**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549





**FORM
      10-KSB**





(Mark
      One)


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


For
      the
      fiscal year ended: December
      31, 2006





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


For
      the
      transition period from ____________ to _____________







**Commission
      File No. 000-30183**





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





(Name
      of
      small business issuer in its charter)





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





8/F
      East
      Area, Century Golden Resources Business Center


69
      Banjing Road, Haidian District


Beijing,
      People’s Republic of China 100089


(Address
      of Principal Executive Offices)





+86-10-884-52568


(Registrant’s
      Telephone Number, Including Area Code)





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




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




Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or such shorter period
      that
      the registrant was required to file such reports), and (2) has been subject
      to
      such filing requirements for the past 90 days. Yesx No o




Check
      if
      no disclosure of delinquent filers in response to Item 405 of Regulation S-B
      is
      contained in this form, and no disclosure will be contained, to the best of
      registrant's knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-KSB or any amendment
      to
      this Form 10-KSB. x




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




The
      issuer’s revenues for its most recent fiscal year are zero.




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 29, 2007 is $3,428,880.




The
      number of shares outstanding of the issuer's common stock as of March 29, 2007
      is 148,509,867.







**FORWARD-LOOKING
      STATEMENTS**





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





**PART
      I**





**ITEM
      1. DESCRIPTION OF BUSINESS** ****





***General***




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




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




Through
      our indirect subsidiary, the Environmental Vehicle Company, we have been focused
      on the development and commercialization of mass transit, hybrid electric
      vehicles, primarily buses, since 2001. However, to date we have not been able
      to
      successfully commercialize these vehicles and our products only exist in
      prototype form. Our hybrid vehicles are powered by a combination of a combustion
      diesel engine and electric power systems based upon our patented technology.
      Prototype hybrid vehicles and a limited number of other vehicles have been
      produced, but to date we have made no sales of these vehicles.




2


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





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





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





***The
      Environmental Vehicle Company***





The
      Environmental Vehicle Company is our primary operating subsidiary, and its
      main
      business is the development, production and sale of hybrid vehicles. In
      September 2000, the Environmental Vehicle Company successfully developed its
      first prototype hybrid electric bus. Since then, in May 2004, the Environmental
      Vehicle Company developed its second generation hybrid vehicle. Since developing
      our first prototype hybrid vehicle in September 2000, we have not sold any
      hybrid vehicles.





***Products
      and Product Development***





Environmentally-Friendly
      Vehicles





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





The
      performance parameters for the prototypes are as follows:





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





3


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





Diesel
      Buses





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





***Manufacturing
      Our Products***





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





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





***Market***




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





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





4


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





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





***Marketing
      Strategy***





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





***Competition***





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





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





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





***Research
      and Development***




Our
      research and development activities are conducted through our subsidiary, the
      Guangzhou Bus Installation Company. The Guangzhou Bus Installation Company
      has 8
      employees who work exclusively on research and development of future generation
      products. The Environmental Vehicle Company has invested approximately $7,174
      in
      the research and development conducted through the Guangzhou Bus Installation
      Company in fiscal year 2006 and $34,455 was invested during the fiscal year
      ending December 31, 2005.




5


***Regulation***




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




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




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




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




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




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




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




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




***Employees*** ****




As
      of
      March 20, 2007, we had a total of 35 employees (excluding consultants and
      temporary help). Of these employees, 10 are management personnel at our parent
      company and our subsidiaries, 5 are in accounting, 9 are administrative staff,
      8
      are engaged in research and development and 3 are involved in sales and related
      support.




6


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




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




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





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





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





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




None.





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




No
      matters were submitted to a vote of our security holders during the fourth
      quarter of fiscal year 2006.




**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 transfer agent of
      our common stock is American Stock Transfer & Trust Company whose address is
      at Operations Center 6201 15th Avenue, Brooklyn, NY 11219, (718)
      921-8210.





7


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****2006**
            December
                31, 2006
            **$**0.025
            $0.01September
                30, 2006
            **$**0.02
            $0.015June
                30, 2006
            **$**0.03
            $0.017March
                31, 2006
            $0.05
            $0.017**2005**
            December
                31, 2005
            $0.04
            $0.01September
                30, 2005
            $0.09
            $0.02June
                30, 2005
            $0.15
            $0.07March
                31, 2005
            $0.30
            $0.11




***Holders***




The
      number of holders of record of our common stock as of March 29, 2007 was
      268.




***Dividends***




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




8




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




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





***Recent
      Sales of Unregistered Securities***





We
      have
      not sold any equity securities during the fiscal year ended December 31, 2006
      that were not previously disclosed in a quarterly report on Form 10-QSB or
      a
      current report on Form 8-K that was filed during the 2006 fiscal year.





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





***Overview***




From
      inception through June 22, 2001 we were relatively inactive with limited
      operations and revenue. On June 22, 2001, we acquired the Environmental Vehicle
      Company and since then, we have been focused on the development and
      commercialization of mass transit, hybrid electric vehicles, primarily buses.
      However, to date, we have not been able to successfully commercialize these
      vehicles and our products only exist in prototype form.




We
      have
      entered into financing agreements with Beijing Qiang Long Real Estate
      Development Co. Ltd. (“Qiang Long”). Pursuant to these arrangements, Qiang Long
      has funded to us a total of US$7,286,706 through December 31, 2006 and is
      obligated to fund an additional $28,113,294 through June 30, 2007. Without
      this
      financing, we have no other source of revenues and would not be able to execute
      our business plan unless alternate financing is obtained. The financing with
      Qiang Long is contingent. See “Liquidity and Capital Resources” below.




***Plan
      of Operation***




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





9


At
      December 31, 2006 we had $39,622 in cash. Without receipt of financing from
      Qiang Long or from some other source, we would not have enough working capital
      to sustain our operations for the next twelve months.





***Results
      of Operations***





Fiscal
      Year Ended December 31, 2006 Compared to December 31, 2005





The
      following table summarizes the results of our operations during the fiscal
      years
      ended December 31, 2006 and 2005 and provides information regarding the dollar
      and percentage increase or (decrease) from the 2005 fiscal year to the 2006
      fiscal year.





**Line
                Item**
            **12/31/06**
            **12/31/05**
            **Increase**
              **(Decrease)**
            **Percentage**
              **Increase**
              **(Decrease)**Revenues
            $0.00
            $353,478
            ($353,478)
            (100%)Net
                Loss
            ($345,621)
            ($1,170,770)
            ($825,149)
            (70.48)%Operating
                Expenses
            $1,101,349
            $1,565,031
            ($463,682)
            (29.62%)Earnings
                (Loss) per common share
            ($0.00)
            ($0.01)
            $0.01
            100%





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




We
      had
      revenues of $0.00 in fiscal year 2006 compared to revenues of $353,478 during
      fiscal year 2005. The revenues in 2006 decreased by $353,478 or 100% primarily
      due to the fact that the revenues in fiscal year 2005 were derived from the
      sale
      of a total of 6 diesel buses in three separate sale transactions during the
      first quarter of 2005. In total, 3 buses were sold to Man Zhou Li Golden Bridge
      Foreign Vehicle Transporting Co., Ltd., 2 were sold to He Yuan Communications
      Group Tong Fa He Ping Subsidiary, and 1 bus was sold to Guang Zhou Zhao Shang
      Tour Ltd. The cost of sales for the buses sold in 2005 exceeded revenues from
      the sale of the buses by $216,307.




Our
      net
      loss for the year ended December 31, 2006 was $345,621 compared to $1,170,770
      for the prior year. This represents a decrease of $825,149 or 70.48%. This
      decrease in net loss was primarily the result of the following factors:




·
              decreased
                  Provision for impairment of $702,398, which contributed 85.01%
                  to the
                  overall decrease; and
  10
  ·
              increase
                  in other income of $145,160 which offset the overall decrease by
                  17.59%.




Our
      operating expenses for the fiscal year ended December 31, 2006 were $1,101,349
      as compared to $1,565,031 during the same period in 2005. This decrease of
      $463,682 or 29.62% is primarily the result of the following
      factors:




·
              decreased
                  Provision for impairment of $702,398, which contributed 69.54%
                  to the
                  overall decrease;


·
              increased
                  legal and professional fees of $66,747, which offset the overall
                  decrease
                  by 14.39%;
  ·
              decreased
                  Research & development of $27,281, which contributed 5.88% to the
                  overall decrease;
  ·
              increased
                  payroll and other general and administrative expense of $66,911,
                  which
                  offset 3.93% the overall decrease by 14.43%;
                  and
  ·
              increased
                  depreciation and amortization expense of $132,339 which offset
                  the overall
                  decrease by 28.54%.


Loss
      per
      common share for the fiscal year ended December 31, 2006 was 0.00 as compared
      to
      a loss of 0.01 during the same period of 2005. This decrease of 100% is
      primarily the result of the factors described above that contributed to our
      net
      loss for the year.





***Liquidity
      and Capital Resources***





We
      had
      $39,622 in cash, cash equivalents and short-term investments as of December
      31,
      2006. As of such date, we also had total current assets of
      $2,071,424 **** and
      total
      assets of $3,150,772. We have total current liabilities (consisting of accounts
      payable, accrued liabilities, short term notes payable, due to directors and
      other payables) in the amount of $2,487,622. Our stockholder’s equity as of
      December 31, 2006 was $663,150. Since inception, we have accumulated a deficit
      (net loss) of ($29,165,300).





We
      entered into two financing agreements with Qiang Long in the third quarter
      of
      2003 and the first quarter of 2004. We refer to these contracts as the Qiang
      Long Contracts. These contracts require Qiang Long to make certain cash
      investments in Minghua. Pursuant to the Qiang Long Contracts, Qiang Long has
      funded Minghua a total of US$7,286,706 through December 31, 2006, and Minghua
      has issued to Qiang Long a total of 18,013,862 shares of Minghua’s common stock
      for such funds. **** Under
      the
      Qiang Long Contracts, Qiang Long is obligated to fund an additional
      US$28,113,294 on June 30, 2007. The funding under the Qiang Long Contracts
      is
      subject to, among other things, Minghua increasing its authorized capital stock
      so that it has sufficient authorized, but unissued capital stock to consummate
      the transactions contemplated by the Qiang Long Contracts.




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




The
      Qiang
      Long Contracts provide that if the remaining payments due under the Qiang Long
      Contracts have not been made by Qiang Long on or prior to June 30, 2007, the
      current directors of Minghua will each resign from their position as directors
      and appoint such persons to the Board as may be requested by Chu Quan Li, who
      was the former controlling stockholder of Minghua.




11


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





Over
      the
      next twelve months, we will need approximately $1,000,000 to fund our operations
      and to continue to execute our business plan. We expect to obtain the necessary
      funding though our financing arrangement with Qiang Long. However, the next
      installment from Qiang Long is not due until June 30, 2007. Prior to receiving
      that installment, we must seek other means of financing our current operations.
      We have no commitments from any person to provide such interim financing. We
      expect that our shareholders will extend loans to us, however, they are not
      obligated to do so.





***Critical
      Accounting Policies***





Preparation
      of our financial statements requires management to make judgments, assumptions,
      and estimates regarding uncertainties that affect the reported amounts of
      assets, liabilities, stockholders' equity, revenues and expenses. Note 2 of
      the
      Notes to the Consolidated Financial Statements describes the significant
      accounting policies used in preparation of our 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
      consolidated financial statements have been prepared on a going concern basis,
      which assumes the realization of assets and liquidation of liabilities in the
      normal course of operations. If we were not to continue as a going concern,
      we
      would likely not be able to realize on our assets at values comparable to the
      carrying value or the fair value estimates reflected in the balances set out
      in
      the preparation of the consolidated financial statements. There can be no
      assurances that we will be successful in generating additional cash from equity
      or other sources to be used for operations. The consolidated financial
      statements do not include any adjustments relating to the recoverability of
      assets and classification of assets and liabilities that might be necessary
      should the Company be unable to continue as a going concern.





Long-lived
      assets, which primarily include property, plant and equipment, are reviewed
      for
      impairment whenever events and changes in business circumstances indicate the
      carrying value of the assets may not be recoverable. If we determine that the
      carrying value of the long-lived asset may not be recoverable, a permanent
      impairment charge is recorded for the amount by which the carrying value of
      the
      long-lived asset exceeds its fair value. Fair value is generally measured based
      on a discounted cash flow method using a discount rate determined by management
      to be commensurate with the risk inherent in our current business model.





The
      Company has elected to account for all stock based compensation in accordance
      with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to
      Employees” (APB 25), and to adopt the disclosure-only provisions as required
      under Statement of Financial Accounting Standards No. 123, “Accounting for
      Stock-Based Compensation” (FAS 123), and Statement of Financial Accounting
      Standards No. 148, Accounting for Stock-Based Compensation - Transition and
      Disclosure (SFAS No. 148) .





***Off-Balance
      Sheet Arrangements***





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





12


***Inflation***





We
      believe that inflation has not had a material impact on our results of
      operations for the years ended December 31, 2006 or December 31, 2005.





***Seasonality***





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





***Risk
      Factors Affecting Our Business***





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




Risks
      Relating to Our Financial Condition





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





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





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





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





13


As
      described above under “Liquidity and Capital Resources,” pursuant to the Qiang
      Long Contracts, Qiang Long is obligated, subject to certain contingencies,
      to
      fund us in the amount of US $28,200,000 on
      or
      before June 30, 2007. No assurance can be given that we will be able to
      consummate the Qiang Long financing. Qiang Long has extended payment dates
      in
      the past and may do so again in the future. Our inability to consummate this
      financing would have a material adverse effect on us. Furthermore, this
      financing is not due until June 30, 2007. We will need interim financing to
      satisfy our working capital needs prior to such date. We have no commitments
      for
      such interim financing.





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





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





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





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





Business
      Risks





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





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





14


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





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





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





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





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





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





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




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




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




●
            expanding,
                training and managing our employee base; and




●
            expanding
                our finance, administrative and operations staff.




15





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





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





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





Risks
      Relating to Doing Business in China





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





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





*Governmental
      policies in China could impact our business.*





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





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




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




●
            changes
                in the rate or method of taxation;




16


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




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




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





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





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





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





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





17


Risks
      Relating to the Market for Our Securities





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





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





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





●
            actual
                or anticipated fluctuations in operating results;




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




●
            changes
                in governmental regulations or policies in
                China;




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




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




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





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





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





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





18


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





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





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


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





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





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





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




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




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




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




3)  the
      scope
      of the audit should be expanded significantly, or information has come to the
      attention of Child, Sullivan & Company that they have concluded will, or if
      further investigated might, materially impact the fairness or reliability of
      a
      previously issued audit report or the underlying financial statements, or the
      financial statements issued or to be issued covering the fiscal year ended
      December 31, 2006.




19


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




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




**ITEM
      8A. CONTROLS AND PROCEDURES**





Within
      90
      days of the filing of this Form 10-KSB, an evaluation was carried out under
      the
      supervision and with the participation of our management, including Jie Chen
      our
      Chief Executive Officer and Xinmin Pan our Chief Financial Officer, of the
      effectiveness of our disclosure controls and procedures. Disclosure controls
      and
      procedures are procedures that are designed with the objective of ensuring
      that
      information required to be disclosed in our reports filed under the Securities
      Exchange Act of 1934, such as this Form 10-KSB, is recorded, processed,
      summarized and reported within the time period specified in the Securities
      and
      Exchange Commission’s rules and forms. Based on that evaluation, Ms. Chen and
      Mr. Pan concluded that as of December 31, 2006, and as of the date that the
      evaluation of the effectiveness of our disclosure controls and procedures was
      completed, our disclosure controls and procedures were effective to satisfy
      the
      objectives for which they are intended.





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





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





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





The
      directors and executive officers of Minghua are as follows:





**Name**
            **Age**
            **Position**Chang-de
                Li
            50
            Chairman
                of the BoardJie
                Chen
            51
            Chief
                Executive OfficerXinmin
                Pan
            61
            Chief
                Financial OfficerHui
                Chen
            37
            DirectorLi
                Hong Liang
            45
            DirectorYun
                Dong Luan
            70
            Director





20


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





***Jie
      Chen*** was
      appointed Chief Executive Officer of the Company on September 22, 2006. Prior
      to
      this appointment, Ms. Chen served as Vice President of Public Relations and
      has
      been a member of the Board of Directors of the Company since February 2004.
      Upon
      being appointed as Chief Executive Officer of the Company, Ms. Chen resigned
      from the office of Vice President of Public Relations. She is also a director
      of
      Shenzhen Minghua Environmental Protection Vehicles Co. Ltd., Guangzhou City
      View
      Bus Installation Company, and Beijing China Cardinal Real Estate Consulting
      Co.
      Ltd., all of which are the Company’s subsidiaries. Ms. Chen 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.





***Xin-min
      Pan*** became
      the Company’s Chief Financial Officer on December 4, 2006. Prior to his
      appointment, Mr. Pan has worked as an accountant with the Company since October
      2006. Before joining the Company Mr. Pan served as the General Accountant for
      ZhongFang Investment Holding Ltd. from March 2006 to October 2006, as the Chief
      Financial Officer of the Beijing JinLang Hotel from January 2002 to March 2006,
      as the Chief Financial Officer of the Beijing Happy Holiday Hotel from January
      2001 to January 2002, and as Chief Accountant and Chair of the Financing
      Department of North China Jinghai Industry Corporation, from November 1990
      to
      January 2001.




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





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





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





21


There
      are
      no agreements or understandings for any of our executive officers or directors
      to resign at the request of another person and no officer or director is acting
      on behalf of nor will any of them act at the direction of any other person.





***Family
      Relationships***




There
      are
      no family relationships among our directors or officers.





***Involvement
      in Certain Legal Proceedings***




To
      the
      best of our knowledge, except as set forth in our discussion below in “Certain
      Relationships and Related Transactions”, none of our directors, director
      nominees or executive officers has been involved in any transactions with us
      or
      any of our directors, executive officers, affiliates or associates which are
      required to be disclosed pursuant to the rules and regulations of the SEC.
      None
      of the directors, director designees or executive officers to our knowledge
      has
      been convicted in a criminal proceeding, excluding traffic violations or similar
      misdemeanors, or has been a party to any judicial or administrative proceeding
      during the past five years that resulted in a judgment, decree or final order
      enjoining the person from future violations of, or prohibiting activities
      subject to, federal or state securities laws, or a finding of any violation
      of
      federal or state securities laws, except for matters that were dismissed without
      sanction or settlement.





***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 our review of the copies of such forms
      received by us, we believe that during the year ended December 31, 2006, all
      such filing requirements applicable to our officers and directors were complied
      with, during the fiscal year ended December 31, 2006.





***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 incorporated the code
      of
      ethics herein by reference to exhibit 14 to our Annual Report on Form 10-KSB
      for
      the fiscal year ending December 31, 2003.





***Committees***





We
      currently do not have standing audit, nominating or compensation committees.
      Currently, our entire board of directors is responsible for the functions that
      would otherwise be handled by these committees. We intend, however, to establish
      an audit committee, a nominating committee and a compensation committee of
      the
      board of directors. We envision that the audit committee will be primarily
      responsible for reviewing the services performed by our independent auditors,
      evaluating our accounting policies and our system of internal controls. The
      nominating committee would be responsible for nomination of new director
      candidates and will be responsible for implementing our corporate governance
      policies and procedures. The compensation committee will be primarily
      responsible for reviewing and approving our salary and benefits policies
      (including stock options) and other compensation of our executive officers.
      Our
      board of directors has not made a determination as to whether any member of
      our
      board is an audit committee financial expert. Upon the establishment of an
      audit
      committee, the board will determine whether any of the directors qualify as
      an
      audit committee financial expert.





22


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





The
      following table sets forth information concerning all cash and non-cash
      compensation awarded to, earned by or paid to our Chairman and each of the
      next
      four highly compensated executive officers for services in all capacities to
      us,
      our subsidiaries and predecessors. No other executive officers received total
      annual salary and bonus compensation in excess of $100,000.





**Summary
      Compensation Table**





**Name
                and Principal Position**
            **Year**
            **Salary**
              **($)**
            **Bonus**
              **($)**
            **Stock
                Awards ($)**
            **Option
                Awards ($)**
            **Non-**
              **Equity
                Incentive Plan Compen-sation Earnings ($)**
            **Non-**
              **qualified
                Deferred Compen-sation Earnings ($)**
            **All
                Other**
              **Compen-sation
                ($)**(3)
            **Total**
              **($)**Chang-de
                Li, Chairman(1)
            2006
            0
            N/A
            N/A
            N/A
            N/A
            N/A
            N/A
            0Jie
                Chen, CEO and Director
            2006
            15,354(2)
            N/A
            N/A
            N/A
            N/A
            N/A
            N/A
            15,354Xinmin
                Pan, CFO
            2006
            1,125(3)
            N/A
            N/A
            N/A
            N/A
            N/A
            N/A
            1,125





Narrative
      to Summary Compensation Table




(1) Chang-de
      Li served as our Chief Executive Officer and as our Chief Financial Officer
      until Jie Chen’s and Xinmin Pan’s respective appointments to those offices in
      September and October 2006, respectively.




(2) Ms.
      Chen
      was appointed as our Chief Executive Officer in September 2006. She received
      total compensation amounting to RMB 368,491 in 2006, which included compensation
      for her services as our Vice President of Media Relations from 2004 to 2006.
      Only 1/3 or approximately US$ 15,354 of Ms. Chen’s compensation was for her
      salary as our Chief Executive Officer.




(3) As
      Mr.
      Pan was appointed as our Chief Financial Officer from in December 2006. His
      annual salary of RMB 9,000 or US $1,125 received from the Company in 2006
      included compensation for his services as our accountant from October 2006
      to
      December 2006.




***Outstanding
      Equity Awards at Fiscal Year End***




None
      of
      our executive officers received any equity awards, including, options,
      restricted stock or other equity incentives, during the fiscal year ended
      December 31, 2006.




***Additional
      Narrative Disclosure***





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





23


***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.





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




***Security
      Ownership of Certain Beneficial Owners***




The
      following table sets forth information regarding beneficial ownership of our
      common stock as of December 31, 2006 by each person who is known by us to
      beneficially own more than 5% of our common stock.




**Title
                of Class**
            **Name
                and Address Of**
              **Beneficial
                Owner**
            **Amount
                and Nature of**
              **Beneficial
                Ownership**
            **Percentage
                of**
              **Class(1)**Common
                Stock
              $0.01
                par value
            Chuquan
                Li
              Guangdong
                Bian Fang Building, 10thFloor
              Futian
                District, Shenzhen, 518033
              People’s
                Republic of China
            16,200,000
            11.13%Common
                Stock
              $0.01
                par value
            Beijing
                Qiang Long Real Estate Development Co. Ltd.
              No.
                95 Kangxi Road
              Ba
                Da Xia Industrial Development Zone
              Yanqing
                County, Beijing
              People’s
                Republic of China
            155,000,000(2)
            54.3%(2)Common
                Stock
              $0.01
                par value
            Chang-de
                Li
              No.
                95 Kangxi Road
              Ba
                Da Xia Industrial Development Zone
              Yanqing
                County, Beijing
              People’s
                Republic of China
            155,000,000(3)
            54.3%(3)Common
                Stock
              $0.01
                par value
            Kingsrich
                Development Limited(4)
              Sincere
                Insurance Building
              4
                -
                6 Hennessey Road
              Wanchai,
                Hong Kong
            14,000,000
            9.6%Common
                Stock
              $0.01
                par value
            China
                Cardinal Limited of Hong Kong(5)
              Flat/Rm
                708
              7thFloor
              Dunnies
                House
              20
                Luard Road
              Wanchai
              HONG
                KONG
            10,000,000
            6.9%




24


(1)
      Calculated using the number of shares outstanding on March 29, 2007 of
      148,509,867.




(2)
      Consists of (i) 15,000,000 shares of common stock acquired pursuant to a
      subscription agreement with Minghua, dated September 29, 2003; (ii) the right
      to
      purchase 140,000,000 shares of common stock for an aggregate purchase price
      of
      US$29,400,000, or a price per share of $0.21, pursuant to a contract with the
      Minghua, dated January 29, 2004 and (iii)3,013,863 common stocks were issued
      to
      Chinese Dragon Heritage Investment Management Limited on Dec.18,2006. In
      determining the percentage of class represented in the table above 140,000,000
      shares issuable pursuant to the January 29, 2004 contract were added to the
      total outstanding shares of the issuer's common stock of
      148,509,867.




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




(4)
      Kingsrich Development Limited is controlled by **** Li
      Guanglian **.**




(5)
      China
      Cardinal Limited of Hong Kong is controlled by **** Wang
      Wei **.**




***Security
      Ownership of Management***




The
      following table sets forth, as of December 31, 2006, 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. Unless otherwise specified, the
      address of each of the persons set forth below is in care of Minghua Group
      International Holdings Limited, 8/F East Area, Century Golden Resources Business
      Center, 69 Banjing Road, Haidian District, Beijing, People’s Republic of China,
      100089.





**Title
                of Class**
            **Name
                and Address Of**
              **Beneficial
                Owner**
            **Amount
                and Nature of**
              **Beneficial
                Ownership**
            **Percentage
                of**
              **Class(1)**Common
                Stock
              $0.01
                par value
            Chang-de
                Li
              Chairman
            155,000,000(2)
            54.3%(2)Common
                Stock
              $0.01
                par value
            Jie
                Chen
              Chief
                Executive Officer
            0
            0Common
                Stock
              $0.01
                par value
            Xinmin
                Pan
              Chief
                Financial Officer
            0
            0Common
                Stock
              $0.01
                par value
            Hui
                Chen
              Director
            0
            0Common
                Stock
              $0.01
                par value
            Li
                Hong Liang
              Director
            0
            0Common
                Stock
              $0.01
                par value
            Yun
                Dong Luan
              Director
            0
            0Common
                Stock
              $0.01
                par value
            Albert
                Wong
              former
                Chief Executive Officer, President, Secretary and Treasurer
              14/F.,
                West Wing, Sincere Insurance Bldg.,
              4-6
                Hennessy Road, Wanchai, Hong Kong
            500,000
            0.3%**All
                Directors and Executive Officers as a Group (6
                people)**
            **155,000,000(2)**
            **54.3%(2)**




25


(1)
      Calculated using the number of shares outstanding on March 29, 2007 of
      148,509,867.




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




***Changes
      in Control***





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





**ITEM
      12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS** **,
      AND DIRECTOR INDEPENDENCE**





***Certain
      Relationships and Related Transactions***





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





26


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





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





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





***Director
      Independence***




The
      board
      of directors is currently composed of 4 members **.** .
      None of
      our directors are “independent” directors, as that term is defined under the
      Nasdaq listing standards.








**ITEM
      13. EXHIBITS**





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





***Exhibit
                Number***
            ***Description****2.1
            Stock
                Purchase Agreement, dated October 21, 2004, between the Company and
                Mr.
                Sin Keung Kok relating to the acquisition of Mr. Sin Keung Kok’s equity
                interest in Ming Hua Environmental Protection Science and Technology
                Limited [Incorporated by reference to Exhibit 10 of the Form 8-K
                filed on
                October 27, 2004 in Commission file number 0-30183]*2.2
            Stock
                Purchase Agreement, dated January 19, 2004, among the Company, Minghua
                Group International Holding (Hong Kong) Limited and Li Jinmou relating
                to
                the acquisition of Asia Key Group Limited [Incorporated by reference
                to
                Exhibit 10.3 of the Form 8-K filed on February 12, 2004 in Commission
                file
                number 0-30183]*2.3
            Stock
                Purchase Agreement, dated April 27, 2001, among the Company, Minghua
                Acquisition Corp., Li Chuquan and Chan Kuen Kwong [Incorporated by
                reference to Exhibit 2.1 of the Form 8-K filed on May 3, 2001 in
                Commission file number 0-30183]*3.1
            Certificate
                of Incorporation of the Company [Incorporated by reference to Exhibit
                3.1
                of the Form 10-KSB filed on April 15, 2002 in Commission file number
                0-30183]




27




*3.2
            Certificate
                of Amendment of Certificate of Incorporation of the Company [Incorporated
                by reference to Appendix A of the Definitive Proxy Statement of the
                Company filed on July 3, 2001 in Commission file number
                0-30183]*3.3
            Amended
                and Restated Bylaws of the Company [Incorporated by reference to
                Exhibit
                3.3 of the Form 10-KSB filed on April 15, 2002 in Commission file
                number
                0-30183 in Commission file number 0-30183]*4.1
            Warrant
                to Purchase Common Stock, dated April 2, 2001, between the Company
                and
                First Pacific Capital, Ltd. [Incorporated by reference to Exhibit
                10.9 of
                the Form 10-QSB filed on August 20, 2001 in Commission file number
                0-30183]*4.2
            Registration
                Rights Agreement, dated June 22, 2001, among the Company, Li Chuquan
                and
                Chan Kuen Kwong [Incorporated by reference to Exhibit 4.2 of the
                Form
                10-KSB filed on April 15, 2002 in Commission file number
                0-30183]*4.3
            Registration
                Rights Agreement, dated July 23, 2001, among the Company and the
                stockholders of the Company named in the Registration Rights Agreement
                [Incorporated by reference to Exhibit 4.2 of the Form 10-KSB filed
                on
                April 15, 2002 in Commission file number 0-30183]*4.4
            Form
                of Regulation D Subscription Agreement [Incorporated by reference
                to
                Exhibit 4.2 of the Form 10-KSB filed on April 15, 2002 in Commission
                file
                number 0-30183]*4.5
            Form
                of Regulation S Subscription Agreement [Incorporated by reference
                to
                Exhibit 4.2 of the Form 10-KSB filed on April 15, 2002 in Commission
                file
                number 0-30183]*10.1
            Letter
                Agreement, dated as of October 29, 2004, between the Company and
                Qiang
                Long Real Estate Development Co., Ltd. [Incorporated by reference
                to
                Exhibit 10 of the Form 8-K filed on November 3, 2004 in Commission
                file
                number 0-30183]*10.2
            Loan
                Agreement, dated May 10, 2004, between ShenZhen Ruichijuntong Industry
                Co., Ltd. and Minghua Environment Protection Vehicles Ltd. [Incorporated
                by reference to Exhibit 10.1 of the Form 10-QSB filed on August 23,
                2004
                in Commission file number 0-30183]*10.3
            Guangzhou
                City View Bus Installation Company Limited Agreement
              [Incorporated
                by reference to Exhibit 10.1 of the Form 8-K filed on March 28, 2003
                in
                Commission file number 0-30183]*10.4
            Kingsrich
                Development Limited Loan Agreement [Incorporated by reference to
                Exhibit
                10.2 of the Form 8-K filed on March 28, 2003 in Commission file number
                0-30183]*10.5
            Kingsrich
                Development Limited Convertible Promissory Note [Incorporated by
                reference
                to Exhibit 10.3 of the Form 8-K filed on March 28, 2003 in Commission
                file
                number 0-30183]*10.6
            Registration
                Rights Agreement, dated March 17, 2003, between the Company and Kingsrich
                Development Limited [Incorporated by reference to Exhibit 10 of the
                Form
                10-QSB filed on August 28, 2003 in Commission file number
                0-30183]




28




*10.7
            Regulation
                S Subscription Agreement, dated September 29, 2003, between the Company
                and Beijing Qiang Long Real Estate Development Company, Ltd. relating
                to
                subscription rights for 15,000,000 shares of the Company's Common
                Stock
                [Incorporated by reference to Exhibit 10.1 of the Form 10-QSB filed
                on
                December 2, 2003 in Commission file number 0-30183]*10.8
            Contract,
                dated January 29, 2004, between Beijing Qiang Long Real Estate Development
                Co. Ltd. and the Company [Incorporated by reference to Exhibit 10.1
                of the
                Form 8-K filed on February 12, 2004 in Commission file number
                0-30183]*10.9
            Contract,
                dated January 13, 2004, between China Cardinal Limited and the Company
                [Incorporated by reference to Exhibit 10.2 of the Form 8-K filed
                on
                February 12, 2004 in Commission file number 0-30183]*10.10
            Employment/Co-Operation
                Agreement, dated April 10, 2002, between the Company and Albert Wong
                [Incorporated by reference to Exhibit 99.1 of the Form 8-K filed
                on May 2,
                2002 in Commission file number 0-30183]*10.11
            Employment
                Agreement, dated July 11, 2001, between the Company and Li Chuquan
                [Incorporated by reference to Exhibit 10.1 of the Form 10-QSB filed
                on
                August 20, 2001 in Commission file number 0-30183]*10.12
            Non-Qualified
                Stock Option Agreement, dated July 11, 2001, between the Company
                and Li
                Chuquan [Incorporated by reference to Exhibit 10.2 of the Form 10-QSB
                filed on August 20, 2001 in Commission file number
                0-30183]*10.13
            Stock
                Option Agreement, dated July 11, 2001, between the Company and Li
                Chuquan
                [Incorporated by reference to Exhibit 10.3 of the Form 10-QSB filed
                on
                August 20, 2001 in Commission file number 0-30183]*10.14
            Employment
                Agreement, dated April 5, 2001, between the Company and Ronald C.
                H. Lui
                [Incorporated by reference to Exhibit 10.4 of the Form 10-QSB filed
                on
                August 20, 2001 in Commission file number 0-30183]*10.15
            Incentive
                Stock Option Agreement, dated April 5, 2001, between the Company
                and
                Ronald C. H. Lui [Incorporated by reference to Exhibit 10.5 of the
                Form
                10-QSB filed on August 20, 2001 in Commission file number
                0-30183]*10.16
            Non-qualified
                Stock Option Agreement, dated April 5, 2001, between the Company
                and
                Ronald C. H. Lui [Incorporated by reference to Exhibit 10.6 of the
                Form
                10-QSB filed on August 20, 2001 in Commission file number
                0-30183]*10.17
            Amendment
                to Stock Option Agreements, dated April 16, 2001, between the Company
                and
                Ronald C. H. Lui [Incorporated by reference to Exhibit 10.7 of the
                Form
                10-QSB filed on August 20, 2001 in Commission file number
                0-30183]*10.18
            Consulting
                Agreement, dated April 2, 2001, between the Company and First Pacific
                Capital Ltd. [Incorporated by reference to Exhibit 10.8 of the Form
                10-QSB
                filed on August 20, 2001 in Commission file number
                0-30183]*10.19
            Letter
                Agreement, dated April 5, 2001, between the Company and First Pacific
                Capital Ltd. [Incorporated by reference to Exhibit 10.10 of the Form
                10-QSB filed on August 20, 2001 in Commission file number
                0-30183]*10.20
            2001
                Stock Plan [Incorporated by reference to Appendix B of our Definitive
                Proxy Statement on Schedule 14A filed on July 3, 2001 in Commission
                file
                number 0-30183]




29




*10.21
            Placement
                Agency Agreement, dated July 23, 2001, between the Company and Chicago
                Investment Group Incorporated [Incorporated by reference to Exhibit
                10.11
                of the Form 10-KSB filed on April 15, 2002 in Commission file number
                0-30183]*10.22
            Letter
                Agreement repayment of stockholder loan, dated December 11, 2001,
                between
                the Company and Li Chuquan [Incorporated by reference to Exhibit
                99.1 of
                the Form 8-K filed on December 20, 2001 in Commission file number
                0-30183]*10.23
            Technology
                  Development Contract, dated February 15, 2004, between Tsinghua
                  University
                  and the Company [incorporated by reference to Exhibit 10.23 of
                  the Annual
                  Report on Form 10-KSB of the Company for the fiscal year ended
                  December
                  31, 2004].*10.24
            Sales
                  Contract of Guangzhou Cityview Bus Installation Co., Ltd., dated
                  August 6,
                  2004, between Changsha United Electric Power Science and Technology
                  Co.,
                  Ltd. and Guangzhou Cityview Bus Installation Co., Ltd. [incorporated
                  by
                  reference to Exhibit 10.24 of the Annual Report on Form 10-KSB
                  of the
                  Company for the fiscal year ended December 31,
                  2004].*10.25
            Lease
                  Agreement, dated May 30, 2004, between Liu Gui Zhi and Beijing
                  China
                  Cardinal Real Estate Consulting Ltd. [incorporated by reference
                  to Exhibit
                  10.25 of the Annual Report on Form 10-KSB of the Company for the
                  fiscal
                  year ended December 31, 2004].*10.26
            Lease
                  Agreement, dated May 20, 2004, between Shenzhen Minghua Environmental
                  Protection Vehicle Co., Ltd. and Richard Zhang [incorporated by
                  reference
                  to Exhibit 10.26 of the Annual Report on Form 10-KSB of the Company
                  for
                  the fiscal year ended December 31, 2004].*14
            Code
                of Ethics [incorporated by reference to Exhibit 14 of the Annual
                Report on
                Form 10-KSB of the Company for the fiscal year ended December 31,
                2003]31.1
            Certification
                of Principal Executive Officer filed pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.31.2
            Certification
                of Principal Financial Officer filed pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.32
            Certifications
                of Principal Executive Officer and Principal Financial Officer furnished
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002.





*
            Incorporated
                by reference as indicated.





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





***Audit
      Fees***





The
      aggregate fees billed for each of the fiscal years ended December 31, 2006
      and
      2005 for professional services rendered by the principal accountant for the
      audit of our annual financial statements and review of the financial statements
      included in our Form 10-QSB or services that are normally provided by the
      accountant in connection with statutory and regulatory filings or engagements
      for those fiscal years were $46,154 and $13,512 respectively.





30


***Accounting
      Fees***





The
      aggregate fees billed in each of the fiscal years ended December 31, 2006 and
      2005 for accounting services by the principal accountant and are not reported
      under the paragraph captioned “Audit Fees” above are $ 38,585 and
      $ 96,184 respectively.





***Tax
      Fees***





The
      aggregate fees billed in each of the fiscal years ended December 31, 2006 and
      2005 for professional services rendered by the principal accountant for tax
      compliance, tax advice, and tax planning were $0 and $0, respectively.




***All
      Other Fees***





The
      aggregate fees billed in each of the fiscal years ended December 31, 2006 and
      2005 for products and services provided by the principal accountant, other
      than
      the services reported above under other captions of this Item 14 are $0 and
      $0,
      respectively.




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





Our
      board
      of directors has adopted resolutions in accordance with the Sarbanes-Oxley
      Act
      of 2002 requiring pre-approval of all auditing services and all audit related,
      tax or other services not prohibited under Section 10A(g) of the Securities
      Exchange Act of 1934, as amended, to be performed for us by our independent
      auditors, subject to the de minimus exception described in Section 10A(i)(1)(B)
      of the Exchange Act. These resolutions authorized our independent auditor to
      perform audit services required in connection with the annual audit relating
      to
      the fiscal year ended December 31, 2006 and the quarterly reviews for the
      subsequent fiscal quarters of 2007 through the review for the quarter ended
      September 30, 2007 at which time additional pre-approvals for any additional
      services to be performed by our auditor would be sought from the Board. Our
      board of directors also appointed and authorized Chang-de Li to grant
      pre-approvals of other audit, audit-related, tax and other services requiring
      board approval to be performed for us by our independent auditor, provided
      that
      the designee, following any such pre-approvals, thereafter reports the
      pre-approvals of such services at the next following regular meeting of the
      Board.





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




31





**SIGNATURES** ****





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




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




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





**SIGNATURE**
            **CAPACITY**
            **DATE**/s/Chang-de
                Li
              
              Chang-de
                Li
            Chairman
            April
                16, 2007/s/Jie
                Chen
              
              Jie
                Chen
            Chief
                Executive Officer and Director
            April
                16, 2007/s/Xinmin
                Pan
              
              Xinmin
                Pan
            Chief
                Financial Officer
            April
                16, 2007/s/Hui
                Chen
              
              Hui
                Chen
            Director
            April
                16, 2007/s/Li
                Hong Liang
              
              Li
                Hong Liang
            Director
            April
                16, 2007/s/Yun
                Dong Luan
              
              Yun
                Dong Luan
            Director
            April
                16, 2007









MINGHUA
      GROUP INTERNATIONAL HOLDINGS LIMITED


(A
      DEVELOPMENT STAGE COMPANY)





CONSOLIDATED
      FINANCIAL STATEMENTS





DECEMBER
      31, 2006 and 2005










F-1




**MINGHUA
      GROUP INTERNATIONAL HOLDINGS LIMITED**


**(A
      DEVELOPMENT STAGE COMPANY)**





**INDEX
      TO CONSOLIDATED FINANCIAL STATEMENTS**











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







F-2


REPORT
      OF
      INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To
      the
      Board of Directors


Minghua
      Group International Holdings Limited


New
      York





We
      have
      audited the consolidated balance sheets of Minghua Group International Holdings
      Limited (a New York development stage company) as of December 31, 2006 and
      2005,
      and the related consolidated statements of operations and comprehensive loss,
      changes in stockholders’ equity (deficit), and cash flows for the years ended.
      These consolidated financial statements are the responsibility of the Company’s
      management. Our responsibility is to express an opinion on these consolidated
      financial statements based on our audits.





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





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of Minghua Group International
      Holdings Limited as of December 31, 2006 and 2005, and the results of its
      operations and its cash flows for the years ended, 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 incurred substantial
      recurring losses. This raises substantial doubt about the Company’s ability to
      meet its obligations and to continue as a going concern. Management’s plans in
      regard to this matter are described in Note 1. The consolidated financial
      statements do not include any adjustments that might result from the outcome
      of
      this uncertainty.










Child,
      Van Wagoner & Bradshaw, PLLC


Salt
      Lake
      City, Utah


March
      15,
      2007




F-3




MINGHUA
                  GROUP INTERNATIONAL HOLDINGS LIMITED(A
                  DEVELOPMENT STAGE COMPANY)CONSOLIDATED
                  BALANCE SHEETS
  December
                  31,
              
              December
                  31,ASSETS
              
              2006
              
              2005
                  RestatedCurrent
                  assetsCash
                  and cash equivalents
              
              $
              39,622
              
              $
              48,217Prepaid
                  expense
              
              
              -
              
              
              77,584Note
                  receivable
              
              
              -
              
              
              71,030Other
                  receivable
              
              
              25,702
              
              
              -Interest
                  income receivable
              
              
              84,033
              
              
              119,036Short
                  term investment
              
              
              1,922,067
              
              
              1,769,473Total
                  current assets
              
              
              2,071,424
              
              
              2,085,340Property,
                  plant and equipment (net)
              
              
              1,073,155
              
              
              1,188,251Other
                  assetsInventories
              
              
              -
              
              
              355,155Intangible
                  assets
              
              
              6,193
              
              
              49,493Total
                  other assets
              
              
              6,193
              
              
              404,648Total
                  assets
              
              $
              3,150,772
              
              $
              3,678,239LIABILITIES
                  AND STOCKHOLDERS' EQUITYCurrent
                  liabilitiesAccounts
                  payable
              
              $
              1,685,964
              
              $
              1,643,147Accrued
                  liabilities
              
              
              558,466
              
              
              1,037,057Short-term
                  notes payable
              
              
              -
              
              
              169,760Due
                  to directors
              
              
              29,276
              
              
              171,724Other
                  payables
              
              
              213,916
              
              
              255,230Total
                  current liabilities
              
              
              2,487,622
              
              
              3,276,918Stockholders'
                  equityCommon
                  stock: par
                  value $.01; 200,000,000 shares authorized; 148,509,866 and 145,496,004
                  shares issued and outstanding
              
              
              1,485,099
              
              
              1,454,960Common
                  stock subscribed
              
              
              28,767,089
              
              
              29,400,000Additional
                  paid in capital
              
              
              27,945,762
              
              
              27,342,990Deficit
                  accumulated during the development stage
              
              
              (29,165,300
              )
              
              (28,819,679
              )Accumulated
                  other comprehensive loss
              
              
              (256,206
              )
              
              (230,745
              )28,776,444
              
              
              29,147,526Less:
                  stock subscription receivable
              
              
              (28,113,294
              )
              
              (28,746,205
              )Total
                  stockholders' equity
              
              
              663,150
              
              
              401,321Total
                  liabilities and stockholders' equity
              
              $
              3,150,772
              
              $
              3,678,239




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


F-4


MINGHUA
                  GROUP INTERNATIONAL HOLDINGS LIMITED(A
                  DEVELOPMENT STAGE COMPANY)CONSOLIDATED
                  STATEMENTS OF OPERATIONS AND COMPREHENSIVE
                  LOSS
  Period
                  from June 4, 1997 (inception) toYear
                  ended December 31,
              
              December
                  31,2006
              
              2005
                  Restated
              
              2006RevenuesSales
                  revenues
              
              $
              -
              
              $
              353,478
              
              $
              437,211Cost
                  of sales
              
              
              -
              
              
              569,785
              
              
              666,310Gross
                  profit
              
              
              -
              
              
              (216,307
              )
              
              (229,099
              )Operating
                  expensesGeneral
                  and administrative expenses
              
              
              786,527
              
              
              520,530
              
              
              12,599,322Goodwill
                  impairment loss
              
              
              -
              
              
              -
              
              
              5,408,584Write-off
                  inventory and bus licenses
              
              
              307,648
              
              
              1,010,046
              
              
              3,322,712Research
                  and development costs
              
              
              7,174
              
              
              34,455
              
              
              8,850,717Total
                  operating expenses
              
              
              1,101,349
              
              
              1,565,031
              
              
              30,181,335Loss
                  from operations
              
              
              (1,101,349
              )
              
              (1,781,338
              )
              
              (30,410,434
              )Other
                  income (expense)Interest
                  income
              
              
              82,543
              
              
              120,024
              
              
              126,276Other
                  income (expense)
              
              
              1,283
              
              
              358,832
              
              
              975,434Gain
                  (Loss) on asset disposal
              
              
              5,995
              
              
              (4,823
              )
              
              1,172Other
                  operation loss
              
              
              (9,289
              )
              
              -
              
              
              (9,289
              )Gain
                  on debt settlement
              
              
              -
              
              
              156,018
              
              
              156,018Gain
                  on disposal in subsidiaries
              
              
              707,825
              
              
              
              
              
              707,825Interest
                  expense
              
              
              (32,629
              )
              
              (19,483
              )
              
              (712,302
              )Total
                  other income (expense)
              
              
              755,728
              
              
              610,568
              
              
              1,245,134Net
                  loss before income taxes
              
              
              (345,621
              )
              
              (1,170,770
              )
              
              (29,165,300
              )Provision
                  for income taxes
              
              
              -
              
              
              -
              
              
              -Net
                  loss
              
              $
              (345,621
              )
              $
              (1,170,770
              )
              $
              (29,165,300
              )Foreign
                  currency translation adjustment
              
              
              (25,461
              )
              
              (230,745
              )Comprehensive
                  loss
              
              $
              (371,082
              )
              $
              (1,401,515
              )Basic
                  and diluted net loss per share
              
              $
              (0.00
              )
              $
              (0.01
              )Weighted
                  average number of shares outstanding
              
              
              145,603,347
              
              
              145,211,456




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


F-5


MINGHUA
                  GROUP INTERNATIONAL HOLDINGS LIMITED(A
                  DEVELOPMENT STAGE COMPANY)CONSOLIDATED
                  STATEMENTS OF CASH FLOWS
  Year
                  ended
              
              Period
                  from June 4,
                1997
                  (inception) toDecember
                  31,
              
              December
                  31,2006
              
              2005
                  Restated
              
              2006Cash
                  flows from operating activities:Net
                  loss
              
              $
              (345,621
              )
              $
              (1,170,770
              )
              $
              (29,165,300
              )Adjustments
                  to reconcile net loss tonet
                  cash used in operations:Depreciation
                  and amortization
              
              
              190,235
              
              
              57,896
              
              
              972,784Impairment
                  loss on intangible assets
              
              
              
              
              
              771,922
              
              
              1,026,453Write-off
                  goodwill and inventory
              
              
              354,851
              
              
              238,124
              
              
              7,101,506Stock
                  issued for debt and services
              
              
              -
              
              
              830,100
              
              
              1,869,100(Gain)
                  loss on disposition of assets
              
              
              (707,825
              )
              
              4,822
              
              
              (497,166
              )Research
                  and development expense recorded in organization
              
              
              
              
              
              
              
              
              8,612,730Reorganization
                  expenses recorded in organization
              
              
              
              
              
              
              
              
              455,830Changes
                  in operating liabilities and assets:Other
                  receivables
              
              
              45,328
              
              
              -
              
              
              (214,904
              )Prepaid
                  expense and deposits
              
              
              11,172
              
              
              414,297
              
              
              335,956Inventories
              
              
              -
              
              
              314,772
              
              
              (500,361
              )Accounts
                  payable and accrued liabilities
              
              
              93,440
              
              
              (1,454,202
              )
              
              (69,845
              )Net
                  cash provided by (used in) operations
              
              
              (358,420
              )
              
              6,961
              
              
              (10,073,217
              )Cash
                  flows from investing activities:Interest
                  income receivable
              
              
              35,003
              
              
              (119,036
              )
              
              (84,033
              )Reorganization
                  - cash used
              
              
              -
              
              
              -
              
              
              (320,579
              )Purchase
                  of subsidiaries
              
              
              -
              
              
              -
              
              
              (1,690,474
              )Redemption
                  (purchase) of short term investment
              
              
              (132,873
              )
              
              165,699
              
              
              (1,902,346
              )Purchase
                  of intangibles: patent rights, license
              
              
              -
              
              
              -
              
              
              (833,357
              )Sales
                  of property and equipment
              
              
              (71,643
              )
              
              -
              
              
              (71,643
              )Purchase
                  property and equipment
              
              
              -
              
              
              9,433
              
              
              697,502Deposit
                  to a subsidiary
              
              
              (10,922
              )
              
              -
              
              
              (10,922
              )Net
                  cash provided by (used in) investing activities
              
              
              (180,435
              )
              
              56,096
              
              
              (4,215,852
              )Cash
                  flows from financing activities:Addition
                  of short-loans
              
              
              1,612
              
              
              -
              
              
              1,612Payments
                  to stockholders payable
              
              
              (49,669
              )
              
              -
              
              
              (699,130
              )Advance
                  from stockholders payable
              
              
              -
              
              
              18,833
              
              
              18,833Proceeds
                  from issuance of stock
              
              
              632,911
              
              
              -
              
              
              13,138,535Proceeds
                  from convertible promissory note
              
              
              -
              
              
              -
              
              
              3,128,225Dividends
                  paid
              
              
              -
              
              
              -
              
              
              (1,000,000
              )Proceeds
                  from notes payable
              
              
              -
              
              
              -
              
              
              649,492Payments
                  to notes payable
              
              
              -
              
              
              (612,582
              )
              
              (612,582
              )Net
                  cash provided by (used in) financing activities
              
              
              584,854
              
              
              (593,749
              )
              
              14,624,985Effect
                  of rate changes on cash
              
              
              (54,594
              )
              
              (269,462
              )
              
              (295,794
              )Increase(decrease)
                  in cash and cash equivalents
              
              
              (8,595
              )
              
              (800,154
              )
              
              40,122Cash
                  and cash equivalents, beginning of period
              
              
              (84,633
              )
              
              715,521
              
              
              -Cash
                  and cash equivalents, end of period
              
              $
              (93,228
              )
              $
              (84,633
              )
              $
              40,122Supplemental
                  disclosures of cash flow information:Cash
                  paid for interest
              
              $
              -
              
              $
              6,600Cash
                  paid for income taxes
              
              $
              -
              
              $
              -Supplemental
                  disclosures of non-cash investing and financing
                  activities:Common
                  stock issued for debt
              
              $
              -
              
              $
              830,100




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


F-6


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




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


F-7




MINGHUA
                  GROUP INTERNATIONAL HOLDINGS LIMITED (A DEVELOPMENT STAGE
                  COMPANY)CONSOLIDATED
                  STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) -Continued
                  -
  Development
              
              AccumulatedCommon
                  Stock
              
              Additional
              
              Stage
              
              OtherCommon
                  Stock
              
              Common
                  Stock
              
              Subscribed
              
              Paid
                  In
              
              Accumulated
              
              Comprehensive
              
              Subscription$.12834
                  Par Value
              
              $.01
                  Par Value
              
              $.01
                  Par Value
              
              Capital
              
              Deficit
              
              Income
              
              Receivable
              
              TotalBalance
                  December 31, 2004
              
              
              -
              
              $
              -
              
              
              139,726,004
              
              $
              1,397,260
              
              
              140,000,000
              
              $
              29,400,000
              
              $
              26,570,590
              
              $
              (27,648,909
              )
              $
              -
              
              $
              (28,746,205
              )
              $
              972,736Shares
                  issued at $.14 for debt
              
              
              
              
              
              
              
              
              5,770,000
              
              
              57,700
              
              
              
              
              
              
              
              
              772,400
              
              
              
              
              
              
              
              
              
              
              
              830,100Net
                  loss for the year - restated
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (1,170,770
              )
              
              
              
              
              
              
              
              (1,170,770
              )Foreign
                  currency translation adjustment
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (230,745
              )
              
              -
              
              
              (230,745
              )Balance
                  December 31, 2005 - restated
              
              
              -
              
              
              -
              
              
              145,496,004
              
              
              1,454,960
              
              
              140,000,000
              
              
              29,400,000
              
              
              27,342,990
              
              
              (28,819,679
              )
              
              (230,745
              )
              
              (28,746,205
              )
              
              401,321Shares
                  issued at $.21 December 18 Qiang Long
              
              
              
              
              
              
              
              
              3,013,862
              
              
              30,139
              
              
              (3,013,863
              )
              
              (632,911
              )
              
              602,772
              
              
              
              
              
              
              
              
              632,911
              
              
              632,911Net
                  loss for the year
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (345,621
              )
              
              
              
              
              
              
              
              (345,621
              )Foreign
                  currency translation adjustment
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (25,461
              )
              
              -
              
              
              (25,461
              )Balance
                  December 31, 2006
              
              
              -
              
              $
              -
              
              
              148,509,866
              
              $
              1,485,099
              
              
              136,986,137
              
              $
              28,767,089
              
              $
              27,945,762
              
              $
              (29,165,300
              )
              $
              (256,206
              )
              $
              (28,113,294
              )
              $
              663,150






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


F-8
 
 MINGHUA
          GROUP INTERNATIONAL HOLDINGS LIMITED
 (A
          DEVELOPMENT STAGE COMPANY)
 Notes
          to
          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
      Minghua Group International Holding (Hong Kong) Limited (“Minghua Hong Kong”).
      Minghua Hong Kong was incorporated under the laws of the Hong Kong Special
      Administrative Region of the Peoples Republic of China on June 4,
      1997.





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





At
      that
      time, the sole asset of Minghua Hong Kong was an 85% equity interest in the
      Shenzhen Minghua Environmental Protection Vehicle Co., Ltd. (“Minghua China”), a
      Peoples Republic of China (PRC) corporation. The remaining 15% equity minority
      interest in Minghua China was owned by a related party, Asia Key Group Limited,
      through its wholly-owned subsidiary Minghua Real Estate (Shenzhen) Ltd.,
      formerly known as Minghua Investment Co., Ltd. (“Minghua Real Estate”). On
      January 29, 2004, the Company acquired this 15% minority interest held by
      Minghua Real Estate, in a related party transaction by paying $990,638 in cash
      and issuing 28,210,000 common shares of Minghua USA. In September 2006, the
      Company disposed of its entire interests in Minghua Hong Kong and Minghua China.





F-9




1.
            BUSINESS
                DESCRIPTION AND ORGANIZATION
                (Continued)





CAPITAL
      RESOURCES, BUSINESS RISKS AND GOING CONCERN





The
      Company remains in the development stage and all future business operations
      are
      subject to all of the risks inherent in the establishment of a new business
      enterprise. The Company has no proven revenue stream from the sales of its
      products. Additional capital resources through current and future offerings
      of
      securities will be needed in order to accomplish the Company's present
      marketing, technology development and manufacturing plans. The 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
      Company has incurred losses since inception and has negative working capital.
      This raises substantial doubt about its ability to continue as a going concern,
      which contemplates the realization of assets and the payment of liabilities
      in
      the ordinary course of business. Management plans to seek the acquisition of
      operating business through stock transactions and to continue financing its
      operations through private placement transactions. There is no assurance that
      the Company will be successful in these plans.





RESTRICTIONS
      ON TRANSFER OF ASSETS OUT OF CHINA





Dividend
      payments by the Company’s operating subsidiaries, are limited by certain
      statutory regulations in China. No dividends may be paid by these subsidiaries
      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 subsidiaries 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.





2.
            SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES





PRINCIPLES
      OF CONSOLIDATION AND BASIS OF PRESENTATION





The
      consolidated financial statements for all periods presented include the accounts
      of Minghua USA, Acquisition Corp., Minghua Hong Kong, Top Team Holdings Limited,
      Minghua Environmental Protection Science and Technology Limited (“Minghua
      Science”), Minghua China, Asia Key Group Limited, Euromax International
      Investments Limited, Beijing China Cardinal Real Estate Consulting Co., Ltd.,
      Good View Bus Manufacturing Company Limited, Eagle Bus Development Limited,
      and
      Guangzhou City View Bus Installation Company. 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.





F-10


2.
            SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES
                (Continued)





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





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





MINORITY
      INTEREST IN SUBSIDIARIES





The
      Company records minority interest expense, which reflects the portion of the
      earnings of Guangzhou, which are applicable to Guangzhou Public Automobile
      Company (10.2%). 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, 2006 and
      2005.
      See also Notes 1 and 3 relating to the Minority Interest.





START-UP
      COSTS





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





USE
      OF
      ESTIMATES





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities and disclosure of contingent assets and liabilities at the date
      of
      the financial statements and reported amounts of revenues and expenses during
      the reporting period. Actual results could differ from those
      estimates.





SIGNIFICANT
      ESTIMATES





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





F-11


2.
            SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES
                (Continued)





REVENUE
      RECOGNITION





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





CASH
      AND
      CASH EQUIVALENTS





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





PROPERTY
      AND EQUIPMENT





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





PROPERTY
      AND EQUIPMENT (Continued)





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




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





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





F-12


2.
            SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES
                (Continued)





INTANGIBLE
      ASSETS





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





As
      a
      result of the acquisition of Ghangzhou, the Company acquired certain licenses
      from the PRC. These licenses have finite lives and are being amortized ratably
      over their useful lives using the historical cost of Ghangzhou. Components
      of
      intangible assets in the consolidated balance sheet at December 31, 2006
      consisted of:




Life
              
              Cost
              
              Accumulated
                  Amortization
              
              NetIndustrial
                  property rights
              
              
              15
                  year
              
              $
              138,595
              
              $
              138,595
              
              $
              -Land
                  use rights
              
              
              5
                  year
              
              
              24,782
              
              
              18,589
              
              
              6,193$
              163,377
              
              $
              157,184
              
              $
              6,193


Amortization
      expense totaled $44,068 and $21,014 for the years ended 2006 and
      2005.





ADVERTISING
      COSTS





All
      costs
      associated with advertising and promoting the buses are expensed in the period
      incurred. Advertising expense was $2,903 and $250 for the years ended December
      31, 2006 and 2005, respectively and $302,387 for the period from
      June  4,
      1997
      (inception) to December 31, 2006.





INCOME
      TAXES





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





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





F-13


2.
            SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES
                (Continued)





RESEARCH
      AND DEVELOPMENT COSTS





Company
      sponsored research and development costs, related to both present and future
      products, are charged to operations when incurred and are included in operating
      expenses. Expenditures for research and development for the years ended December
      31, 2006 and 2005 were $7,174 and $34,455 respectively and a cumulative amount
      of $8,850,717 for the period from June 4, 1997 (inception) to December 31,
      2006.
      Of this cumulative amount, $8,612,730 was the amount spent by Minghua Hong
      Kong
      shareholders to develop the patent, prior to the reverse merger.





RELATED
      PARTY TRANSACTIONS AND STOCKHOLDER'S LOANS





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





LOSS
      PER
      SHARE





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





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





Year
                  ended December 31,2006
              
              2005
                  RestatedNUMERATOR
                  FOR BASIC AND DILUTED LPSNet
                  loss to common stockholders
              
              $
              (345,621
              )
              $
              (1,170,770
              )DENOMINATOR
                  FOR BASIC AND DILUTED LPSWeighted
                  average shares of common stock outstanding
              
              
              145,603,347
              
              
              145,211,456LPS
                  - Basic and diluted
              
              $
              (0.00
              )
              $
              (0.01
              )


There
      were no potentially dilutive securities outstanding at December 31,
      2006.





F-14


2.
            SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES
                (Continued)





EQUITY
      BASED COMPENSATION





The
      Company accounts for employee stock options in accordance with SFAS 123(R),
      “Share-Based Payment.” Under SFAS 123(R) the Company is required to recognize
      share-based compensation expense at fair valued. “The Company had no such
      compensation expense for the years ended December 31, 2006 and
      2005.





COMPREHENSIVE
      LOSS





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





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





3.
            BUSINESS
                ACQUISITIONS





On
      March
      13, 2003, Minghua’s indirect subsidiary, Minghua Environmental Protection
      Science and Technology Limited, a Hong Kong limited company (“Minghua Science”),
      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 manufactured motor coaches for domestic
      sale
      in China and for export under the “Eagle” brand name.





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





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





F-15


3.
            BUSINESS
                ACQUISITIONS (Continued)





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




Accounts
                  receivable
              
              $
              4,227Inventories
              
              
              1,714,957Other
                  receivables
              
              
              523,857Property,
                  plant and equipment
              
              
              1,295,170Intangible
                  - 28 bus licenses
              
              
              1,018,125Bank
                  note payable
              
              
              (66,425
              )Accounts
                  payable
              
              
              (2,055,941
              )Accrued
                  liabilities
              
              
              (816,482
              )Due
                  to related parties
              
              
              (281,131
              )Due
                  to director
              
              
              (84,519
              )Other
                  accounts payable
              
              
              (29,910
              )1,221,928Good
                  will (cost in excess of FMV)
              
              
              468,546Total
                  purchase price paid
              
              $
              1,690,474.00


Goodwill
      in the amount of $468,546 was written to zero at 2004 and was reported as
      goodwill impairment loss.





In
      January, 2004, Minghua Hong Kong entered into a stock purchase agreement with
      Jinmou Li, the son of the Company’s former Chairman, to acquire 100% of the
      equity in Asia Key Group Limited (“Asia Key”) a Hong Kong corporation, in which
      Jinmou Li was the sole stockholder. Asia Key’s only asset at the time was a 15%
      equity interest in Shenzhen Minghua Environmental Protection Vehicle Co., Ltd.
      (“Minghua China”). Upon the consummation of this acquisition, Minghua China
      become a 100% wholly owned subsidiary of the Company. The acquisition required
      $990,638 in cash and issuance of 28,210,000 shares of common stock at US$.14
      per
      share of Minghua USA for an aggregate price of $3,949,400. The book value of
      the
      net assets transferred at the time of acquisition had a negative balance. In
      this regard, the purchase of the 15% minority interest was recorded to goodwill.
      The Company subsequently recorded the entire amount as impairment loss. In
      September 2006, the Company disposed of its entire interests in Minhua Hong
      kong
      and Minghua China.





On
      June
      16, 2004, Minghua Hong Kong formed a wholly owned subsidiary in the PRC, named
      Beijing China Cardinal Real Estate Consulting Co., Ltd. (“Beijing Cardinal Real
      Estate”). The Company intends to use Beijing Cardinal Real Estate as a vehicle
      to make future real estate investments in the PRC. At December 31, 2006, Beijing
      Cardinal Real Estate had not begun significant operations.





F-16


3.
            BUSINESS
                ACQUISITIONS (Continued)





During
      August 2006 the Company restructured ownership of certain assets between its
      indirectly owned subsidiaries in preparation for the disposition of Minghua
      Science along with its wholly owned subsidiary Minghua China and Minghua Hong
      Kong. The transfers of ownership within the Company’s subsidiaries are listed as
      follows:





(a)
      the
      Company transferred Beijing China Cardinal Real Estate Consulting Co., Ltd
      from
      Minghua Hong Kong to Euromax International Investments Limited; and





(b)
      the
      Company transferred Good View Bus Manufacturing (Holding) Co. Ltd. and Eagle
      Bus
      Development Limited, from Minghua Science to Top Team Holdings Limited (BVI).





During
      September 2006, the Company disposed of its entire interests in Minghua Hong
      Kong, Minghua Science to Messrs. Han Lian Zhong and Niu Rui Cheng in exchange
      for their assumption of Minghua Hong Kong and Minghua Science’s debt.





In
      aggregate, the Company recognized gains of $707,825 on the sale of the
      subsidiaries.





Minghua
              Hong
                Kong
            
            Minghua
              Science
            
            Minghua
              ChinaUS$
            
            US$
            
            US$
            
            TotalInventories
            
            $
            -
            
            $
            -
            
            $
            304
            
            $
            304Prepaid
                expenses
            
            
            
            
            
            
            
            
            66,412
            
            
            66,412Other
                fixed assets
            
            
            
            
            
            
            
            
            450,424
            
            
            450,424Accumulated
                depreciation
            
            
            
            
            
            
            
            
            (401,208
            )
            
            (401,208
            )Accounts
                payable
            
            
            
            
            
            
            
            
            (3,274
            )
            
            (3,274
            )Accrued
                expenses
            
            
            (70,902
            )
            
            (4,486
            )
            
            (429,353
            )
            
            (504,741
            )Due
                to directors
            
            
            
            
            
            
            
            
            (92,779
            )
            
            (92,779
            )Other
                payables
            
            
            
            
            
            
            
            
            (51,591
            )
            
            (51,591
            )Short-term
                loan
            
            
            -
            
            
            -
            
            
            (171,372
            )
            
            (171,372
            )$
            (70,902
            )
            $
            (4,486
            )
            $
            (632,437
            )
            $
            (707,825
            )





4.
            STOCKHOLDERS'
                EQUITY





ISSUANCE
      OF COMMON STOCK





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




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





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




F-17




4.
            STOCKHOLDERS'
                EQUITY (continued)





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





On
      September 29, 2003, the Company entered into its first stock subscription
      agreement with the Beijing Qiang Long Real Estate Development Co., Ltd. (“Qiang
      Long”), relating to the purchase of 15,000,000 shares of the Company's common
      stock at a purchase price of $.40 per share, for an aggregate consideration
      amount of $6,000,000. In October 2003, 1,511,488 shares of stock were purchased
      according to the subscription agreement for $604,595. In addition to $604,595,
      $604,887 was received in advance for the stocks issued in January 2004. Total
      amount received was $1,209,482 during October 2003. In January 2004, 3,023,998
      shares of stock were purchased under the same agreement for a price of
      $1,209,599. Amount received was $604,712 which was $1,209,482 less $604,887.
      In
      2004, 10,464,514 shares of stock were purchased under the subscription agreement
      for an aggregate consideration of $  4,185,806.
      Accordingly, the Company has received all the payments from the first stock
      subscription receivable.





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. During 2004
      the
      Company collected $653,795 as a partial payment toward the stock subscription
      receivable, however, no stocks were issued. In December 2006, pursuant to this
      agreement, Qiang Long Real Estate Development Co. Ltd., paid $632,911 in partial
      fulfillment of the agreement. Company issued 3,013,862 shares of common stock
      to
      Qiang Long. Accordingly, as of December 31, 2006 balance due from stock
      subscription agreement was $28,113,294. This payment will be due on June 30,
      2007 according to revised payment agreement.




During
      Dec Prior to the issuance of the shares, the Company is required to hold a
      stockholders meeting to increase the number of common shares authorized, in
      order to have enough common shares to satisfy its stock obligations to Qiang
      Long. Qiang Long does not have the right to cancel its subscription and the
      consideration is not refundable.





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





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





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





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





F-18


4.
            STOCKHOLDERS'
                EQUITY (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. During 2004, at the completion of two of the
      agreements, the Company charged $830,100 to expense. The amount was included
      in
      accrued liabilities at December 31, 2004, and in January 2005, the Company
      issued 5,770,000 shares of its common stock in payment of the
      liability.




COMMON
      STOCK




The
      Company's capital structure as of December 31, 2006 and 2005 was as
      follows:





***Common
                stock - par value $0.01***
            ***Authorized***
            ***Issued
                and outstanding******December
                31, 200****6***
            ***200,000,000***
            ***148,509,866******December
                31, 2005***
            ***200,000,000***
            ***145,496,004***





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 no statutory (nonqualified) stock options to key
      employees and directors of the Company. A total of 20,000,000 shares of common
      stock have been reserved for issuance under the Plan. No employee may be granted
      options for more than 2,000,000 restricted shares under the Plan in any one
      fiscal year.





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





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





In
      2001,
      the Company granted 2,000,000 stock options to the Chairman under the 5 year
      nonqualified stock option plan, and these options were exercisable at $1.75
      per
      share. All 2,000,000 options were forfeited on May 10, 2004 when the chairman
      resigned.




F-19




4.
            STOCKHOLDERS'
                EQUITY (Continued)





STOCK
      OPTION PLAN (Continued)





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 $.12 per share,
      from March 1, 2003 to February 29, 2004. All of these 4,000,000 stock options
      were exercised in February 2004 in non-cash transactions; the 480,000, or $.12
      per share was recorded as compensation expense.





5.
            INVESTMENT





The
      Company has a one year deposit certificate with a financial institution in
      the
      PRC. The certificate earns interest at 5.5% to 8% per annum. The principal
      amount for the years ended December 31, 2006 and 2005 was $1,922,067 and
      $1,769,473, and was recorded on the balance sheet as a short term
      investment.





6.
            INVENTORIES





Due
      to
      the Company’s low inventory turnover rate in recent years, inventory has been
      classified as a non-current asset and fully reserved. Inventories at December
      31
      , 2006 consisted of :




Materials
              
              $
              589,012Low
                  value consumables
              
              
              36,452Costs
                  of production
              
              
              502,781Finished
                  goods
              
              
              229,900Subtotal
              
              
              1,358,145Less:
                  reserve for obsolescence
              
              
              (1,358,145
              )Net
                  inventories
              
              $
              -


7.
            PROPERTY
                AND EQUIPMENT





Property
      and equipment at cost consisted of:




2006Transportation
                  equipment
              
              $
              199,109Furniture
                  and office equipment
              
              
              137,975Production
                  equipment
              
              
              199,737Buildings
                  and improvements
              
              
              1,649,186Construction
                  in progress
              
              
              -Idle
                  equipment
              
              
              32,393Subtotal
              
              
              2,218,400Less:
                  accumulated depreciation
              
              
              (1,145,245
              )Net
                  property and equipment
              
              $
              1,073,155




Depreciation
      expense for the years ended December 31, 2006 and 2005 was $146,167 and $36,882,
      respectively.




F-20




8.
            NOTES
                PAYABLE





SHORT-TERM
      NOTES PAYABLE





The
      short-term notes payable consists of a credit line agreement with an interest
      rate of 9% per annum, denominated in RMB from a Chinese bank. The loan is
      secured by a guarantee given by a third party. The US dollar equivalent of
      the
      outstanding loans balance for the years ended December 31, 2006 and 2005 was
      $0
      and $169,760.





As
      of
      December 31, 2004, Minghua China was in default with all of its notes payable,
      with a total principal balance past due of $649,492. On March 1, 2005, the
      Company settled a bank note, which settlement resulted in gain on debt
      settlement in the amount of $156,018.





Total
      interest expense incurred and charged to expense was $32,629 and $19,483 for
      the
      years ended December 31, 2006 and 2005 respectively, and $712,302 for the period
      from June 4, 1997 (inception) to December 31, 2006.





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





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





9.
            INCOME
                TAXES





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





F-21


9.
            INCOME
                TAXES (continued)





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





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





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





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





10.
            COMMITMENTS
                AND CONTINGENCIES





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





11.
            FAIR
                VALUE OF FINANCIAL INSTRUMENTS





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





As
      a
      result of the difficulties presented in the valuation of the loans payable
      to
      related entities/parties because of their related party nature, estimating
      the
      fair value of these financial instruments is not considered practical. The
      fair
      values of all other assets and liabilities do not differ materially from their
      carrying amounts. None of the financial instruments held are derivative
      financial instruments and none were acquired or held for trading purposes in
      2006 and 2005.





F-22




12.
            NEW
                ACCOUNTING PRONOUNCEMENTS





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





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





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





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





13.
            RESTATEMENT





Subsequent
      to the issuance of the financial statements, management noted an error on the
      company 2005 financial statement. The error was related to 2005 interest income
      earned and was subsequently received in 2006 in the amount of $119,036. This
      amount had not been recorded as income and receivable for the year ended
      December 31, 2005. The effect of the restatement is to increase 2005’s interest
      income by $119,036 and increase 2005’s interest income receivable by $119,036.
      The following tables show the effects of the restatement.





F-23


**MINGHUA
                GROUP INTERNATIONAL HOLDINGS LIMITED****(A
                DEVELOPMENT STAGE COMPANY)****CONSOLIDATED
                BALANCE SHEETS**




December
                31,
            
            December
                31,ASSETS
            
            2005
                Restated
            
            2005
                OriginalCurrent
                assetsCash
                and cash equivalents
            
            $
            48,217
            
            $
            48,217Prepaid
                expense
            
            
            77,584
            
            
            77,584Note
                receivable
            
            
            71,030
            
            
            71,030Other
                receivable
            
            
            -
            
            
            -Interest
                income receivable
            
            
            119,036
            
            
            -Short
                term investment
            
            
            1,769,473
            
            
            1,769,473Total
                current assets
            
            
            2,085,340
            
            
            1,966,304Property,
                plant and equipment (net)
            
            
            1,188,251
            
            
            1,188,251Other
                assetsInventories
            
            
            355,155
            
            
            355,155Intangible
                assets
            
            
            49,493
            
            
            49,493Total
                other assets
            
            
            404,648
            
            
            404,648Total
                assets
            
            $
            3,678,239
            
            $
            3,559,203LIABILITIES
                AND STOCKHOLDERS' EQUITYCurrent
                liabilitiesAccounts
                payable
            
            $
            1,643,147
            
            $
            1,643,147Accrued
                liabilities
            
            
            1,037,057
            
            
            1,037,057Short-term
                notes payable
            
            
            169,760
            
            
            169,760Due
                to directors
            
            
            171,724
            
            
            171,724Other
                payables
            
            
            255,230
            
            
            255,230Total
                current liabilities
            
            
            3,276,918
            
            
            3,276,918Stockholders'
                equityCommon
                stock: par value $.01; 200,000,000 shares authorized; 148,509,867
                shares
                issued and outstanding
            
            
            1,454,960
            
            
            1,454,960Common
                stock subscribed
            
            
            29,400,000
            
            
            29,400,000Additional
                paid in capital
            
            
            27,342,990
            
            
            27,342,990Deficit
                accumulated during the development stage
            
            
            (28,819,679
            )
            
            (28,938,715
            )Accumulated
                other comprehensive loss
            
            
            (230,745
            )
            
            (230,745
            )29,147,526
            
            
            29,028,490Less:
                stock subscription receivable
            
            
            (28,746,205
            )
            
            (28,746,205
            )Total
                stockholders' equity
            
            
            401,321
            
            
            282,285Total
                liabilities and stockholders' equity
            
            $
            3,678,239
            
            $
            3,559,203




F-24


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




Year
                  ended December 31,2005
                Restated
            
            2005
                OriginalRevenuesSales
                revenues
            
            $
            353,478
            
            $
            353,478Cost
                of sales
            
            
            569,785
            
            
            569,785Gross
                profit
            
            
            (216,307
            )
            
            (216,307
            )Operating
                expensesGeneral
                and administrative expenses
            
            
            520,530
            
            
            520,530Goodwill
                impairment loss
            
            
            -
            
            
            -Write-off
                inventory and bus licenses
            
            
            1,010,046
            
            
            1,010,046Research
                and development costs
            
            
            34,455
            
            
            34,455Total
                operating expenses
            
            
            1,565,031
            
            
            1,565,031Loss
                from operations
            
            
            (1,781,338
            )
            
            (1,781,338
            )Other
                income (expense)Interest
                income
            
            
            119,036
            
            
            988Other
                income (expense)
            
            
            358,832
            
            
            358,832Gain
                (Loss) on asset disposal
            
            
            (4,823
            )
            
            (4,823
            )Other
                operation profit(loss)
            
            
            -
            
            
            -Gain
                on debt settlement
            
            
            156,018
            
            
            156,018Gain
                on disposal in subsidiaries
            
            
            -
            
            
            -Interest
                expense
            
            
            (19,483
            )
            
            (19,483
            )Total
                other income (expense)
            
            
            609,580
            
            
            491,532Net
                loss before income taxes
            
            
            (1,171,758
            )
            
            (1,289,806
            )Provision
                for income taxes
            
            
            -
            
            
            -Net
                loss
            
            $
            (1,171,758
            )
            $
            (1,289,806
            )Foreign
                currency translation adjustment
            
            
            (230,745
            )
            
            (230,745
            )Comprehensive
                loss
            
            $
            (1,402,503
            )
            $
            (1,520,551
            )Basic
                and diluted net loss per share
            
            $
            (0.01
            )
            $
            (0.01
            )Weighted
                average number of shares outstanding
            
            
            145,211,456
            
            
            145,211,456




F-25


**MINGHUA
                  GROUP INTERNATIONAL HOLDINGS LIMITED****(A
                  DEVELOPMENT STAGE COMPANY)****CONSOLIDATED
                  STATEMENTS OF CASH FLOWS**
  Year
                  ended December 31,2005
                  Restated
              
              2005
                  OriginalCash
                  flows from operating activities:Net
                  loss
              
              $
              (1,170,770
              )
              $
              (1,289,806
              )Adjustments
                  to reconcile net loss tonet
                  cash used in operations:Depreciation
                  and amortization
              
              
              57,896
              
              
              57,896Interest
                  income
              
              
              (119,036
              )
              
              -Impairment
                  loss on intangible assets
              
              
              771,922
              
              
              771,922Write-off
                  goodwill and inventory
              
              
              238,124
              
              
              238,124Stock
                  issued for debt and services
              
              
              830,100
              
              
              830,100(Gain)
                  loss on disposition of assets
              
              
              4,822
              
              
              4,822Prepaid
                  expense and deposits
              
              
              414,297
              
              
              414,297Inventories
              
              
              314,772
              
              
              314,772Accounts
                  payable and accrued liabilities
              
              
              (1,454,202
              )
              
              (1,454,202
              )Net
                  cash used in operations
              
              
              (112,075
              )
              
              (112,075
              )Cash
                  flows from investing activities:Payment
                  for purchase of subsidiaries
              
              
              -
              
              
              -Redemption
                  (purchase) of short term investment
              
              
              165,699
              
              
              165,699Sales/purchases
                  of property and equipment
              
              
              9,433
              
              
              9,433Deposit
                  on subsidiary
              
              
              -
              
              
              -Net
                  cash provided by (used in) investing activities
              
              
              175,132
              
              
              175,132Cash
                  flows from financing activities:Due
                  to stockholders and related parties
              
              
              18,833
              
              
              18,833Notes
                  payable -bank
              
              
              (479,732
              )
              
              (479,732
              )Net
                  cash provided by (used in) financing activities
              
              
              (460,899
              )
              
              (460,899
              )Effect
                  of rate changes on cash
              
              
              (269,462
              )
              
              (269,462
              )Increase(decrease)
                  in cash and cash equivalents
              
              
              (667,304
              )
              
              (667,304
              )Cash
                  and cash equivalents, beginning of period
              
              
              715,521
              
              
              715,521Cash
                  and cash equivalents, end of period
              
              $
              48,217
              
              $
              48,217Supplemental
                  disclosures of cash flow information:Cash
                  paid for interest
              
              $
              6,600
              
              $
              6,600Cash
                  paid for income taxes
              
              $
              -
              
              $
              -Supplemental
                  disclosures of non-cash investing and financing
                  activities:Common
                  stock issued for debt
              
              $
              830,100
              
              $
              830,100


F-26




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









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









*10.15
            Incentive
                Stock Option Agreement, dated April 5, 2001, between the Company
                and
                Ronald C. H. Lui [Incorporated by reference to Exhibit 10.5 of the
                Form
                10-QSB filed on August 20, 2001 in Commission file number
                0-30183]*10.16
            Non-qualified
                Stock Option Agreement, dated April 5, 2001, between the Company
                and
                Ronald C. H. Lui [Incorporated by reference to Exhibit 10.6 of the
                Form
                10-QSB filed on August 20, 2001 in Commission file number
                0-30183]*10.17
            Amendment
                to Stock Option Agreements, dated April 16, 2001, between the Company
                and
                Ronald C. H. Lui [Incorporated by reference to Exhibit 10.7 of the
                Form
                10-QSB filed on August 20, 2001 in Commission file number
                0-30183]*10.18
            Consulting
                Agreement, dated April 2, 2001, between the Company and First Pacific
                Capital Ltd. [Incorporated by reference to Exhibit 10.8 of the Form
                10-QSB
                filed on August 20, 2001 in Commission file number
                0-30183]*10.19
            Letter
                Agreement, dated April 5, 2001, between the Company and First Pacific
                Capital Ltd. [Incorporated by reference to Exhibit 10.10 of the Form
                10-QSB filed on August 20, 2001 in Commission file number
                0-30183]*10.20
            2001
                Stock Plan [Incorporated by reference to Appendix B of our Definitive
                Proxy Statement on Schedule 14A filed on July 3, 2001 in Commission
                file
                number 0-30183]*10.21
            Placement
                Agency Agreement, dated July 23, 2001, between the Company and Chicago
                Investment Group Incorporated [Incorporated by reference to Exhibit
                10.11
                of the Form 10-KSB filed on April 15, 2002 in Commission file number
                0-30183]*10.22
            Letter
                Agreement repayment of stockholder loan, dated December 11, 2001,
                between
                the Company and Li Chuquan [Incorporated by reference to Exhibit
                99.1 of
                the Form 8-K filed on December 20, 2001 in Commission file number
                0-30183]*10.23
            Technology
                  Development Contract, dated February 15, 2004, between Tsinghua
                  University
                  and the Company [incorporated by reference to Exhibit 10.23 of
                  the Annual
                  Report on Form 10-KSB of the Company for the fiscal year ended
                  December
                  31, 2004].*10.24
            Sales
                  Contract of Guangzhou Cityview Bus Installation Co., Ltd., dated
                  August 6,
                  2004, between Changsha United Electric Power Science and Technology
                  Co.,
                  Ltd. and Guangzhou Cityview Bus Installation Co., Ltd. [incorporated
                  by
                  reference to Exhibit 10.24 of the Annual Report on Form 10-KSB
                  of the
                  Company for the fiscal year ended December 31,
                  2004].*10.25
            Lease
                  Agreement, dated May 30, 2004, between Liu Gui Zhi and Beijing
                  China
                  Cardinal Real Estate Consulting Ltd. [incorporated by reference
                  to Exhibit
                  10.25 of the Annual Report on Form 10-KSB of the Company for the
                  fiscal
                  year ended December 31, 2004].*10.26
            Lease
                  Agreement, dated May 20, 2004, between Shenzhen Minghua Environmental
                  Protection Vehicle Co., Ltd. and Richard Zhang [incorporated by
                  reference
                  to Exhibit 10.26 of the Annual Report on Form 10-KSB of the Company
                  for
                  the fiscal year ended December 31, 2004].*14
            Code
                of Ethics [incorporated by reference to Exhibit 14 of the Annual
                Report on
                Form 10-KSB of the Company for the fiscal year ended December 31,
                2003]21
            A
                description of the subsidiaries of the registrant31.1
            Certification
                of Principal Executive Officer filed pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.









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





*
            Incorporated
                by reference as indicated.