installation Company Limited, 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. At December 31, 2003 and 2002, current
      liabilities exceeded current assets by $1,933,029 and $3,679,061,
      respectively. 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 on making the following expenditures: i)
      producing Minghua Hybrid Vehicles in 2004 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.

      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.


                                     F - 10
<PAGE>
                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.    BUSINESS DESCRIPTION AND ORGANIZATION (Continued)

      CAPITAL RESOURCES, BUSINESS RISKS AND GOING CONCERN (Continued)

      The Company had 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. A
      change in control of the Company may occur as a result of a stock
      subscription agreement signed January 29, 2004 with Beijing Qiang Long
      Real Estate Development Co., Ltd. (refer to footnote 4).


2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

      The consolidated financial statements for all period presented, include
      the financial statements of Minghua USA, Acquisition Corp., Minghua Hong
      Kong, Keytop Holdings Limited, Top Team Holdings Limited, Ming Hua
      Environmental Protection Science and Technology Limited and Minghua China.
      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. Certain
      reclassifications have been made to financial information for the prior
      year to conform to the current year's presentation.


                                     F - 11
<PAGE>
                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

      PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION (Continued)

      The Company has determined The Peoples Republic of China Chinese Yuan
      Renminbi to be the functional currency of Minghua China. There were no
      material gains or losses recognized as a result of translating foreign
      currencies to the U.S. dollars due to the stability of the Yuan Renmibi
      currency in 2003 and 2002. No assurance however, can be given as to the
      future valuation of the foreign currencies and how further movements in
      the foreign currencies could affect future earnings of the Company.

      The balance sheets of Minghua Hong Kong and Minghua China were translated
      at year end exchange rates. The accompanying consolidated balance sheet
      includes net liabilities of $3,259,508 and $2,821,288, relating to the
      Company's foreign facilities in the People's Republic of China, at
      December 31, 2003 and 2002, respectively. Expenses were translated at
      exchange rates in effect during the year, substantially the same as the
      year end rates.

      MINORITY INTEREST IN SUBSIDIARIES

      The Company records minority interest expense, which reflects the portion
      of the earnings of Minghua China, which are applicable to Minghua Real
      Estate, which is controlled by the Chairman (15% - December 31, 2003 and
      2002). There is also a 43% minority interest in Ming Hua Environmental
      Protection Science and Technology Limited. 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, 2003 and 2002. See also notes 1, 3 and 12
      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.

      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.


                                     F - 12
<PAGE>
                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

      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 pending business acquisition in
      2003, the valuation of equipment, patent rights, accrued liabilities and
      stock options, and the useful lives for amortization and depreciation.

      REVENUE RECOGNITION

      The Company adopted the U.S. Securities and Exchange Commission's (SEC)
      Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
      Statements," as of January 1, 2000. In SAB No. 101, the SEC expressed its
      view that revenue was realizable and earned when the following four
      criteria were met: (1) persuasive evidence of an arrangement exists; (2)
      delivery has occurred or the service have been rendered; (3) the seller's
      price to the buyer is fixed or determinable; and (4) collectibility is
      reasonably assured.

      The Company will recognize revenue from the sale of buses in accordance
      with SAB No. 101.

      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.

      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.


                                     F - 13
<PAGE>
                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

      PROPERTY AND EQUIPMENT (Continued)

      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 Lives

                  Transportation equipment                       3 years
                  Office, computer software and equipment        5 years
                  Furniture and fixtures
                                                                 5 years

      INTANGIBLE ASSET

      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 no longer 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
      has determined that they are not impaired as of that date.

      Intangible asset (patent rights) will be amortized beginning when it is
      placed in service. The Company examines the carrying value of its
      intangible assets to determine if there are any impairment losses. If
      indicators of impairment were present in intangible assets used in
      operations and future cash flows were not expected to be sufficient to
      recover the assets' carrying amount, an impairment loss would be charged
      to expense in the period identified. No event has been identified that
      would indicate an impairment of the value of intangible assets recorded in
      the accompanying consolidated financial statements.

      Components of the Patent rights in the consolidated balance sheet at
      December 31, 2003 consisted of:

      Patent rights:                                         $  295,714
      Less: accumulated amortization                              -
                                                             ----------

      Total                                                  $  295,714
                                                             ==========

      The technology was developed by the Company and the direct costs to obtain
      and apply for the patents in various countries are recorded as patent
      rights. The patent rights will be considered placed in service when the
      Company starts generating revenue from the sale of the Minghua Hybrid
      Vehicles.


                                     F - 14
<PAGE>
                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

      ADVERTISING COSTS

      All costs associated with advertising and promoting the buses are expensed
      in the period incurred. Advertising expense was $8,917 and $16,356 for the
      years ended December 31, 2003 and 2002, respectively and $274,777 for the
      period from June 4, 1997 (inception) to December 31, 2003.

      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 is currently in the development stage and has not yet
      commenced an active trade or business, therefore, 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.

      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, 2003 and 2002 were $ - and $116,554,
      respectively and a cumulative amount of $8,775,729 for the period from
      June 4, 1997 (inception) to December 31, 2003. 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.

      During the year ended December 31, 2003, the Company provided consultancy
      services to Minghua Real Estate at the request of its Chairman, in an
      amount included in other income of $115,385.


                                     F - 15
<PAGE>
                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

      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:

<TABLE>
<CAPTION>
                                                               Years ended December 31,
                                                                2003                 2002
                                                                ----                 ----
<S>                                                        <C>                 <C>
      NUMERATOR FOR BASIC AND DILUTED LPS
          Net loss to common shareholders                  $    1,761,393      $      2,490,990
                                                           ==============      ================

      DENOMINATOR FOR BASIC AND DILUTED LPS
          Weighted average shares of common stock
              outstanding                                      52,032,906            49,269,403
                                                               ==========            ==========

      LPS - Basic and diluted                                       $(.03)                $(.05)
                                                                   ======                ======
</TABLE>

      No dilution resulted from the 8,000,000 and 4,000,000 employee stock
      options outstanding at December 31, 2003 and 2002, respectively, because
      of the net loss reported in the statement of operations in both years.

      EQUITY BASED COMPENSATION

      The Company accounts for employee stock options in accordance with
      Accounting Principles Board Option 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.

      SFAS No. 123, "Accounting for Stock-Based Compensation," prescribes the
      recognition of compensation expense based on the fair value of options on
      the grant date, allows companies to continue applying APB No. 25 if
      certain pro forma disclosures are made, assuming a hypothetical fair value
      method application.


                                     F - 16
<PAGE>

                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

      COMPREHENSIVE LOSS

      The Company, under SFAS No. 130, is required to report the changes in
      shareholders' equity from all sources during the period, including foreign
      currency translation adjustments. The amount of foreign currency
      translation gain or loss for the years ended December 31, 2003 and 2002
      and for the period from June 4, 1997 (inception) to December 31, 2003 was
      not material.


3.    BUSINESS ACQUISITIONS

      On March 13, 2003, Ming Hua Environmental Protection Science and
      Technology Limited, ("Ming Hua Science") a company incorporated in Hong
      Kong owned by Top Team Holdings Limited, a BVI limited company
      wholly-owned by Minghua Hong Kong, entered into a stock purchase agreement
      for the purchase of a 51% ownership in Guangzhou City View Bus
      Installation Company Limited. The purchase price was $967,585 and 4,300
      shares (43%) of the total authorized shares of Ming Hua Science to Mr. Kok
      Sin Keung. This acquisition was made in order to obtain a production
      facility to manufacture the Minghua Hybrid Vehicle. The Company received
      formal approval on this acquisition from the State Administration for
      Industry and Commerce of the People's Republic of China of the 51%
      interest acquired and title (ownership) passed to the Company on January
      27, 2004.

      Accordingly, the Guangzhou City View Bus Installation Company Limited pro
      forma condensed balance sheet information with the Company is shown (refer
      to footnote 13) and its financial results from January 27, 2004 onward
      will be included in the Company's first quarter 2004 consolidated
      financial statements.

      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 consideration of $240,000 for its services. This amount was
      accrued in 2003 and included in accrued liabilities on the balance sheet.

      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.


                                     F - 17
<PAGE>
                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

4.    STOCKHOLDERS' DEFICIENCY

      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 remains as a stock subscription receivable at December 31,
      2003 and 2002.

      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 were forfeited in 2002.

      In November 2002, 1,100,000 shares were issued to the Board of Directors
      at $.13 market value 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 market value 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. The subscription agreement requires
      Qiang Long to fund the total stock subscription amount by February 29,
      2004. Qiang Long had not funded the remaining required amount by February
      29, 2004. The Company and Qiang Long are currently working to complete
      this agreement, however, it is unknown when future proceeds will be
      received.

      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. Qiang Long is to pay in the first required installment,
      $12,600,000 for 60,000,000 shares on or before April 15, 2004. The final
      second required installment is due within 15 days following a stockholders
      meeting to increase the number of common shares authorized for stock
      issuance, in order to have enough common shares to satisfy its stock
      obligations to Qiang Long, under this second stock subscription agreement.
      Due to the uncertainty involving the first agreement with Qiang Long, it
      is uncertain whether this funding will be received.


                                     F - 18
<PAGE>
                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

4.    STOCKHOLDERS' DEFICIENCY (Continued)

      ISSUANCE OF COMMON STOCK (Continued)

      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. No accrual was made for this commission at December 31, 2003.

      All the above common stock securities issued in 2003 and 2002 were not
      registered under the Securities Act of 1933, as amended, and therefore
      fall under the restrictions of Rule 144 of the Securities Act of 1933, as
      amended.

      COMMON STOCK

      The Company's capital structure as of December 31, 2003 and 2002 were as
      follows:

      Common stock - par value:
         $.01 per share at December 31, 2003 and
               December 31, 2002

      December 31, 2003:
          Authorized - 200,000,000 shares
               Issued and outstanding - 53,507,709 shares

      December 31, 2002:
          Authorized - 200,000,000 shares
               Issued and outstanding - 50,482,252 shares

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

      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.


                                     F - 19
<PAGE>
                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

      4. STOCKHOLDERS' DEFICIENCY (Continued)

      STOCK OPTION PLAN (Continued)

      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 optionee'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 are subject 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
      vests only if the Company's annual revenues reach $50,000,000.

      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 these 4,000,000 stock options
      were exercised in February 2004.

      Stock option transactions are summarized as follows:

                                                2003         2002
                                                ----         ----

          Outstanding - beginning of year     4,000,000    6,000,000
          Granted                             4,000,000           --
          Exercised                                  --     (540,260)
          Forfeited                                  --   (1,459,740)
                                             ----------   ----------

          Outstanding - end of year           8,000,000    4,000,000
                                             ==========   ==========

          Shares exercisable - end of year    5,700,000    1,100,000
                                             ==========   ==========


                                     F - 20
<PAGE>
                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

4.    STOCKHOLDERS' DEFICIENCY (Continued)

      STOCK OPTION PLAN (Continued)

      The following table provides certain information with respect to the
      above-referenced stock options outstanding at December 31, 2003:

<TABLE>
<CAPTION>
                                                                       Weighted Average
                                  Stock                                   Remaining
        Exercise                 Options          Weighted Average       Contractual
         Prices                Outstanding         Exercise Price        Life - Years
         ------                -----------        ----------------     ----------------
        <S>                    <C>                <C>                  <C>
        $0.12                   4,000,000                $0.12                .2
         1.75                   2,000,000                 1.75                .5
         1.75                   2,000,000                 1.75       Performance Options
</TABLE>

      The following table provides certain information with respect to stock
options exercisable at December 31, 2003:

                                                 Weighted
                              Stock               Average
       Exercise              Options             Exercise
       Prices              Outstanding             Price
       --------            -----------           ---------
        $0.12               4,000,000             $0.12
         1.75               1,700,000              1.75

      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                   2 - 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. 123 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 2001 and 2003 grants been measured under the fair
      value recognition provision of SFAS No. 123.

      The Company's pro forma information for the years ended December 31, 2003
      and 2002 prepared in accordance with the provisions of SFAS No. 123, is
      provided below. For purposes of pro forma disclosures, stock-based
      compensation is amortized to expense on a straight-line basis over the
      vesting period.


                                     F - 21
<PAGE>
                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

4.    STOCKHOLDERS' DEFICIENCY (Continued)

      STOCK OPTION PLAN (Continued)

                                                  2003            2002
                                                  ----            ----

      Net loss, as reported                   $ 1,761,393    $ 2,490,990
      Deduct: total stock-based employee
          compensation expense determined
          under fair value based method for
          all awards, net of related tax
          effects                               1,844,616      1,164,616
                                              -----------    -----------

      Pro forma net loss                      $(3,606,009)   $(3,655,606)
                                              ===========    ===========

      Basic and diluted - as reported         $      (.03)   $      (.05)
                                              ===========    ===========

      Basic and diluted - pro forma           $      (.07)   $      (.07)
                                              ===========    ===========


5. PROPERTY AND EQUIPMENT

      Property and equipment at cost consists of:

                                               December 31,
                                               ------------
                                           2 0 0 3      2 0 0 2
                                           -------      -------

Transportation equipment                  $      --    $ 115,505

Model buses                                 393,938           --

Office, computer software and equipment     138,753      138,838

Furniture and fixtures                      125,608      132,566
                                          ---------    ---------

                                            658,299      386,909
Construction in progress - Model buses           --      275,126
                                          ---------    ---------

                                            658,299      662,035

Less: accumulated depreciation             (294,023)    (221,132)
                                          ---------    ---------

                              T O T A L   $ 364,276    $ 440,903
                                          =========    =========

Depreciation expense for the years ended December 31, 2003 and 2002 were
$163,943 and $77,058, respectively.


                                     F - 22
<PAGE>

6.    NOTES PAYABLE

      BANK

      The bank loans consist of two separate credit line agreements with a
      weighted average interest rate of 9% per annum, denominated in Chinese
      Yuan Renminbi, from two Chinese banks. The loans are secured by a
      guarantee given by a third party. The United States dollar equivalent of
      the outstanding loans balance at December 31, 2003 and 2002 was $649,492
      and $644,056, respectively.

      As of December 31, 2003, Minghua China is in default with all notes
      payable, with a total principal balance past due of $649,492. Through
      March 31, 2004, such lenders have not demanded payment and Minghua China
      continues to accrue interest on all notes payable. 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.

      The proceeds from this note was 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 is convertible 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 $492,250 and
      $80,600 for the years ended December 31, 2003 and 2002 respectively, and
      $646,508 for the period from June 4, 1997 (inception) to December 31,
      2003.


                                     F - 23


<PAGE>

                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                         (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


7. INCOME TAXES

      The Company accounts for income taxes in accordance with the provisions of
      SFAS  No.  109,  "Accounting  for  Income  Taxes."  The  Company  files  a
      consolidated federal income tax return with Acquisition Corp.

      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  $1.5  million  expiring  in the years 2021 - 2023.  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  carryforward  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 $15,795,388 of unused operating losses
      carryforwards.  A deferred tax asset of $4,738,616  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 $528,000 for the year ended December 31, 2003.

      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.

8. COMMITMENTS AND CONTINGENCIES

      LEASE COMMITMENTS

      The Company leases office space from a related company,  under a long-term
non-cancellable lease agreement.




                                      F-24
<PAGE>

                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                         (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


8. COMMITMENTS AND CONTINGENCIES (Continued)

      LEASE COMMITMENTS (Continued)

      Minimum future rental payments under the  non-cancellable  operating lease
      as of  December  31,  2003  for  each of the next  five  years  and in the
      aggregate are as follows:

      Period ended December 31,                                Amount
                                                           -------------
         2004                                              $     152,395
         2005                                                    152,395
         2006                                                    152,395
         2007                                                    152,395
         2008 and thereafter                                     330,188
                                                           -------------

      Total minimum future rental payments                 $     939,768
                                                           =============

      Total rent  expense  for  December  31,  2003 and 2002 were  $181,543  and
      $342,662, respectively, of which $181,543 and $309,546, respectively, were
      paid to a related party.

      EMPLOYMENT CONTRACTS

      The Company has employment  agreements  with a director and officer,  that
      are  terminable  at will by the Company and the director  and officer.  In
      addition to a base salary, the agreements provide for a bonus up to 50% of
      annual base salary based on pretax earnings.

      PURCHASE COMMITMENTS

      Minghua has two purchase  commitments  as of December 31, 2003 to purchase
      equipment for a total of $739,000 as of December 31, 2003.

      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.

      A civil proceeding in The People's  Republic of China was commenced by Mr.
      Chun Fu Wang against  Minghua China as the second  Defendant  arising from
      the  dispute  as  to  Patent  No.  Z1992112168.   Minghua  China  filed  a
      counterclaim  against Mr.  Wang for,  among  others,  breach of duties and
      declaration  of  annulment  of the  Transfer of Patents and License to Use
      Patent  agreements.  On October 20,  2003,  the  Company  received a court
      ruling in favor of Minghua  China.  Mr. Wang is  currently  appealing  the
      court's decision.



                                      F-25
<PAGE>

                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                         (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


9. SUPPLEMENTAL CASH FLOW INFORMATION

      There were no interest and income taxes paid for the years ended  December
      31, 2003 and 2002.

      NON-CASH TRANSACTIONS

      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.


10. 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. The convertible  promissory
      note was  converted to stock in January 2004 (refer to Note 6) at a market
      price that was approximately equivalent to the balance due at December 31,
      2003.  None of the financial  instruments  held are  derivative  financial
      instruments  and none were  acquired or held for trading  purposes in 2003
      and 2002.


11. NEW ACCOUNTING PRONOUNCEMENTS

      In January 2003,  the FASB issued FIN No. 46,  "Consolidation  of Variable
      Interest  Entities" ("FIN 46") which is an  interpretation  of "Accounting
      Research  Bulletin No. 51,  "Consolidated  Financial  Statements".  FIN 46
      requires a variable  interest entity (VIE) to be consolidated by a company
      that is considered to be the primary  beneficiary of that VIE. In December
      2003, the FASB issued FIN No . 46 (revised December 2003),  "Consolidation
      of Variable  Interest  Entities"  ("FIN" 46-R") to address  certain FIN 46
      implementation  issues. The effective dates and impact FIN 46 and FIN 46-R
      for the Company's consolidated financial statements are as follows:

      1.    Special  purpose  entities:   The  Company  must  apply  either  the
            provisions  of FIN 46 or FIN 46-R at the end of the first  reporting
            period ending after  December 15, 2003.  The Company has  determined
            that it has no SPE's.

      2.    Non-SPEs:  The  Company is  required to adopt FIN 46-R at the end of
            the  first   reporting   period  ending  after  December  15,  2004.
            Management does not believe that the adoption of this provision will
            have a material effect on the Company's financial position,  results
            of operations or cash flows.


                                      F-26
<PAGE>

                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                         (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


11. NEW ACCOUNTING PRONOUNCEMENTS (Continued)

      The Company has not entered into any material joint venture or partnership
      agreements subsequent to date and the Company does not currently expect to
      enter into any such material  agreements.  If the Company  enters into any
      significant  joint venture and  partnership  agreements in the future that
      would  require  consolidation  under FIN 46 or FIN 46-R,  it could  have a
      material impact on the Company's future consolidated financial statements.

      In May 2003, the FASB issued  Statement No. 150,  "Accounting  for Certain
      Financial   Instruments  with  Characteristics  of  both  Liabilities  and
      Equity".  SFAS No. 150 establishes  standards for how an issuer classifies
      and measures certain financial  instruments with  characteristics  of both
      liabilities and equity.  SFAS No. 150 requires that an issuer classifies a
      financial  instrument that is within its scope as a liability (or an asset
      in  some  circumstances).   SFAS  No.  150  was  effective  for  financial
      instruments entered into or modified after May 31, 2003, and otherwise was
      effective for the Company's  fourth  quarter of 2003. The adoption of SFAS
      No. 150 is not expected to have a material impact on the Company's  future
      financial position, results of operations or cash flows.

      In  December  2002,  the  FASB  issued  SFAS  No.  148,   "Accounting  for
      Stock-Based  Compensation - Transition and Disclosure,"  which amends SFAS
      No. 123, "Accounting for Stock-Based  Compensation." SFAS No. 148 provides
      alternative methods of transition for a voluntary change to the fair value
      based method of accounting for stock-based employee compensation. SFAS No.
      148 also  requires that  disclosures  of the pro forma effect of using the
      fair value method of accounting for stock-based  employee  compensation be
      displayed more prominently and in a tabular format. Additionally, SFAS No.
      148  requires  disclosure  of the pro forma  effect in  interim  financial
      statements.  The interim disclosure provisions are effective for financial
      reports containing financial statements for interim period beginning after
      December 15, 2002. As the Company does not intend to adopt the  provisions
      of SFAS No. 123, the Company does not expect the transition  provisions of
      SFAS No. 148 to have a material  effect on its  results of  operations  or
      financial condition, only on its financial statement disclosures.

      In November  2002,  the FASB issued FASB  Interpretation  No. 45 (FIN 45),
      "Guarantor's   Accounting  and  Disclosure  Requirements  for  Guarantees,
      Including Indirect  Guarantees of Indebtedness of Others." FIN 45 requires
      that a  liability  be  recorded  on the  guarantor's  balance  sheet  upon
      issuance of a guarantee.  In addition,  FIN 45 requires  disclosures about
      the guarantees, including indemnifications,  that an entity has issued and
      a roll forward of the entity's product warranty  liabilities.  The Company
      will  apply  the  recognition   provisions  of  FIN  45  prospectively  to
      guarantees issued or modified after December 31, 2002.

      In June  2001,  the  FASB  issued  SFAS No.  143,  "Accounting  for  Asset
      Retirement  Obligations",  effective for fiscal years beginning after June
      15, 2002. The statement applies to legal  obligations  associated with the
      retirement of long-lived  assets.  The adoption of this  pronouncement has
      not had any material effect on the Company.

      In  June,  2002 the  FASB  issued  SFAS No.  146,  "Accounting  for  Costs
      Associated  with  Exit or  Disposal  Activities",  effective  for  exit or
      disposal  activities  that are  initiated  after  December 31,  2002.  The
      adoption  of this  pronouncement  has not had any  material  effect on the
      Company.



                                      F-27
<PAGE>

                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                         (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


12. SUBSEQUENT EVENTS

      On January 19, 2004,  in a related  party  transaction,  Minghua Hong Kong
      entered  into a  stock  purchase  agreement  with  Jinmou  Li,  son of the
      Company's  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.  The  purchase  price was  approximately  $991,000  and
      28,210,000  shares of Minghua USA, valued at $.14 per share by management,
      of the Company's common stock, for an aggregate price of $4,940,400.

      This transfer is a transfer between entities under common control and will
      be recorded on Minghua Hong Kong's records at Asia Key's  historical  cost
      basis. The amounts paid in excess of the cost basis, will be an expense to
      the Company in 2004. The proforma effect of this transaction was not known
      as of the date of issuance of these financial statements.

      Asia Key's only asset is a 15% equity interest in Minghua China.  Upon the
      consummation  of this  acquisition,  the Company  will obtain the minority
      interest  and  become an owner of all the  outstanding  equity of  Minghua
      China.  The funds used to acquire  the 15% equity  interest  were from the
      proceeds from the issuance of stock to Qiang Long, as described in Note 4.

      On  January  13,  2004,  the  Company  entered  into a stock  subscription
      agreement  with China  Cardinal  Limited of Hong Kong  ("China  Cardinal")
      relating to the  purchase of  16,483,514  shares of the  Company's  common
      stock at a purchase price of $.14 per share, as valued by management,  for
      aggregate  gross proceeds of $2,307,692.  On January 18, 2004, the Company
      received  $662,652  from  China  Cardinal.  Pursuant  to the  subscription
      agreement,  the remaining $1,645,040 was to be received prior to March 31,
      2004.


13. PROFORMA FINANCIAL INFORMATION (UNAUDITED)

      The following  unaudited  proforma condensed balance sheet gives effect to
      the business  acquisition of Guangzhou City View Bus Installation  Company
      Limited as if it occurred on December  31, 2003 (refer to footnote  number
      3.) The purchase price allocation has not been finalized as of the date of
      the  financial  statements,  because the Company has not yet  received the
      valuation report from the independent  appraisal company that is currently
      in the  process  of  completing  the  valuation.  Therefore,  the value of
      intangible assets acquired has not yet been determined as of the date that
      these consolidated financial statements were issued. This acquisition will
      be reported on Form 8-K to the Securities and Exchange Commission.



                                      F-28
<PAGE>

                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                         (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                As Reported in     Acquisition
                                                 Accompanying      of Guangzhou                          Pro Forma       Pro Forma
                                                  Financial       City View Bus                       Adjustments for   Consolidated
                                                  Statements         Company      Eliminations       Subsequent Events Balance sheet
                                                 -----------     -----------     -------------   --- -----------------  -----------
<S>                                              <C>            <C>              <C>             <C>    <C>            <C>
                      Assets

Current assets
     Cash                                        $   543,396     $     5,275     $        --     (1)    $ 1,204,820     $ 2,416,143
                                                                                                 (4)        662,652
Accounts receivable                                                   49,517                                                 49,517
Inventories                                                        1,714,958                                              1,714,958
Due from related company                             132,744        (132,850)                                                  (106)
Prepaid expenses and other current assets
                                                     122,312         523,857                                                646,169

         Total current assets                        798,452       2,160,757                                              4,826,681

Property, plant and equipment - (net)                364,276       1,295,169                                              1,659,445

Other assets
     Deposits on pending business acquisitions     1,088,585                        (967,585)                               121,000
     Goodwill                                                                      1,588,876                              1,588,876
     Patent rights                                   295,714          53,498                                                349,212


         Total assets                            $ 2,547,027     $ 3,509,424                                            $ 8,545,214
                                                 -----------     -----------                                            -----------
</TABLE>


                                      F-29
<PAGE>

                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                                                As Reported in     Acquisition
                                                 Accompanying      of Guangzhou                         Pro Forma       Pro Forma
                                                  Financial       City View Bus                      Adjustments for   Consolidated
                                                  Statements         Company     Eliminations       Subsequent Events Balance sheet
                                                 -----------     -----------    -------------   --- -----------------  -----------
<S>                                              <C>             <C>            <C>             <C>    <C>            <C>
Liabilities and Stockholders' Deficiency
  Current liabilities
      Note payable - bank                         $    649,492   $     66,425                                           $   715,917
      Accounts payable                                              2,055,942                                             2,055,942
      Accrued liabilities                            1,793,168        756,392                                             2,549,560
      Due to stockholders                              219,347      1,251,956                                             1,471,303
      Due to related company                            69,474             --                                                69,474

               Total current liabilities             2,731,481      4,130,715                                             6,862,196

  Long-term debt convertible promissory
      note payable                                   3,128,225             --                   (3)       (3,128,225)            --

               Total liabilities                     5,859,706      4,130,715                                             6,862,196

  Stockholders' Deficiency
      Common stock                                     535,077      1,471,000     (1,471,000)   (2)           30,239        805,679
                                                                                                (3)          240,363
      Common stock subscribed                          134,885                                  (2)          (30,239)       269,481
                                                                                                (4)          164,835
      Additional paid in capital                    17,507,132        648,051       (648,051)   (3)        2,887,862     22,537,851
                                                                                                (4)        2,142,857

      Foreign currency translation adjustment                        (208,716)       208,716                                     --

      Deficit accumulated during the
          development stage                        (16,624,694)    (2,531,626)     2,531,626                            (16,624,694)
                                                     1,552,400       (621,291)                                            6,988,317
      Less: stock subscription receivable           (4,865,079)            --                   (1)        1,204,820             --
                                                                                                (4)       (1,645,040)    (5,305,299)
                                                    (3,312,679)      (621,291)                                            1,683,018
  Total liabilities and stockholders' deficiency  $  2,547,027   $  3,509,424                                         $   8,545,214
</TABLE>



                                      F-30
<PAGE>

                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                    For the Year Ended December 31, 2003
                                             ---------------------------------------------------
                                             As Reported in                          Pro Forma
                                              Accompanying       Acquisition        Consolidated
                                               Financial         of Guangzhou         Income
                                               Statements       City View Bus        Statement
                                             ------------        -----------        -----------
<S>                                           <C>                <C>                <C>
Sales                                         $        --        $   139,353        $   139,353

Cost of goods sold                                     --            143,674            143,674
                                             ------------        -----------        -----------

             Gross loss                                --             (4,321)            (4,321)


Cost and expenses
    General and administrative expenses         1,388,705            260,348          1,649,053
    Research and development costs                     --                 --                 --
                                             ------------        -----------        -----------

             Operating loss                    (1,388,705)          (264,669)        (1,653,374)


Other income (expense)
       Other income                               119,562                765            120,327
       Interest expense                          (492,250)            (7,743)          (499,993)
                                             ------------        -----------        -----------

             Net loss                         $(1,761,393)       $  (271,647)       $(2,033,040)
                                             ============        ===========        ===========
</TABLE>


                                      F-31
<PAGE>

                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                             Debit          Credit
                                                                             -----          ------
                               Elimination Entry
<S>                                                                       <C>            <C>
        Goodwill                                                          $1,588,876
             Deposits on pending business acquisitions                                   $  967,585
        Common Stock                                                       1,471,000
             Foreign currency translation adjustment                                        208,716
        Additional paid in capital                                          648,051
             Deficit accumulated during the development stage                             2,531,626


                       Adjustments for subsequent events
    (1) Cash                                                              $1,204,820
             Subscription  receivable                                                    $1,204,820
        See footnote 4 Issuance of Common Stock. Minghua received
        $1,204,820 cash from Qiang Long in January 2004.

    (2)
        Common stock subscribed                                           $   30,239
             Common stock                                                                $  30,239
        3,023,998 shares were issued to Qiang Long in January 2004.
        See footnotes 4 Issuance of Common Stock.

    (3) Notes payable                                                     $3,128,225
             Common Stock                                                                $  240,363
             Additional paid in capital                                                   2,887,862
        See footnote 6 regarding Notes Payable, Convertible
        Promissory Note. The $3,128,225 promissory note was
        converted to 24,036,269 shares of common stock issued
        in January 2004.

    (4) Cash                                                              $  662,652
        Subscription receivable                                            1,645,040
             Common stock subscribed                                                     $  164,835
             Additional paid in capital                                                   2,142,857
        See footnote 12 regarding  Subsequent Events. The Company entered into a
        stock purchase agreement with China Cardinal relating to the purchase of
        16,483,514  shares of the Company's  common stock at $.14 per share.  In
        January 18, 2004, the Company received $662,652.
</TABLE>



                                      F-32
<PAGE>


                                  EXHIBIT INDEX


EXHIBIT NUMBER        EXHIBIT DESCRIPTION
--------------        -------------------

14                    Code of Ethics
21                    Description of Subsidiaries
31                    Certification of Principal Executive and Financial Officer
32                    Section 1350 Certification