<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                     WASHINGTON, D.C. 20549[GRAPHIC OMITTED]
                                   FORM 10-KSB
(Mark One)

[X]        ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
                             EXCHANGE ACT OF 1934.

For the fiscal year ended December 31, 2002

                                   OR

[_]      TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
                             EXCHANGE ACT OF 1934.

For the transition period from _________ to __________

                         Commission file number 0-30183

                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                   (Name of Small Business Issuer in Its Chart

           New York                                    13-3874771
           --------                                    ----------
(State or Other Jurisdiction of                      (I.R.S. Employer
 Incorporation or Organization)                     Identification No.)


54 Pine Street, 4th Floor, New York, New York         10005
(Address of Principal Executive Offices)             (Zip Code)

                                 (212) 809-8015
                (Issuer'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, $0.01 par value per share
                                (Title of Class)

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

Yes ___X___ No _______

      Check if there is no disclosure  of delinquent  filers in response to Item
405 of Regulation S-B is not 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]

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

      The aggregate market value of the voting and non-voting common equity held
by  non-affiliates  computed by  reference to the average bid and asked price of
such common equity, as of April 15 2003 is: $1,288,225

      The  number of  outstanding  shares  of the  issuer's  common  stock as of
December 31, 2002: 50,482,252.

<PAGE>




                                     PART I

ITEM 1   BUSINESS

General and Organization Chart

Minghua  Group  International  Holdings  Limited  (the  "Company"),  through its
subsidiaries,  is primarily  engaged in the development,  production and sale of
hybrid  vehicles  powered by a combination  of  combustion  diesel engine and an
electric power systems,  based upon its patented technology.  A prototype hybrid
vehicle was produced in 2000 but no sales have been made.


--------------------------------------------------------------------------------
            Minghua Group International Holdings Limited ("Minghua")
                       (incorporated in New York, the USA)
--------------------------------------------------------------------------------
                                      100%
--------------------------------------------------------------------------------
                            Minghua Acquisition Corp.
                       (incorporated in Delaware, the USA)
--------------------------------------------------------------------------------
                                      100%
-------------------       ------------------------------------
Minghua Real              Minghua Group International Holding
Estate             ----------   (Hong Kong) Limited
(Shenzhen) Ltd.   |
---------------   |       -------------------------------------
  |               |                   100%
  |               |       ------------------------------------------------------
  |               |         Top Team Holdings Limited
  |               |                  (BVI)
  |               |       ------------------------------------------------------
  |               |                    57%                              43%
  |               |     ----------------------------------       ---------------
  |               |     Minghua Environmental Protection         Kok Sin
  |               |         Science & Technology Ltd             Keung
 \|/             \|/              In Hong kong
 15%             85%    ----------------------------------       ---------------
                                      89.8%
------------------      --------------------------------------------------------
Shenzhen Minghua             Guangzhou Cityview Bus
Environmental                Installation Co., Ltd.
Protection
Vehicles Co., Ltd.
------------------      --------------------------------------------------------



                                        1
<PAGE>




Background

We were  incorporated  under the laws of the State of New York as United Network
Technologies, Inc. on February 29, 1996. On October 2, 1998, we changed our name
to Panagra  International  Corporation and on August 2, 2001 we changed our name
to Minghua Group International Holdings Limited.

From our inception until June 22, 2001, we were relatively inactive with limited
operations and no operating revenue. During that period our only activities were
organizational  ones,  directed at developing our business plan and conducting a
limited search for business opportunities.

On April 2, 2001  Ronald C. H. Lui,  the  Chief  Executive  Officer,  President,
Treasurer,  Secretary and a director at the time,  entered into a Stock Purchase
Agreement  with Elie  Saltoun,  then a  Director  of  Minghua  USA  (then  named
Panagra),  and Mr.  Saltoun's  affiliates  pursuant  to which Mr.  Lui  acquired
control of Minghua by purchasing with his personal funds 2,195,878 shares of our
common stock from Mr. Saltoun and his affiliates for $180,000.

On April 27, 2001,  we and  subsidiary  Minghua  Acquisition  Corp.,  a Delaware
corporation, entered into a Stock Purchase Agreement with Mr. Li Chuquan and Mr.
Chan Kuen Kwong relating to the purchase by Minghua  Acquisition Corp. of all of
the outstanding capital stock of Minghua Group International Holding (Hong Kong)
Limited,  a  corporation  existing  under  the  laws of the  Hong  Kong  Special
Administrative Region of the Peoples Republic of China ("Minghua Hong Kong") for
$1,000,000 and 28,000,000  shares of our common stock on 22 June, 2001.  Minghua
Hong Kong  had,  as its sole  material  asset,  an 85%  equity  interest  in the
Shenzhen  Minghua  Environmental  Protection  Vehicles  Co.  Ltd, a  corporation
existing under the laws of the Peoples Republic of China ("Environmental Vehicle
Company").

We now indirectly control the Environmental  Vehicle Company.  After the closing
of the acquisition Mr. Li Chuquan became our Chairman.

The  Environmental  Vehicle Company's hybrid electric vehicle is the culmination
of over five years of research and development  initially  conducted by Mr. Wang
Chun Fu, the Environmental Vehicle Company's former chief technical officer.

Guangzhou City View Bus Installation Company Limited

On March 13,  2003,  Minghua  Environmental  Protection  Science and  Technology
Limited, a limited company incorporated in Hong Kong with 57% of its shares held
by Top Team Holdings  Limited,  a British Virgin Island  limited  company wholly
owned by the Company's wholly owned subsidiary, Minghua Group Hong Kong, entered
into an agreement with Good View Bus  Manufacturing  (Holdings)  Company Limited
and Eagle Bus Development Limited,  both limited companies  incorporated in Hong
Kong and Mr. Kok Sin Keung for the  purchase  of 89.8 % ownership  of  Guangzhou
City View Bus Installation  Company  Limited.  The said acquisition is currently
pending formal approval from the State  Administration for Industry and Commerce
of the People's Public of China.

Ming  Hua  Environment  Protection  Science  and  Technology  Limited  paid  RMB
2,000,000.00 (US$ 241,896.00) to Good View for its 23.8% ownership  interest and
RMB 6,000,000.00 (US$ 725,689.00) to Eagle for its 66% ownership  interest,  and
issued 43% of the total authorized shares of Ming Hua  Environmental  Protection
Science and Technology Limited to Mr. Kok Sin Keung.




                                       2
<PAGE>

The Company borrowed RMB 14,382,961.42 (US$  1,739,594.00) and  HK$10,831,321.05
(US$ 1,388,631.00 ) from Kingsrich  Development Limited, a British Virgin Island
company  owned by Mr. Li Guang  Lian,  an  independent  investor  to finance the
acquisition  of Guangzhou  City View Bus  Installation  Company  Limited and the
operation  of the  Company  in 2002.  In order to settle  the loan  amount,  the
Company  has  signed  a loan  agreement  dated  March  17,  2003  in the  sum of
US$3,128,225 at the interest rate of 5% per annum.

The Guangzhou Cityview Bus Installation Co., Ltd was founded in December 1993 as
a joint venture between Goodview Holdings Limited and the Public Automobile No.2
Company of Guangzhou and is dedicated to the production of luxury coaches of the
EAGLE series.

The main business activities include design, sale, maintenance and production of
coaches  for  domestic  sale and  assembly  of coaches  for export  with  annual
production capabilities reaching 2,000 coaches.

The EAGLE series of coaches produced by the Guangzhou  Cityview Bus Installation
Co. Ltd are characterized by their reliable construction, modern outlook and use
of high tensile aluminum alloy for bodywork which is assembled by riveting.  The
mounting of the seats and fitting of glass windows  employ new technology in the
industry.

The  coaches  maintain  good  power  ratio,  combustibility  of fuel and  smooth
transmission.  Products  include  single and  double-decked  buses with  lengths
ranging from 10, 11 to 12 meters. All specifications are compliant with existing
national, Hong Kong and Macau and South Asian technical standards.

The EAGLE series is a well-known  brand in the People's  Republic of China.  The
series is also popular in Hong Kong with customers like Sun Bus Holdings Limited
and ARGOS  Bus  Services  Company  Limited,  both  providing  non-franchise  bus
services in Hong Kong.

The Guangzhou  Cityview Bus  Installation  Co. Ltd also performs body rebuilding
work for bus companies in Hong Kong,  like The Kowloon Motor Bus Company  (1933)
Limited and New World First Bus Services Limited.

The Guangzhou Cityview Bus Installation Co. Ltd is the first production plant in
the People's Republic of China to have used the advanced  technology of aluminum
alloy for bodywork with original designs and domestic materials. Its first plant
was located in  Guangzhou.  In 1995, a new plant was built in the nearby  Zhucun
Town.

Since its founding,  the Guangzhou Cityview Bus Installation Co. Ltd has pledged
to expand the market for luxury  coaches  using  domestic  material and original
designs for chassis for export.

To assist the acquisition,  Citic Worldwide  Limited was engaged as a consultant
to advise.  The Company agreed to compensate  Citic by issuing 800,000 shares of
Common Stock to Citic.

The Environmental Vehicle Company / Hybrid Electric Buses

The  Environmental  Vehicle  Company  was  established  in June  2000 as a joint
venture enterprise,  with equity interests held by Minghua Hong Kong and Minghua
Real Estate  (Shenzhen) Ltd (formerly known as Shenzhen Minghua  Investment Co.,
Ltd.) at 85% and 15%,  respectively.  The  Environmental  Vehicle Company's main
business is the development,  production and sale of hybrid  vehicles.  We are a
holding company and all of the information in this annual report relating to the
development,  operation, marketing and commercialization of hybrid environmental
vehicles refers to activities conducted by the Environmental Vehicle Company. In
September  2000, the  Environmental  Vehicle  Company  successfully  developed a
prototype hybrid electric bus MH6720.  The MH6720 model was presented at China's
Hi Tech Fair where the Environmental Vehicle Company's hybrid technology project
received  recognition  as a Key  Industrial  Project by the  Shenzhen  municipal
government. Tests were conducted by institutions such as the Shenzhen Academy of
Metrology and Quality Inspection, and the MH6720 received excellent reviews.



                                       3
<PAGE>

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

We believe that our hybrid power  technology is our competitive  advantage.  Our
diesel bus will  automatically  charge its  battery  and then switch to electric
power to become  virtually  silent and totally  emission-free  as it  transports
passengers through city streets or rural routes.

Our hybrid electric vehicle combines fuel efficiency with high performance.  The
prototype  hybrid electric bus MH6720 is equipped with a  fuel-efficient  diesel
engine that  conforms to European II emission  standards  and an electric  power
system which consists of low maintenance batteries that recharge themselves when
the vehicle is running on diesel fuel.  According to tests conducted by Shenzhen
Academy of  Metrology  and  Quality  Inspection  in  December  2000,  our hybrid
electric bus uses half the volume of diesel fuel  compared to the amount used by
conventional  diesel buses traveling the same distance.  Moreover,  unlike other
hybrid  vehicles which require the use of fuel sources not readily  available to
the  public,  such  as fuel  cells  powered  by  combustible  materials  such as
hydrogen, our vehicle uses diesel fuel which can be purchased in any gas station
and therefore,  no additional  infrastructure  is required to provide sources of
energy for our diesel engine. In addition, we believe that the recharging of the
batteries and switching of power sources are undetectable to passengers who will
only experience a smooth and comfortable ride.

         Performance parameters for the MH6720 are as follows:

                                                   Diesel          Electric
         Max vehicle speed......................    90 kph          75 kph
         Continuous driving distance-...........   800 km          100 km
         Maximum incline........................   n/a              30%
         Fuel consumption per 100 km............     Less than 10 liters
         Number of Passengers ..................       21 +  1 (driver)

Product Development

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

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

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

         (ii)     State Taxation General Administration Bureau;

         (iii)    Ministry of Foreign Trade and Economic Cooperation;



                                       4
<PAGE>

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

         (v)      State Environmental Protection General Administration Bureau.

This  recognition and  ratification of our product will bestir the Company to go
further in this environmental protection vehicle industry.

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

Hybrid Technology:  Series vs. Parallel

Hybrid vehicles combine two sources of energy such as a battery powered electric
motor and a  conventional  internal  combustion  engine.  There are two types of
hybrid  environmental  vehicles.  The "Series" hybrid uses the heat powered by a
generator to supply electricity to the battery pack and electric motor. There is
no  mechanical  connection  between the hybrid  power unit and the  wheels.  The
"Parallel" hybrid combines a small internal  combustion engine or gas engine and
an electric motor powered by batteries to propel the vehicle.  There is a direct
mechanical  connection  between the hybrid power unit and the wheels  similar to
that used in a conventional vehicle.

Our buses will be equipped with an advanced form of  "Parallel"  hybrid  systems
that we believe will allow them to run at performance  levels  superior to those
of conventional diesel buses as well as purely electric vehicles.

Competitive Advantages

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

1.     Our product is equipped with an advanced parallel composite power system.
       This means that the diesel  engine and the  electric  power system can be
       used alternatively or independently,  depending on the travel conditions.
       A switch  allows the driver to change from diesel fuel to electric  power
       for optimum fuel efficiency.
2.     When our vehicle is operating on its battery, it achieves zero-emissions.

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

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

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

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




                                       5
<PAGE>

Market

We believe that the market is ripe for the emergence of hybrid electric vehicles
and the current market potential for our product is global.  We believe that the
demand is high while the supply is limited due to  inadequate  resources  in the
global  market  to  produce  these  environmentally-compatible  vehicles.  Major
manufacturers  are each taking a unique  approach to addressing  this demand and
are aggressively  developing  hybrid vehicles for worldwide  distribution in the
future.

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

Business Opportunities

We believe the opportunities  for business  development are promising due to (i)
the global  market  potential for high  performance,  energy  efficient,  hybrid
powered  buses,  especially in the following 5 years leading to the 2008 Olympic
Games to be held in Beijing, China (ii) the fact that our buses have been tested
and are ready for commercial  production,  and (iii) the potential for licensing
and royalty agreements worldwide.

Location and Facilities

On November  18,  2001 we  established  the  Environmental  Protection  Electric
Vehicle  Research and  Development  Center in Shenzhen  China.  The research and
development  center has retained 21 researchers  and other staff members who are
currently working on a second  generation  electric battery for use in Minghua's
hybrid vehicles. The Environmental Vehicle Company owns all of the assets of the
research  and  development  center and will be  responsible  for  operating  the
center.   The   Environmental   Vehicle   Company  has  invested   approximately
US$500,000.00  in the research and development in fiscal year 2001 and a further
sum of US$116,554 was invested  during the last fiscal year ending  December 31,
2002.

Currently,  we conduct our  operations  from our Shenzhen  office where  general
administration  and  research  activities  are carried  out.  Due to the lack of
funds,  the production of the first 110 vehicles  covered by non-binding  signed
letters of intent has been suspended.

We have greatly enhanced our manufacturing  capacity with the recent acquisition
of 89.8 % ownership  of Guangzhou  City View Bus  Installation  Company  Limited
which has 2 production  plants,  one in Guangzhou  located at No.392  Industrial
Main Road,  Guangzhou,  Guangdong Province and one in Zhucun Town located at the
Industrial Area, Zhucun Town, Zengcheng, Guangzhou, People's Public of China.

Guangzhou  City View Bus  Installation  Company  Limited has  approximately  510
staff.  360 workers and 10 engineers work at the Guangzhou plant and 150 workers
and 2 engineers work at the Zhucun Town plant.

With the recent  acquisition  of Guangzhou  City View Bus  Installation  Company
Limited, we are working towards mass production of our hybrid buses.



                                       6
<PAGE>

Production Plan Based on Expected Market Demand

Year    Environmental Vehicle    Other Vehicle   Production Value((cent)D)
----    ---------------------    -------------   -------------------------

2003         300                      300                  240

2004         500                      550                  427

2005        1500                     1950                 1452

2006        2800                     2570                 2115

2007        4500                     5000                 3068

(Currency Unit Chinese Reminbi(cent)D1,000,000)
Goals

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

Once we have raised sufficient  capital,  a top priority will be identifying and
hiring people to fill key positions,  particularly marketing and sales. In order
to complete our  management  team,  we need to hire a chief  financial  officer,
director  of sales and  marketing,  director  of human  resources,  director  of
operations, director of finance and a director of product development.

Hybrid Vehicle Progress World-wide

We believe  that  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;  hence,  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.

Furthermore,  there is severe air pollution in China and in many Chinese cities,
the exhaust  from motor  vehicles'  internal  combustion  engines is the primary
cause of this pollution.  China's 5-year plans have consistently  included plans
to  control  environmental  pollution  and have  encouraged  pilot  projects  to
experiment with electric/hybrid  vehicles,  however insufficient  investment has
stalled the realization of these goals.

In 1993, the U.S.  Department of Energy together with the three largest American
auto  manufacturers,  General  Motors,  Ford and  DaimlerChrysler  launched  the
five-year    cost-shared    Hybrid   Electric   Vehicle   Program   to   develop
energy-efficient,  affordable and  low-emission  hybrid electric  vehicles.  Its
goals merged with the  Partnership  For A New  Generation  of Vehicles  which is
comprised of seven federal  agencies,  The United States  Council for Automotive
Research, The National Laboratories,  universities,  suppliers,  DaimlerChrysler
Corp., Ford Motor Co. and General Motors Corp.



                                       7
<PAGE>

In the northeast region of the United States, NAVC, a public-private partnership
of companies, public agencies and university and federal laboratories,  promotes
and manages several projects involving hybrid electric  technology in medium and
heavy-duty  applications.  The project supporters were encouraged by the results
of a year-long  testing  project in 2001 which  yielded 30% to 65% fuel  economy
improvements and 50% to 60% lower emissions than conventional  heavy-duty diesel
vehicles.

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

A few projects are  currently in place within the European  Union.  Research and
development  efforts are  primarily  geared  towards the mass  transit  systems.
Governments of certain countries like the Netherlands and Luxembourg are focused
on reducing  car use, a leading  cause of pollution in  metropolitan  areas,  by
developing city transport systems which consist of lightweight  low-emission and
energy-efficient  buses. In 1998, the  Netherlands  started a 3-year test period
for hybrid  buses in the city of  Rotterdam,  Netherlands.  In 1997,  Luxembourg
began  running some hybrid  buses as part of their mass  transit  system so that
these vehicles can be tested in normal service  conditions for several years. As
indicated in their  abstract,  the  batteries  used in the bus can be charged by
regenerative  braking,  overnight charging,  quick charging at a central station
near the city centers and by using  auxiliary  power units.  In Germany,  hybrid
buses are presently used to provide regular service between the Alpine cities of
Oberstdorf, Sonthofen and Kempten. These Mercedes Benz O 405 NUH-model buses are
equipped with an electric  wheel-hub drive system, a low-emission  Euro-2 diesel
engine and 4 traction  batteries which can be recharged when brakes are applied.
The batteries can also be charged in their  recharging  stations when the bus is
not in service at night.

In Japan,  Honda and Toyota have introduced their hybrid vehicles to the public.
Toyota  Prius  won car of the  year in 1997  while  Honda's  Insight,  a  sporty
two-seater  coupe, was hailed by  environmentalists  as the best car in the U.S.
market when it was introduced in 2000.

The Future of Hybrid Buses

We believe that there is significant  potential for hybrid vehicle  applications
for both personal and public transport. Governments and automobile manufacturers
continue to seek  technological  advances in  environmentally  compatible  drive
systems.  The  challenges  that  automobile  manufacturers  have to overcome are
lowering cost and improving  performance on its models,  so that hybrid vehicles
can compete with conventional vehicles in the global market. These issues aside,
we believe that hybrid  technology  still remains a promising option for the new
millennium.

The  following is a brief  summary of recent and future  developments  in hybrid
vehicles:

       * Honda Insight and Toyota Prius continue to generate high sales in Japan

       * Volvo  unveiled its  diesel-electric  truck in 2000 and it is currently
         being tested.

                                       8
<PAGE>


         *        General  Motors Co. plans to introduce  its  full-size  pickup
                  truck with hybrid electric propulsion in 2004.

         *        Nissan  Diesel  Motor Co.  plans to install  new  hybrid-power
                  system in its trucks.

         *        Chrysler   is   working   on  its   Citadel   concept   hybrid
                  gasoline-electric  vehicle  on a  platform  that  is  a  cross
                  between a sport utility vehicle and the classic British sports
                  coupe.

         *        Ford Motor Co.  completed the P2000 prototype and is currently
                  developing another hybrid concept called the Prodigy.

         *        Mercedes Benz continues to research  alternative drive systems
                  for its hybrid electric buses.

Marketing Strategy

Since the completion of the MH6720 prototype, our team has been exhibiting it at
trade shows in China and the vehicle has  received  excellent  reviews.  Another
prototype,  the MH6120,  has recently  been  completed  and is  currently  being
tested.  Both the MH6720 and MH6120 will be  exhibited  at future  trade  shows.
Additional  exposure  will be achieved  through print media.  To date,  articles
regarding  our buses have been printed in  newspapers in China as well as in the
United States.  Our management team has also met with Chinese officials who have
expressed   interest  in  ordering   our   vehicles   because  they  conform  to
environmental standards, although no orders have been placed to date.

Forward Looking Statement

Statements  included in this Form 10-KSB which are not  historical in nature are
forward-looking  statements made pursuant to the  safe-harbor  provisions of the
Private  Securities  Litigation Reform Act of 1995.  Forward-looking  statements
regarding our future business  prospects,  plans,  objectives,  expectations and
intentions  are subject to certain risks,  uncertainties  and other factors that
could  cause  actual  results  to differ  materially  from  those  projected  or
suggested in the forward-looking  statements,  including, but not limited to the
inability to raise additional  capital,  the possibility that third parties hold
proprietary  rights that preclude the Company from  marketing its 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  certain  economic,  political  and social
events in China.

ITEM 2 PROPERTIES

To save the office  expenses  during the  development  stage,  our  business are
conducted in the office in the People's Republic of China.

Our U.S.  representation  office is located at 54 Pine  Street,  4th Floor,  New
York, NY 10005 is provided to us rent-free by the tenant.

Minghua Hong Kong uses the address of a company secretary company at 14th Floor,
Sincere Insurance Building West Wing, 4-5 Hennessy Road,  Wanchai,  Hong Kong as
its registered office and no rent is payable.

The Company has rented the office at 10th Floor, Guangdong Bianfang Building, Fu
Jing Road, Fu Tian District,  Shenzhen, People's Republic of China. The rent for
2002 is  $342,662.


                                       9
<PAGE>

The  management  believes  that the existing and planned  production  facilities
(described in Item 1) are adequate and  satisfactory  for the projected needs of
the Company for at least 2 years.

ITEM 3 LEGAL PROCEEDINGS

A civil proceedings in the People's Republic of China was commenced by Wang Chun
Fu against Shenzhen Minghua  Environmental  Protection  Vehicle Co., Ltd. as the
second Defendant arising from the dispute as to Patent No.ZI992112168.  Shenzhen
Minghua Environmental  Protection Vehicle Co., Ltd. filed a counterclaim against
Wang for,  among others,  breach of duties and  declaration  of annulment of the
Transfer  of Patents and  Licence to Use Patent  agreements.  The hearing of the
proceedings will be 9th May 2003.

Other than the said proceedings, the Company is not a party to any pending legal
proceedings, and no such proceedings are known to be contemplated.

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 2002.

                                     PART II

ITEM 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

(a)      Market Information

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


FISCAL YEAR    QUARTER                    HIGH       LOW

2001           December 31, 2000         $0.90      $0.90

2002           March 31, 2002            $0.76      $0.76
               June 30, 2001             $0.23      $0.19
               September 30, 2001        $0.36      $0.36
               December 31, 2001         $0.13      $0.13

(b) Holders

The number of  holders  of record of our common  stock as of January 3, 2003 was
321.

(c) Dividends

We have not paid any  cash  dividends  with  respect  to our  common  stock.  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.



                                       10
<PAGE>

(d) Recent Sales of Unregistered Securities

The following  sets forth  information  regarding all sales of our  unregistered
securities  during fiscal year 2002.  All of the shares issued by us were exempt
from  registration  under the  Securities  Act by reason of Section  4(2) of the
Securities Act, or Regulation D or promulgated thereunder of Regulation S.

1.       On March 13, 2003, we issued 800,000 shares to Citic Worldwide  Limited
         for consuting  assistance in the acquisition of Guangzhou City View Bus
         Installation Company Limited.

2.       To finance the  acquisition  of  Guangzhou  City View Bus  Installation
         Company  Limited and the  operation  of the Company in 2002,  Kingsrich
         Development  Limited,  a British  Virgin Island company owned by Mr. Li
         Guang Lian, an independent investor, contributed RMB 14,382,961.42 (US$
         1,739,594.00) and  HK$10,831,321.05  (US$ 1,388,631.00 ) to the Company
         up to March 17, 2003.  In order to settle the loan amount,  the Company
         has  signed  a loan  agreement  dated  March  17,  2003  in the  sum of
         US$3,128,225  at the  interest  rate  of 5% per  annum.  A  Convertible
         Promissory Note for the sum of US$3,128,225, convertible into shares of
         the  Company's  Common  Stock  anytime at the  discretion  of Kingsrich
         Development  Limited at the conversion  rate of $0.13 per share,  which
         was arrived at based on the recent market price,  was purchased  with a
         maturity date on March 31, 2008. A  Registration  Rights  Agreement was
         entered into by the Company and Kingsrich Development Limited, granting
         Kingsrich  Development  Limited the registration rights with respect to
         the shares of common stock underlying the Convertible Promissory Note.

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

Overview of Business

Since our inception,  we have been relatively  inactive with limited  operations
and revenue.  Until recently, our only activities have been organizational ones,
directed at  developing  our business plan and  conducting a limited  search for
business  opportunities.  On June 22, 2001, we acquired a Hong Kong company that
controls a Chinese  environmental  protection vehicle company and since then, we
have been focused on the  development  and  commercialization  of mass  transit,
hybrid electric vehicles, primarily buses.

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

Recent Developments

Since  April  30,  2002,  Albert  Wong has  served as Chief  Executive  Officer,
President, Secretary and Treasurer of the Company Since October 16, 2002, he has
also  served as a  director.  Mr.  Wong,  age 50, is a Canadian  national  and a
qualified professional  accountant and registered financial planner with various
related  professional  designations.  For the past 5 years,  Mr. Wong worked for
Charise Financial  Consultants Limited, a corporate financial planning company,
as its


                                       11
<PAGE>

Managing  Director  and  Chief  Executive  Officer.  Mr.  Wong  entered  into an
employment  agreement  with  the  Minghua  USA  upon  being  appointed  as Chief
Executive  Officer.  The  agreement  expired  on April 9, 2003 and has  became a
permanent staff of the Company. Mr. Wong will receive monthly compensation under
the agreement equal to HK$20,000 (approximately US$2,564) and will be reimbursed
for any  expenses  that he incurs on behalf of  Minghua  USA.  In  addition,  on
October 16,  2002,  the Board of  Directors  agreed to issue  500,000  shares of
Minghua USA's common stock to Mr. Wong.

Future Plans / Risks

We do not have enough capital  resources to continue our operations as currently
conducted. We are currently relying on stockholder loans to continue operations.
There  can be no  assurance  that our  stockholders  will  continue  to fund our
operations.  If our  stockholders 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.

In order to effect its 5-year business plan, Minghua must raise approximately $1
billion.  Any discussion  our Plan of Operation  regarding  capital  investments
assumes  that we will be able to raise  enough  capital to effect  such  capital
investments. No assurance can be given that we will be able to raise capital for
such investments. To date, we have not been able to raise any significant amount
of capital through the private placement of our securities or otherwise.

To finance the  acquisition  of  Guangzhou  City View Bus  Installation  Company
Limited and the operation of the Company in 2002, Kingsrich Development Limited,
a British  Virgin  Island  company  owned by Mr. Li Guang Lian,  an  independent
investor,  contributed RMB 14,382,961.42 (US$ 1,739,594.00) and HK$10,831,321.05
(US$  1,388,631.00 ) to the Company up to March 17, 2003. In order to settle the
loan amount, the Company has signed a loan agreement dated March 17, 2003 in the
sum of US$3,128,225 at the interest rate of 5% per annum.

In this juncture,  a Convertible  Promissory  Note for the sum of  US$3,128,225,
convertible  into shares of the Company's Common Stock anytime at the discretion
of  Kingsrich  Development  Limited at the  conversion  rate of $0.13 per share,
which was arrived at based on the recent  market  price,  was  purchased  with a
maturity date on March 31, 2008.

A  Registration  Rights  Agreement was entered into by the Company and Kingsrich
Development  Limited,  granting Kingsrich  Development  Limited the registration
rights with respect to the Shares of Common  Stock  underlying  the  convertible
promissory note.

In order for Minghua to continue  its  operations,  we will be required to raise
funds through  additional means,  including (1) public or private  placements of
our securities;  (2) additional  stockholder or other loans or (3) licensing our
technology.  No assurance  can be given that we will be  successful in arranging
any  financing  through  any of  these  alternatives.  Failure  to  obtain  such
financing will require us to delay the implementation of our business plan or to
substantially curtail our operations or liquidate in part or in whole and any of
such actions will have a material adverse effect on us.

If we raise  sufficient  capital to fund our  business  plan,  we would make the
following  initial  capital  investments to develop the factory and increase the
production capacity in The Guangzhou Cityview Bus Installation Co. Ltd

Currently,  we conduct our  operations  from our Shenzhen  office where  general
administration  and research  activities  are carried  out. We were  supposed to
deliver 110 vehicles  pursuant to non-binding  signed letters of intent.  Due to
our failure to raise sufficient capital to produce these vehicles. The letter of
intent was cancelled.



                                       12
<PAGE>

Liquidity and Capital Resources

Historically,  we were a company with minimal  assets,  liabilities and expenses
that were financed primarily through stockholder loans. On December 31, 2002, we
had total assets of $1,189,430.00.  In April, 2001, we raised $1,500,000 through
the sale of 7,500,000 shares of our common stock in a private placement. Of this
amount,  $1,000,000  was used to pay a portion of the purchase price relating to
the  acquisition  of Ming Hua Group  International  Holding (Hong Kong) Limited.
This acquisition  closed on June 22, 2001.  During the period from July 23, 2001
through December 31, 2001, we raised an additional  $967,000 for working capital
purposes through the private placement of 483,500 shares of our common stock.

Our  existing  cash,  cash  equivalents  and  short-term   investments  are  not
sufficient to fund our current or planned  operations.  We  immediately  require
additional capital in order to sustain our current operations.

The  amount  of debt  due to  stockholders  was  $1,389,548  at June  30,  2002,
$1,274,000 at September 30, 2002 and $1,600,563.00 at December 2002.  Additional
stockholder  loans or  financing  from other  sources will be required for us to
continue our current operations.

We immediately  require substantial new revenues and other sources of capital in
order to meet our budgeted  expenditures and to continue our current operations.
We will be required to raise  funds  through  additional  means,  including  (1)
public or private  placements of our securities;  (2) additional  stockholder or
other loans; or (3) licensing our technology.  No assurance can be given that we
will be successful  in arranging  financing  through any of these  alternatives.
Failure to obtain such financing will require us to delay the  implementation of
our  business  plan or  substantially  curtail our  operations,  resulting  in a
material adverse effect on us.

ITEM 7 SELECTED FINANCIAL DATA

Index to Consolidated Financial Statements

                                                                Page No.

Independent Auditor's Report                                       2

Consolidated Balance Sheets                                        3

Consolidated Statements of Operations                              4

Consolidated Statement of Stockholders' Deficiency                 5

Consolidated Statement of Cash Flows                               6

Notes to Consolidated Financial Statements                         7




                                       13
<PAGE>

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

Livingston, Wachtell & Co., LLP the independent accountants that were previously
engaged as the principal accountant to audit the Company's financial statements,
declined  to perform  the audit for the fiscal  year ended  December  31,  2002,
because of the inability and unwillingness to perform auditing work in Hong Kong
and  China  during  the  continuing   health  hazard  there  from  severe  acute
respiratory  syndrome  (SARS).  KND & Co.,  CPA Limited has been  engaged by the
board of  directors to audit the  Company's  financial  statements  for the last
fiscal year.

The former  principal  accountants'  report on the financial  statements for the
fiscal year ended  December  31,  2000 did not  contain an adverse  opinion or a
disclaimer  of opinion and was not  modified as to  uncertainty,  audit scope or
accounting principles. The former principal accountants' report of the financial
statements  for the fiscal  year ended  December  31,  2001 did  contain a going
concern comment in respect of the Company's recurring losses from operations and
net  capital  deficiency,  did not contain a  disclaimer  of opinion but was not
modified as to uncertainty, audit scope or accounting principles.

There were no disagreements  with the former principal  accountant on any matter
of  accounting  principles  or  practices,  financial  statement  disclosure  or
auditing scope or procedure.  The registrant has authorized the former principal
accountant  to  respond  fully  to  any  inquiries  of  a  successor   principal
accountant.  The Company did not consult with any successor principal accountant
regarding any matter of accounting principles or practices,  financial statement
disclosure or auditing scope or procedure prior to any proposed engagement.

                                    PART III

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

Directors and Executive Officers of Minghua

The directors and executive officers of Minghua are as follows:

 Name             Age    Position
 ----             ---    --------

Li Chuquan         45    Chairman of the Board

Albert Wong        51    Director, Chief Executive Officer, Secretary and
                         Treasurer

Chan Kuen Kwong    40    Director

Li Jikuan          37    Director

Zhuo Wen-Zhi       32    Director

Li Chuquan, age 45, was appointed Chairman of the Board of Directors on June 23,
2001. Mr. Li, in addition to serving as Chairman of the Board of Minghua and the
Shenzhen  Minghua  Environmental  Protection  Vehicles  Co.,  Ltd,  also acts as
Chairman of the Minghua Real Estate (Shenzhen) Ltd. and other related companies.
Mr. Li also owns  various  businesses  engaged in  property  development,  hotel
operations  and trading.  Mr. Li's  primary  responsibilities  involve  business
acquisitions, business development and strategic planning. Prior to establishing
the Minghua  companies in the early  1990's,  he was general  manager of various
companies engaged in manufacturing, shipping, trading and service industries.



                                       14
<PAGE>

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

Chan Kuen Kwong,  age 40, became a director on August 2, 2001. He is responsible
for marketing and business  development  activities.  Mr. Chan held a 10% equity
interest in Ming Hua Group  International  Holding (Hong Kong) Ltd. prior to the
stock  purchase  agreement  entered into  between Mr. Li Chuquan,  Mr. Chan Kuen
Kwong, and Minghua  Acquisition  Corp. From October 1994 to March 2001, Mr. Chan
worked for KYW Steel Co Ltd as a sales manager.

Li Jikuan ,age 37,  became a director on October 16,  2002.  He is now acting as
the general  manager of  Securities & Investment  Dept.  of Minghua  Group.  and
secretary of board of directors of Hong Kong company and Shenzhen  company.  Mr.
Li achieved  master degree of economics from Nankai  University in China. He has
nine years of banking experience and three years managerial  experience in large
enterprise.

Zhuo Wen-Zhi,  age 32, became a director on August 2, 2001. Since 1999, Mr. Zhuo
has served as General Manager of ShenZhen MingHua Group.  From 1996 to 1999, Mr.
Zhuo was an officer in the Department of Social  Insurance and Assurance of Shan
Wei District, GuangDong Province.

Key Employees

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

Three technical patent (ZL00239941.5,  ZL00239940.7 and HK1031168) are filed and
owned by the  company.  The company has invited many  well-known  experts in the
electric  vehicle  field in China to join in the  business,  which has  directly
strengthened the research and developing force for the company.

Liao Cui Quan,  Assistant Chief Engineer.  prior to becoming the Assistant Chief
Engineer he was the technical manager of an electronics company. He was involved
in the making process of two proto type vehicle MH6720 and MH6120 and expertized
in real practice.


Members of the expert committee  include Wang King Lam, the Vice Director of the
Administration of Center China EV Test and Demostration  Zone; Chen Ching Chuen,
The Hong Kong  Institute  of  Engineers,  PhD,  DSc(Hon)  FREng FHKIE FIEEE FIEE
FHKEng RPE Academician CAE; Wan Chung Hung,  Deputy Director and Senior Engineer
of Guangdong EV Project Coordinating and Leading Group Officer.

Compliance with Section 16(a) of the Exchange Act

The Company has no  disclosure  to be made under  Section  16(a) of the Exchange
Act.


                                       15
<PAGE>




ITEM 10  EXECUTIVE COMPENSATION

The  following  table sets forth  information  concerning  all cash and non-cash
compensation  awarded to,  earned by or paid to  Minghua's  Chairman,  its Chief
Executive  Officer and each of the other  executive  officers whose total salary
and bonus exceeded  $100,000 and were serving at the end of our last fiscal year
December 31, 2002, for services in all capacities to Minghua,  its  subsidiaries
and predecessors.

<TABLE>
<CAPTION>
                                Annual Compensation                                Long-Term Compensation

                                                                  Awards                                Payout
                                                                                          Securities
                                                                                          Under-
                                                                                          lying         LTIP       All Other
Name and                                                Other Annual     Restricted       Options /     Payouts    Compensation
Principal           Year     Salary ($)      Bonus ($)  Compensation ($) Stock Award ($)  SARs          ($)        ($)
Position
<S>                 <C>          <C>                <C>          <C>          <C>          <C>          <C>        <C>
Li Chuquan            2002        120,000            0            0            0            0            0            0
Chairman

Albert Wong           2002     30,769 (a)            0            0            0            0            0            0
Chief Executive
Officer,
President,
Secretary and
Treasurer

Chan Kuen Kwong       2002         61,538            0            0            0            0            0            0
Director

Li Jikuan             2002     18,160 (a)            0            0            0            0            0            0
Director

Zhuo Wen-Zhi          2002     26,731 (a)            0            0            0                         0            0
Director
</TABLE>

----------
(a)      The salary was paid by shares on 27th November 2002 as follows:  Albert
         Wong 500,000 shares;  Zhou Wen-zhu 300,000 shares and Li Jikuan 300,000
         shares.


                                       16
<PAGE>



The  following  table sets forth the grant of stock options made during the year
ended December 31, 2002 to the persons named in the Summary Compensation Table:


                        OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
Name                           Number of            % of Total Options     Exercise        Expiration Date
                               Securities           Granted to in Fiscal   Price per
                               Underlying Options   Employees Period       Share
                               Granted
<S>                            <C>                  <C>                    <C>             <C>
Li Chuquan                     4,000,000 (a)        100%                   $1.75           July 11, 2006
</TABLE>



(a)      This  amount is  comprised  of a  non-qualified  stock  option  for the
         purchase of 2,000,000 shares of our common stock that was granted under
         our 2001 Stock Plan and a non-qualified  performance  stock option that
         was granted to Mr. Li outside of our stock plan for the  purchase of up
         to 2,000,000 shares of our common stock. The non-qualified stock option
         that was granted  under our 2001 Stock Plan is subject to the following
         vesting  schedule:  20% of the shares  underlying that option vested on
         January 1, 2002, an additional 20% of the shares underlying that option
         will vest on July 11,  2002 and  2.50% of the  shares  underlying  that
         option will vest on the first day of each month  beginning on August 1,
         2002. The non-qualified stock option that was granted to Mr. Li outside
         of our 2001 Stock Plan vests only when Minghua achieves annual revenues
         of $50,000,000 on a consolidated basis.


The following  table sets forth  information  with respect to unexercised  stock
options held by the persons named in the Summary  Compensation Table at December
31, 2002. No stock options were exercised in 2002 by those persons.

                 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                        AND FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
                        Number of Unexercised Options at Fiscal   Value of Unexercised in-
                        Year-End                                  the-Money Options at Fiscal Year-End($)
Name                    Exercisable          Unexercisable        Exercisable           Unexercisable
<S>                     <C>                  <C>                  <C>                   <C>
Li Chuquan              0                    4,000,000            0                     0
</TABLE>

Compensation of Directors

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

Employment Agreements

On April 16, 2002 we entered into an employment  agreement  with Mr. Albert Wong
as Chief Executive Officer.  The agreement expired on April 9, 2003 and has been
extended for a further year. Mr. Wong receives  monthly  compensation  under the
agreement equal to HK$20,000



                                       17
<PAGE>

(approximately  US$2,564) and is  reimbursed  for any expenses that he incurs on
behalf of Minghua USA. In addition,  on October 16, 2002, the Board of Directors
agreed to issue 500,000 shares of Minghua USA's common stock to Mr. Wong.

On June 20, 2002 we entered into a  consulting  agreement  with Citic  Worldwide
Limited was engaged as a consultant  to advise on the  acquisition  of Guangzhou
City View Bus  Installation  Company  Limited.  The Company agreed to compensate
Citic by issuing 800,000 shares of Common Stock to Citic Worldwide Limited.

2003 Stock Option Plan

The Board of Directors was on February 24, 2003 granted  4,000,000 stock options
to five directors, as follows: Mr. Li Chuquan, two million, and Mr. Albert Wong,
Mr. Chan Kuen Kwong, Mr. Li Jikuan,  and Mr. Zhuo Wenzhi,  500,000 stock options
each, to purchase shares of common stock of Minghua Group International Holdings
Limited at US $0.12 per share,  from March 1, 2003 to February 28, 2004.  During
this period, they may choose to exercise the right of purchasing common stock or
to waive the right no matter what the fair  market  stock price shall be at that
time. Partial purchasing is allowed. But once the right is exercised, the amount
of common stock purchased must not be sold within six months from the exercising
date.

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

The following table sets forth, as of December 31, 2002, the number of shares of
common stock owned of record and beneficially by executive  officers,  directors
and persons who hold 5% or more of the outstanding common stock of Minghua. Also
included are the shares held by all executive officers and directors as a group.

<TABLE>
<CAPTION>
Name and Address                                    Amount and Nature of    Percentage of Class
Of Beneficial Owner                                 Beneficial Ownership

<S>                                                    <C>                              <C>
Li Chuquan                                             33,700,000                       66.76%
c/o 10th Floor, Guangdong Bianfang Building, Fu
Jing Road, Fu Tian District, Shenzhen, People's
Republic of China

Albert Wong                                               500,000                        0.99%

Chan Kuen Kwong                                         2,800,000                        5.55%
c/o 10th Floor, Guangdong Bianfang Building, Fu
Jing Road, Fu Tian District, Shenzhen, People's
Republic of China

Li Jikuan                                                 300,000                        0.60%

Zhuo Wen-zhi                                              300,000                        0.60%

All Directors and Officers a Group (the 5 persons       37,600,000                       74.5%
named above)
</TABLE>


                                       18
<PAGE>


ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company has rented the office at 10th Floor, Guangdong Bianfang Building, Fu
Jing Road, Fu Tian District, Shenzhen, People's Republic of China. The office is
owned by Minghua Real Estate  (Shenzhen) Ltd. which is owned by a British Virgin
Island company whose sole shareholder is Li Chuquan.

ITEM 13 EXHIBITS AND REPORTS ON FORM 8-K

(a)    Financial Statements

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

       Exhibits

       Exhibit
       Number     Description

         10.1     Guangzhou City View Bus Installation Company Limited Agreement
                  [Incorporated  by  reference  to Exhibit  10.1 of the Form 8-K
                  filed by Minghua on March 28, 2003]

         10.2     Kingsrich Development Limited Loan Agreement  [Incorporated by
                  reference  to Exhibit 10.2 of the Form 8-K filed by Minghua on
                  March 28, 2003]

         10.3     Kingsrich  Development  Limited  Convertible  Promissory  Note
                  [Incorporated  by  reference  to Exhibit  10.3 of the Form 8-K
                  filed by Minghua on March 28, 2003]


(b) Reports on Form 8-K

       A  Current  Report on Form 8-K  dated  March 28,  2003 was filed by the
       Company  with the  Securities  and  Exchange  Commission  to report the
       acquisition of Guangzhou City View Bus Installation Company Limited.

       A  Current  Report  on Form 8-K  dated  April  15,  2003 was filed by the
       Company with the Securities and Exchange  Commission to report the change
       of certifying accountant.

ITEM 14 CONTROLS AND PROCEDURES

Based on the  evaluation of the  Company's  disclosure  controls and  procedures
adopted within 90 days of the filing date of this report,  the management of the
Company is of the view that such controls and procedures are effective.

During the past fiscal year,  there were no significant  changes in the internal
controls of the Company or other factors that could  significantly  affect these
controls subsequent to the date of evaluation.


                                       19
<PAGE>

                                   SIGNATURES

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

                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED



                               By: /s/ Albert Wong
                               ----------------------------------------
                               Name: Albert Wong
                               Title: Director, Chief Executive Officer


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

   SIGNATURE              CAPACITY                               DATE
   ---------              --------                               ----

 /s/ Li Chuquan           Chairman of the
 ----------------------   Board of Directors                     April 15, 2003
 Li Chuquan



 /s/ Albert Wong          Director, Chief Executive Officer,     April 15, 2003
 ----------------------
 Albert Wong



 /s/ Chan Kuen Kwong      Director                               April 15, 2003
 ----------------------
 Chan Kuen Kwong



 /s/ Li Jikuan            Director                               April 15, 2003
 ----------------------
 Li Jikuan



 /s/ Zho Wen-zhi          Director                               April 15, 2003
 ----------------------
 Zho Wen-Zhi




                                       20
<PAGE>

I, Albert Wong, certify that:



1. I am the Chief  Executive  Officer of Minghua  Group  International  Holdings
Limited have  reviewed  this  quarterly  report on Form 10-KSB of Minghua  Group
International Holdings Limited;

2.  Based on my  knowledge,  this  annual  report  does not  contain  any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statement  made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  conditions,  results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.  The  registrant's  other  certifying  officers  and  I are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed  such  disclosure  controls and  procedures  to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others  within those  entities,  particularly  during the
period in which this quarterly report is being prepared;

b) evaluated  the  effectiveness  of the  registrant's  disclosure  controls and
procedures  as of a date  within  90  days  prior  to the  filing  date  of this
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the effectiveness of
the  disclosure  controls  and  procedures  based  on our  evaluation  as of the
Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

a) all significant  deficiencies in the design or operation of internal controls
which  could  adversely  affect the  registrant's  ability  to record,  process,
summarize and report  financial data and have  identified  for the  registrant's
auditors any material weaknesses in internal controls; and

b) any  fraud,  whether  or not  material,  that  involves  management  or other
employees who have a significant role in the registrant's internal controls; and

6. The  registrant's  other  certifying  officers  and I have  indicated in this
quarterly  report  whether or not there  were  significant  changes in  internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of our most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: April 15, 2003

/s/ Albert Wong
------------------------
Albert Wong



                                       21
<PAGE>





BRANCH OFFICE                                                  TEL 212-840-2595
20 LEBANON ROAD                                                FAX 212-840-7239
SCARSDALE, NY 10583-7122                                       www.lwccpa.com
914-723-3376

                         Livingston, Wachtell & Co., LLP
                          CERTIFIED PUBLIC ACCOUNTANTS
                           1140 avenue of the americas
                             NEW YORK, NY 10036-5803

LEONARD L. EIGER, C.P.A.                  AY J. LIVINGSTON, C.P.A. (1919-1972)
SAM BECKER, C.P.A.                        JHEODORE WACHTELL, C.P.A. (1919-1966)
IRA E. COHEN, C.P.A.                      TERBERT H. REYBURN, C.P.A. (1934-1985)
JAMES R. GRIMALDI, C.P.A.                 IHRVING ZUCKERMAN, C.P.A. (1965-1985)
LAWRENCE GOLDMAN, C.P.A.


                          INDEPENDENT AUDITORS' REPORT

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

We have audited the  accompanying  consolidated  balance sheets of Minghua Group
International  Holdings Limited (a development stage company) as of December 31,
2001  and  2000  and  the  related   consolidated   statements  of   operations,
stockholders'  deficiency  and cash flows for the years ended  December 31, 2001
and 2000 and from June 4, 1997 (Inception) to December 31, 2001. These financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the  consolidated  financial  position of Minghua Group
International  Holdings Limited (a development stage company) as of December 31,
2001 and 2000, and the consolidated results of its operations and its cash flows
for the years ended December 31, 2001 and 2000 and from June 4, 1997 (Inception)
to December  31,  2001,  in  conformity  with  accounting  principles  generally
accepted in the United States of America.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
financial statements,  the Company has suffered recurring losses from operations
and has a net capital deficiency that raises substantial doubt about its ability
to continue as a going  concern.  Management's  plans in regard to these matters
are also  described  in Note 1. The  consolidated  financial  statements  do not
include any adjustments that might result from the outcome of this uncertainty.

/s/Livingston, Wachtell & Co., LLP
New York, New York
March 25, 2002

                                       22
<PAGE>

                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)

                                DECEMBER 31, 2002



                                    I N D E X


                                                         PAGE NO.
                                                         --------


INDEPENDENT AUDITORS' REPORT                                2



CONSOLIDATED BALANCE SHEETS                                 3



CONSOLIDATED STATEMENTS OF OPERATIONS                       4



CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY          5



CONSOLIDATED STATEMENTS OF CASH FLOWS                       6



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS              7




                                       1
<PAGE>



                          INDEPENDENT AUDITORS' REPORT

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

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

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the  consolidated  financial  position of Minghua Group
International  Holdings Limited (a development stage company) as of December 31,
2002 and the  consolidated  results of its operations and its cash flows for the
year ended  December 31, 2002 and the periods from June 4, 1997  (Inception)  to
December 31, 2002, in conformity with accounting  principles  generally accepted
in the United States of America.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
financial statements,  the Company has suffered recurring losses from operations
and has a net capital deficiency that raises substantial doubt about its ability
to continue as a going  concern.  Management's  plans in regard to these matters
are also  described  in Note 1. The  consolidated  financial  statements  do not
include any adjustments that might result from the outcome of this uncertainty.



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



                                       2
<PAGE>

                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)


                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                  December 31,
                                                                      2002                  2001
                                                                  ------------          ------------
                          Assets
Current assets
<S>                                                               <C>                   <C>
     Cash                                                         $      6,426          $     34,055
     Due from related companies                                         95,791                95,787
     Prepaid expenses and other current assets                         217,514               223,854
                                                                  ------------          ------------

           Total Current Assets                                        319,731               353,696
                                                                  ------------          ------------

Property, plant and equipment - at cost                                662,035               748,308
     Less: accumulated depreciation                                   (221,132)             (150,382)
                                                                  ------------          ------------

                                                                       440,903               597,926
                                                                  ------------          ------------
Intangible asset - net
     Patent rights                                                     295,714               295,714
                                                                  ------------          ------------

           Total Assets                                           $  1,056,348          $  1,247,336
                                                                  ============          ============


            Liabilities and Stockholders' Deficiency

Current liabilities
     Note payable - bank                                          $    644,056          $    649,466
     Accrued liabilities                                             1,646,755               624,147
     Due to stockholder                                              1,707,981               984,177
                                                                  ------------          ------------

           Total current liabilities                                 3,998,792             2,257,790
                                                                  ------------          ------------

           Total liabilities                                         3,998,792             2,257,790
                                                                  ------------          ------------

Commitments and Contingencies

Stockholders' Deficiency
     Common stock                                                      504,823               484,692
     Additional paid in capital                                     11,490,595            10,877,165
     Deficit accumulated during the development stage              (14,863,301)          (12,372,311)
                                                                  ------------          ------------

                                                                    (2,867,883)           (1,010,454)
     Less: stock subscription receivable                               (74,561)                   --
                                                                  ------------          ------------

           Total stockholders' deficiency                           (2,942,444)           (1,010,454)
                                                                  ------------          ------------

           Total liabilities and stockholders' deficiency         $  1,056,348          $  1,247,336
                                                                  ============          ============
</TABLE>

              See notes to the consolidated financial statements.



                                       3
<PAGE>

                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)


                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                        Cumulative Amounts
                                                                                          Since Inception,
                                                       Years Ended December 31,            June 4,1997 To
                                                 ----------------------------------          December 31,
                                                     2002                  2001                  2002
                                                 ------------          ------------          ------------
Cost and expenses
<S>                                              <C>                   <C>                   <C>
     General and administrative expenses         $  2,590,384          $  2,391,514          $  6,229,862
     Research and development costs                   116,554                46,445             8,775,729
                                                 ------------          ------------          ------------

Operating loss                                     (2,706,938)           (2,437,959)          (15,005,591)


Other income (expense)
    Other income                                      296,548               296,548
     Interest expense                                 (80,600)              (54,359)             (154,258)
                                                 ------------          ------------          ------------

         Net loss                                $ (2,490,990)         $ (2,492,318)         $(14,863,301)
                                                 ============          ============          ============


  Loss per share of common stock:

  Basic and diluted                              $       (.05)         $       (.07)
                                                 ============          ============
</TABLE>


              See notes to the consolidated financial statements.


                                       4
<PAGE>

                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)


               CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
                   INCEPTION JUNE 4, 1997 TO DECEMBER 31, 2002

<TABLE>
<CAPTION>

                                                                       Common Stock                    Common Stock
                                                                     $.12834 Par Value                $.01 Par Value
                                                                     -----------------                --------------
                                                                   Shares         Amount          Shares         Amount
                                                               ------------    ------------    ------------   ------------
<S>                                                                  <C>       <C>                            <C>
Common stock issued - June 4, 1997                                   10,000    $      1,283              --   $         --
    Net loss for the period                                              --              --              --             --
                                                               ------------    ------------    ------------   ------------
Balance - December 31, 1997                                          10,000           1,283              --             --
    Net loss for the year                                                --              --              --             --
                                                               ------------    ------------    ------------   ------------
Balance - December 31, 1998                                          10,000           1,283              --             --
    Shares issued at par value March 30, 1999                       990,000         127,057              --             --
    Net loss for the year                                                --              --              --             --
                                                               ------------    ------------    ------------   ------------
Balance - December 31, 1999                                       1,000,000         128,340              --             --
    Net loss for the year                                                --              --              --             --
                                                               ------------    ------------    ------------   ------------
Balance - December 31, 2000                                       1,000,000         128,340              --             --
    Shares issued at $.20 - April 5                                      --              --         385,685          3,857
    Shares issued at $.20 - April 17                                     --              --       7,500,000         75,000
    Shares issued at par value - June 22                                 --              --      28,000,000        280,000
    Recapitalization - June 22*                                  (1,000,000)       (128,340)      3,600,000         36,000
    Dividend paid - June 22                                              --              --              --             --
    Shares issued at $2.00 -  July 23                                    --              --         473,500          4,735
    Shares issued at $2.00 -  October 1                                  --              --          10,000            100
    Shares issued - per debt for equity exchange agreement**
       - December 26 issuance                                            --              --       8,500,000         85,000
    Capital contributed - debt to equity conversion -
       December 26                                                       --              --              --             --
    Net loss for the year                                                --              --              --             --
                                                               ------------    ------------    ------------   ------------
Balance - December 31, 2001                                              --              --      48,469,185        484,692
Shares issued at $.20 - February 20                                      --              --         372,807          3,728
Shares issued at par - cashless exercise of stock
    options - April 24                                                   --              --         540,260          5,403
Shares issued at $.13 -
    For services rendered November 27                                    --              --       1,100,000         11,000
    Net loss for the year                                                --              --              --             --
                                                               ------------    ------------    ------------   ------------

Balance - December 31, 2002                                              --    $         --      50,482,252   $    504,823
                                                               ============    ============    ============   ============


<CAPTION>
                                                                                   Deficit
                                                                                 Accumulated
                                                                 Additiional      During the
                                                                    Paid In       Development    Subscription
                                                                    Capital          Stage        Receivable
                                                                 ------------    ------------    ------------
<S>                                                              <C>             <C>             <C>
Common stock issued - June 4, 1997                               $         --    $         --    $         --
    Net loss for the period                                                --            (289)             --
                                                                 ------------    ------------    ------------
Balance - December 31, 1997                                                --            (289)             --
    Net loss for the year                                                  --          (3,209)             --
                                                                 ------------    ------------    ------------
Balance - December 31, 1998                                                --          (3,498)             --
    Shares issued at par value March 30, 1999                              --              --              --
    Net loss for the year                                                  --            (302)             --
                                                                 ------------    ------------    ------------
Balance - December 31, 1999                                                --          (3,800)             --
    Net loss for the year                                                  --      (9,876,193)             --
                                                                 ------------    ------------    ------------
Balance - December 31, 2000                                                --      (9,879,993)             --
    Shares issued at $.20 - April 5                                    73,280              --              --
    Shares issued at $.20 - April 17                                1,425,000              --              --
    Shares issued at par value - June 22                                   --              --              --
    Recapitalization - June 22*                                      (498,280)             --              --
    Dividend paid - June 22                                        (1,000,000)             --              --
    Shares issued at $2.00 -  July 23                                 942,265              --              --
    Shares issued at $2.00 -  October 1                                19,900              --              --
    Shares issued - per debt for equity exchange agreement**
       - December 26 issuance                                       8,415,000              --              --
    Capital contributed - debt to equity conversion -
       December 26                                                  1,500,000              --              --
    Net loss for the year                                                  --      (2,492,318)             --
                                                                 ------------    ------------    ------------
Balance - December 31, 2001                                        10,877,165     (12,372,311)             --
Shares issued at $.20 - February 20                                    70,833              --         (74,561)
Shares issued at par - cashless exercise of stock
    options - April 24                                                410,597              --              --
Shares issued at $.13 -
    For services rendered November 27                                 132,000              --              --
    Net loss for the year                                                  --      (2,490,990)             --
                                                                 ------------    ------------    ------------

Balance - December 31, 2002                                      $ 11,490,595    $(14,863,301)   $    (74,561)
                                                                 ============    ============    ============
</TABLE>

*See  Footnote  1  regarding  recapitalization  of Minghua  Group  International
Holding (Hong Kong) Limited
**See Footnote 1 regarding debt to equity conversion of stockholder's loan


               See notes to the consolidated financial statements.


                                       5
<PAGE>


                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                Cumulative
                                                                                               Amounts Since
                                                                                                 Inception
                                                                                               June 4, 1997 To
                                                                  Years Ended December 31,       December 31,
                                                                 --------------------------------------------
                                                                     2002            2001            2002
                                                                 ------------    ------------    ------------
Cash Flows From Operating Activities
<S>                                                              <C>             <C>             <C>
     Net loss                                                    $ (2,490,990)   $ (2,492,318)   $(14,863,301)
     Adjustments to reconcile net loss to net cash provided by
     operating activities:
         Depreciation                                                  77,058          34,127         163,074
         Common stock issued for services                             559,000              --         559,000
         Loss on disposition of assets                                146,621              --         252,396
         Research and development expenses recorded in
              reorganization*                                              --              --       8,612,730
         Reorganization expenses recorded in reorganization*               --              --         455,830
         Changes in operating assets and liabilities:
                                                                                                     (115,935)
              Prepaid expenses and other assets                         6,340        (656,360)
              Accrued liabilities                                   1,022,608         602,534       1,887,255
                                                                 ------------    ------------    ------------

     Net cash used in operating activities                           (679,363)     (1,971,592)     (3,589,376)
                                                                 ------------    ------------    ------------

Cash Flows From Investing Activities
     Reorganization - net of cash acquired                                 --              --        (320,579)
     Purchase of patent rights                                             --        (295,714)       (295,714)
     Purchases of property and equipment                              (66,656)       (517,642)       (920,739)
                                                                 ------------    ------------    ------------

     Net cash used in investing activities                            (66,656)       (813,356)     (1,537,032)
                                                                 ------------    ------------    ------------

Cash Flows From Financing Activities
     Due to stockholders and related parties - net**                  723,800         239,856       1,944,641
     Proceeds from issuance of common stock**                              --       3,544,137       3,544,137
     Dividend paid                                                         --      (1,000,000)     (1,000,000)
     Notes payable - bank - net                                        (5,410)        (41,875)        644,056
                                                                 ------------    ------------    ------------

     Net cash provided by financing activities                        718,390       2,742,118       5,132,834
                                                                 ------------    ------------    ------------

Net increase (decrease) in cash                                       (27,629)        (42,830)          6,426

Cash - beginning of period                                             34,055          76,885              --
                                                                 ------------    ------------    ------------

Cash - end of period                                             $      6,426    $     34,055    $      6,426
                                                                 ============    ============    ============
</TABLE>

*See footnotes 3 and 12 regarding reorganization of Ming Hua Group International
Holdings (Hong Kong) Limited and Subsidiaries.
**See footnote 1 regarding debt to equity conversion of stockholder's loan.
*** See footnote 4 regarding  cashless stock options  exercised  during the year
ended December 31, 2002.


               See notes to the consolidated financial statements.

                                       6
<PAGE>


                  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,  ("Minghua  USA"),  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.

      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 newly-formed  subsidiary,  Minghua  Acquisition  Corp., a Delaware
      Corporation  ("Acquisition  Corp."),  incorporated June 2001, acquired all
      the outstanding stock of Ming Hua Group International  Holding (Hong Kong)
      Limited ("Minghua Hong Kong"), a corporation  incorporated  under the laws
      of the Hong Kong Special  Administrative Region of the Peoples Republic of
      China on June 4, 1997.

      On June 22,  2001,  Minghua USA  acquired  all the  outstanding  shares of
      Minghua  Hong Kong,  whose sole  asset is an 85%  equity  interest  in the
      Shenzhen  Minghua  Environmental  Protection  Vehicle Co., Ltd.  ("Minghua
      China"),  a  Peoples  Republic  of China  corporation,  (collectively  the
      "Company").  The  transaction  was  effected by paying to the Minghua Hong
      Kong stockholders $1,000,000 and issuing 28,000,000 additional Minghua USA
      common shares that resulted in the Minghua Hong Kong  shareholders  owning
      approximately  70% of the  outstanding  shares of  Minghua  USA and having
      control of Minghua USA after this  transaction.  The  remaining 15% equity
      interest in Minghua China is owned by Minghua Real Estate  (Shenzhen)  Ltd
      (formerly known as Minghua Investment Co., Ltd. ("Minghua Real Estate").

      For  financial  reporting  purposes,  this  transaction  was recorded as a
      recapitalization  of Minghua Hong Kong.  Minghua Hong Kong is deemed to be
      the  continuing,  surviving  entity for accounting  purposes,  but through
      reorganization,  has  deemed to have  adopted  the  capital  structure  of
      Minghua USA.

      A summary of assets and liabilities  that, for accounting  purposes,  were
      deemed to have been  acquired  by Minghua  Hong Kong from  Minghua  USA at
      estimated fair market value as of the date of acquisition  (June 22, 2001)
      was as follows:

      Total assets                                         $      1,155,013
      Total liabilities                                               6,810
                                                           ----------------

      Fair market value of Minghua USA                     $      1,148,203
                                                           ================

      Accordingly,  all  references  to shares of Minghua Hong Kong common stock
      have been restated to reflect the equivalent number of Minghua USA shares.
      In other words,  the 1,000,000  Minghua Hong Kong shares  outstanding  are
      restated as 28,000,000 common shares, as of June 22, 2001.



                                       7
<PAGE>

                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.    BUSINESS DESCRIPTION AND ORGANIZATION (Continued)

      NAME CHANGE AND REORGANIZATION (Continued)

      TECHNOLOGY

      Minghua China is the owner of patented technology  ("Technology") relating
      to hybrid vehicles powered by a combination of a combustion  diesel engine
      and an electric power system.  Minghua China  produced a prototype  hybrid
      vehicle  ("Minghua Hybrid Vehicle") in 2000 and will initially  attempt to
      sell the Minghua  Hybrid  Vehicle to the public  transportation  market in
      China.  Minghua China has not made any sales of Minghua Hybrid Vehicles to
      date.  All  manufacturing  by Minghua China of the Minghua  Hybrid Vehicle
      will be done in China.  Minghua  Hong Kong and Minghua  China have entered
      into   preliminary   (non-binding)   agreements   with  two  companies  to
      manufacture the Minghua Hybrid Vehicle.  The Company's future intent is to
      license its technology to other countries.

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

      CAPITAL RESOURCES AND BUSINESS RISKS

      The Company remains in the development stage and all future operations are
      subject  to all of  the  risks  inherent  in  the  establishment  of a new
      business  enterprise.  At December 31, 2002 and December 31, 2001, current
      liabilities   exceeded   current  assets  by  $3,679,061  and  $1,904,094,
      respectively. Additional capital resources through future new offerings of
      securities  will be needed in order to accomplish  the  Company's  present
      marketing,  technology  development and  manufacturing  plans. The Company
      plans on making  the  following  expenditures:  i)  obtaining  a  domestic
      vehicle manufacturing  facility (ii) producing hybrid vehicles in 2003 and
      (iii) advertising and marketing.  The  manufacturing  facilities and other
      operations  in China,  as well as the  business  financial  condition  and
      results of operations are, to a significant  degree,  subject to economic,
      political  and  social  events  in China.  The  outbreak  of Severe  Acute
      Respiratory  Syndrome (SARS) has been reported in Hong Kong and China. The
      spread of the virus may have a future  impact on the  company's  business,
      financial condition and results of operations.

      The Company  expects to make further  investments  in China in the future.
      Therefore, the business, financial condition and results of operations are
      to a significant  degree subject to economic,  political and social events
      in China. The limited  performance  history of hybrid powered vehicles and
      the emerging nature of the target markets makes  forecasting  future sales
      unpredictable  and cause  operating  results to fluctuate  from quarter to
      quarter.



                                       8
<PAGE>

                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.    BUSINESS DESCRIPTION AND ORGANIZATION (Continued)

      CAPITAL RESOURCES AND BUSINESS RISKS

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

      CONTROL BY PRINCIPAL STOCKHOLDERS

      The directors,  executive  officers and their  affiliates own beneficially
      and in the aggregate,  the majority of the voting power of the outstanding
      shares of the common stock of the  Company.  Accordingly,  the  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.

      RELATED PARTY STOCK TRANSACTIONS AND OTHER STOCK TRANSACTIONS

      On April 2, 2001,  a former  director  and  officer of Minghua USA entered
      into a Stock Purchase Agreement with Elie Saltoun, Director of Minghua USA
      (then  named  Panagra),  in which  2,195,878  shares of common  stock were
      purchased  from Mr.  Saltoun and his  affiliates  for $180,000,  using his
      personal funds.

      On April 2, 2001,  the Company also  entered  into a consulting  agreement
      with First Pacific Capital Ltd.  ("First  Pacific")  pursuant to which the
      Company retained First Pacific as a consultant. First Pacific is obligated
      to cause Mr.  Saltoun,  an employee  of First  Pacific,  to perform  First
      Pacific's obligations under the agreement. Under the consulting agreement,
      First Pacific agrees to provide information  regarding the Company's prior
      operations,  act as a liaison between the Company and its stockholders and
      other third parties  having  business  relationships  with the Company and
      respond to inquiries made by the officers and directors of the Company. In
      consideration  for providing such services,  the Company  granted to First
      Pacific a warrant to purchase 500,000 shares of the Company's common stock
      at an  exercise  price of $.20  per  share.  The  warrant  has a  cashless
      exercise  feature.  The  warrant  is  subject  to  the  following  vesting
      schedule: The warrant becomes exercisable to purchase 41,667 of the shares
      of  common  stock  underlying  the  warrant  on  first  day of each  month
      commencing  May 1, 2001 so long as First  Pacific does not  terminate  the
      consulting agreement; provided, however,



                                       9
<PAGE>

                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    BUSINESS DESCRIPTION AND ORGANIZATION (Continued)

      RELATED PARTY STOCK TRANSACTIONS AND OTHER STOCK TRANSACTIONS
      (Continued)

      that if the Company  terminates the  consulting  agreement for any reason,
      then the warrant would automatically  become 100% vested on an accelerated
      basis as of the date of termination.  On February 20, 2002,  First Pacific
      exercised its warrants and 372,807 shares were purchased and issued.

      On April 5, 2001,  Minghua USA entered into a letter  agreement with First
      Pacific Capital Ltd. and its affiliates  ("First  Pacific")  regarding the
      repayment of a $77,137  stockholder  loan made by First Pacific to Minghua
      USA.  Pursuant  to such letter  agreement,  Minghua USA agreed to issue to
      First Pacific 385,685 shares of common stock in full  satisfaction of such
      stockholder  loan.  The shares  represent  $77,137  worth of Minghua USA's
      common stock calculated as of the date of the letter agreement (i.e., $.20
      per share). First Pacific granted Minghua USA a general release (including
      a release for the  stockholder  loan) in the letter  agreement in exchange
      for such shares.

      On April 17, 2001, Minghua USA closed on the first private placement of an
      aggregate  7,500,000  shares of its  common  stock  with  aggregate  gross
      proceeds to Minghua USA (before  expenses) of  $1,500,000.  $70,000 of the
      proceeds of the private placement was raised from the sale of common stock
      to  accredited  investors  in  transactions  exempt from the  registration
      requirements  of the  Securities  Act of  1933,  as  amended  pursuant  to
      Regulation D  promulgated  thereunder.  The  remaining  $1,430,000  of the
      proceeds of the private placement was raised from the sale of common stock
      to  non-U.S.   persons  in  transactions   exempt  from  the  registration
      requirements  of the  Securities  Act of  1933,  as  amended  pursuant  to
      Regulation S promulgated thereunder.

      On June 22, 2001, 28,000,000 shares of common stock were issued,  pursuant
      to a stock purchase  agreement with Mr. Chuquan Li, (Chairman of the Board
      of Directors as of June 23, 2001) and Mr. Quan Guang Chen  (Director as of
      August  2,  2001)  (collectively,   the  "Sellers").  The  stock  purchase
      agreement,  signed April 27, 2001,  was between  Minghua USA,  Acquisition
      Corp.  and the  Sellers for their  stock  interest  in Minghua  Hong Kong.
      Pursuant  to the  agreement,  Acquisition  Corp.  paid  $1,000,000  to the
      Sellers and delivered 28,000,000 shares of Minghua USA common stock to the
      Sellers.  Minghua  USA  funded  the cash  amount  and issued the shares on
      behalf of Acquisition Corp. as a capital contribution to Acquisition Corp.

      Upon the closing of the stock  purchase  agreement  with the Sellers,  Mr.
      Chuquan Li obtained a controlling interest in Minghua USA and Minghua USA,
      indirectly,  through  Acquisition Corp. and Minghua Hong Kong,  obtained a
      controlling interest in Minghua China.

      During the period from July 23, 2001 through  December  31, 2001,  Minghua
      USA raised  $967,000 in gross  proceeds  through the private  placement of
      483,500 shares of its common stock  ($2.00/share)  under  Regulation S and
      Regulation D of the Securities Act.



                                       10
<PAGE>


                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.    BUSINESS DESCRIPTION AND ORGANIZATION (Continued)

      RELATED PARTY STOCK TRANSACTIONS AND OTHER STOCK TRANSACTIONS
      (Continued)

      On August 2, 2001, an amendment to the  certificate of  incorporation  was
      made, increasing the authorized shares of common stock of Minghua USA from
      40,000,000 shares to 200,000,000 shares.

      Pursuant to a Placement  Agency  Agreement with Chicago  Investment  Group
      Incorporated,  a registered broker dealer,  the gross proceeds of $967,000
      raised by Minghua  USA during  this  period from July 23, 2001 to December
      31, 2001, were initially placed into an escrow account. Chicago Investment
      Group is entitled to a ten percent (10%)  commission on all amounts raised
      by Minghua USA in the private placement. Accordingly, $96,700 was paid out
      of the escrow account to Chicago Investment Group.

      STOCKHOLDERS' DEBT FOR EQUITY CONVERSION AGREEMENT

      On December 11, 2001,  Mr.  Chuquan Li agreed to receive  stock in Minghua
      USA and Minghua Real Estate in exchange to discharge  Minghua China's debt
      obligation to repay him $10 million. Minghua USA issued 8.5 million shares
      of its  common  stock  value at $1  (average  stock  price over the 20 day
      period prior to the  agreement)  worth $8.5 million.  The  remaining  $1.5
      million obligation was converted to $1.5 million of equity in Minghua Real
      Estate and was accounted for as additional paid in capital by Minghua Real
      Estate to  Minghua  China.  See also notes 2 and 3  relating  to  minority
      interest.


2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

      The consolidated  financial statements for all periods presented,  include
      the financial  statements of Minghua USA,  Acquisition Corp., Minghua Hong
      Kong,   Keytop  Holdings  Limited  and  Minghua  China.  The  consolidated
      statements  have been prepared in accordance  with  accounting  principles
      generally  accepted  in the  United  States of  America.  All  significant
      intercompany transactions have been eliminated.  Certain reclassifications
      have been made to financial  information  for the prior year to conform to
      the current year's presentation.



                                       11
<PAGE>

                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

      PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION (Continued)

      The Company has  determined  The Peoples  Republic of China  Chinese  Yuan
      Renminbi to be the  functional  currency of Minghua  China.  There were no
      gains or losses recognized as a result of translating  foreign  currencies
      to the U.S.  dollars due to the  stability  of the  currency  in 2001.  No
      assurance however,  can be given as to the future valuation of the foreign
      currencies  and how  further  movements  in the foreign  currencies  could
      affect future earnings of the Company.

      The balance sheets of Minghua Hong Kong and Minghua China were  translated
      at period end exchange rates. The accompanying consolidated balance sheets
      include net  liabilities  of $2,821,288  and  $1,188,573,  relating to the
      Company's  foreign  facilities  in the  People's  Republic  of  China,  at
      December 31, 2002 and 2001,  respectively.  Expenses  were  translated  at
      exchange  rates in effect during the year,  substantially  the same as the
      period end rates.

      MINORITY INTEREST IN SUBSIDIARIES

      The Company records minority interest expense,  which reflects the portion
      of the earnings of Minghua  China,  which are  applicable  to Minghua Real
      Estate, which is controlled by Mr. Chuquan Li (15% - December 31, 2002 and
      2001). The  stockholders are not required to fund the Company's  deficits,
      therefore,  no minority  interest in subsidiaries was recorded at December
      31, 2002 and 2001. See also notes 1 and 3 relating to 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.



                                       12
<PAGE>

                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

      SIGNIFICANT ESTIMATES

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

      REVENUE RECOGNITION

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

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

      CASH AND CASH EQUIVALENTS

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

      PROPERTY AND EQUIPMENT

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

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




                                       13
<PAGE>

                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

      PROPERTY AND EQUIPMENT (Continued)

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

                                                                   Estimated
                                                                 Useful Lives

       Machinery and equipment                                      5 years
       Transportation and delivery equipment                        3 years
       Office and computer software and equipment                   5 years

      INTANGIBLE ASSET

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

      Intangible asset (patent rights) will be amortized when placed in service,
      using the  straight-line  method over 10 years.  The Company  examines the
      carrying  value of its  intangible  assets to  determine  if there are any
      impairment  losses. If indicators of impairment were present in intangible
      assets used in  operations  and future cash flows were not  expected to be
      sufficient to recover the assets'  carrying  amount,  an  impairment  loss
      would be charged to  expense in the period  identified.  No event has been
      identified  that would  indicate an  impairment of the value of intangible
      assets recorded in the accompanying consolidated financial statements.

      Components  of the  caption  Intangible  Assets - net in the  consolidated
      balance sheets at December 31, 2002 and 2001 consisted of:


                                    Years ended December 31,
                                      -------------------
                                        2002       2001
                                      --------   --------

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

     Total intangible assets - net    $295,714   $295,714
                                      ========   ========


                                       14
<PAGE>

                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

      INTANGIBLE ASSET (Continued)

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

      ADVERTISING COSTS

      All costs associated with advertising and promoting the buses are expensed
      in the period incurred.  Advertising  expense was $16,356 and $202,902 for
      the years ended December 31, 2002 and 2001, respectively.

      INCOME TAXES

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

      The  Company  is  currently  in the  development  stage  and  has  not yet
      commenced  an active  trade or  business,  therefore,  the Company did not
      provide any current or deferred  income tax  provision  or benefit for any
      periods  presented to date  because it has  experienced  operating  losses
      since inception.

      For tax  purposes,  Minghua  USA was  required  to  defer  start  up costs
      incurred  prior to its  merger  with  Minghua  Hong  Kong.  To date  these
      deferred  costs  total  approximately  $935,000.  These  costs  are  being
      amortized over a 60 month period.

      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,  2002 and 2001  were $  116,554  and $
      46,445, respectively.

      RELATED PARTY AND STOCKHOLDER'S LOANS

      The  caption  "Due  to   Stockholders"   are  loans  that  are  unsecured,
      non-interest  bearing  and have no fixed  terms of  repayment,  therefore,
      deemed  payable  on  demand.  The  caption  "Due from  Related  Companies"
      consists primarily of prepaid rent on office space in Shenzhen China.

      During the year ended December 31, 2002, the Company provided  consultancy
      services  to Minghua  Real Estate at the  request of its  stockholder  Mr.
      Chuquan Li, in the amount of $269,231.  The  receivable for these services
      is included on the balance sheet in "Due to Stockholder."


                                       15
<PAGE>

                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

      LOSS PER SHARE

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

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

<TABLE>
<CAPTION>
                                                        Years ended December 31,
                                                    -------------------------------
                                                         2002             2001
                                                    ---------------    ------------
<S>                                                 <C>                <C>
NUMERATOR FOR BASIC AND DILUTED LPS
                  Net loss to common shareholders   $     2,490,990    $  2,492,318
                                                    ===============    ============

DENOMINATOR FOR BASIC AND DILUTED LPS
          Weighted average shares of common stock
              outstanding                                49,269,403      37,115,687
                                                    ===============    ============

LPS - Basic and diluted                             $          (.05)   $       (.07)
                                                    ===============    ============
</TABLE>


      No dilution resulted from the 6,000,000 employee stock options outstanding
      at December 31, 2002 and 2001 because of the net loss.

      EQUITY BASED COMPENSATION

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

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

      COMPREHENSIVE LOSS

      The  Company,  under SFAS No.  130,  is  required to report the changes in
      shareholders' equity from all sources during the period, including foreign
      currency   translation   adjustments.   The  amount  of  foreign  currency
      translation  gain or loss for the years ended  December  31, 2002 and 2001
      was not material.



                                       16
<PAGE>

                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


3.    ACQUISITION OF A SUBSIDIARY

      Minghua Hong Kong acquired 70% of the  outstanding  common stock shares of
      Minghua China, on July 16, 2000 for $793,270.  This stock  acquisition has
      been accounted for as a transfer of net assets under common control,  with
      Minghua China's assets and liabilities transferred to Minghua Hong Kong at
      their historical  carrying  values.  Included in the assets deemed to have
      been received by Minghua Hong Kong was the patent, (which had earlier been
      transferred  to Minghua China by Minghua Hong Kong's  stockholders)  which
      had no historical cost basis.  Included in the  liabilities  received from
      Minghua China was a non-interest bearing loan payable of $9,108,327 to the
      Minghua  Hong Kong  stockholders  for the  benefits  of the  Research  and
      Development  expenditures they incurred.  The net liabilities  recorded at
      the date of the  transaction  amounted to  $8,275,290.  Combined  with the
      $793,270  cash paid the total  decrease in net assets was  $9,068,560.  Of
      this  amount,  $8,612,730,  equal to the  amounts  spent on  research  and
      development by the Minghua Hong Kong  shareholders  to develop the patent,
      was recorded as research and development  expense.  The remaining $455,830
      was recorded in general and administrative  expenses as reorganization and
      other  expenses.   Because  Minghua  China  had  net  liabilities  at  the
      acquisition  date  and  shareholders  have  no  obligation  to  contribute
      additional  capital,  no  minority  interest  was  recognized  for the 30%
      interest  owned  retained  by the  original  Minghua  China  shareholders.
      Minghua  China's  loss has been  included  in the  consolidated  financial
      results of the Company from its date of acquisition.

      On February 9, 2001, Minghua Hong Kong acquired an additional 15% interest
      in the  Company  for  $169,603  cash.  The  acquisition  of this  minority
      interest was  accounted  for under the purchase  method.  The $169,603 was
      allocated  entirely to the  additional  interest in the patent rights that
      was thereby deemed to have been acquired for accounting purposes.


4.    STOCK OPTION PLAN

      On April 5, 2001,  the Company's 2001 Stock Option Plan was adopted by the
      board of directors and was approved by the Company's  shareholders  at the
      stockholders'  annual  meeting  on August 2,  2001.  Pursuant  to the 2001
      option   plan,   the  Company  may  grant   incentive   and   nonstatutory
      (nonqualified)  stock  options to key  employees  and directors of Minghua
      Group. 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 optionee's services.

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




                                       17
<PAGE>

                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4.    STOCK OPTION PLAN (Continued)

      In 2001, the Company granted 2,000,000 options outstanding to one director
      and officer under the 2001 option plan. The director and officer  resigned
      April 30, 2002.  In April 2002,  540,260  options  were  exercised by this
      director on a cashless  basis,  which  resulted in the issuance of 540,260
      shares of common stock, balance forfeited.

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

      All of the  aforementioned  options are subject to the  following  vesting
schedule:

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

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

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

      In addition,  in 2001,  2,000,000  nonqualified  performance stock options
      were issued outside the stock option plan to a director at $1.75 per share
      that vests only if the Company's annual revenues reach $50,000,000.

      Stock option transactions are summarized as follows:

                                           2002         2001
                                        ----------    ----------
     Outstanding - beginning of year     6,000,000            --
     Granted                                    --     6,000,000
     Exercised                            (540,260)           --
     Forfeited                          (3,459,740)           --
                                        ----------    ----------

     Outstanding - end of year           2,000,000     6,000,000
                                        ==========    ==========

     Shares exercisable - end of year    1,100,000       800,000
                                        ==========    ==========

      The  following  table  provides  certain  information  with respect to the
      above-referenced stock options outstanding at December 31, 2002:


                           Stock                                Weighted Average
 Exercise                 Options          Weighted Average        Remaining
  Prices                Outstanding         Exercise Price      Contractual Life
  ------                -----------         --------------      ----------------
  $1.75                  2,000,000               $1.75                3.5



                                       18
<PAGE>

                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4.    STOCK OPTION PLAN (Continued)

      The following  table provides  certain  information  with respect to stock
      options exercisable at December 31, 2002:


                                                 Weighted
                              Stock               Average
       Exercise              Options             Exercise
       Prices              Outstanding             Price

        $1.75               1,100,000              $1.75

      In  electing  to  continue  to follow APB No. 25 for  expense  recognition
      purposes,  the Corporation is obliged to provide the expanded  disclosures
      required under SFAS No. 123 for stock-based  compensation  granted in 2001
      and thereafter,  including if materially  different from reported results,
      disclosure  of pro  forma  net loss and loss per  share  had  compensation
      expense  relating  to 2001  grants  been  measured  under  the fair  value
      recognition  provision of SFAS No. 123. At December  31,  2002,  all stock
      options outstanding were "underwater options."

      The  weighted-average  fair  values at date of grant for  options  granted
      during 2001 were $ 1.15, and were estimated using the Black-Scholes option
      valuation model with the following weighted-average assumptions:

         Expected life in years                                 5
         Interest rate                                        4.8%
         Volatility                                         276.7%
         Dividend yield                                         0%

      The  Corporation's  pro forma information for the years ended December 31,
      2002 and 2001 prepared in accordance  with the provisions of SFAS No. 123,
      is provided  below.  For  purposes of pro forma  disclosures,  stock-based
      compensation  is  amortized to expense on a  straight-line  basis over the
      vesting period.

<TABLE>
<CAPTION>
                                                                        2002            2001
                                                                    -------------   -------------
<S>                                                                 <C>             <C>
     Pro forma net loss                                             $  (3,655,606)  $  (3,109,933)
                                                                    =============   =============

                      Pro forma net loss per common stock share -
                           basic and diluted                        $        (.07)  $        (.08)
                                                                    =============   =============
</TABLE>


                                       19
<PAGE>


                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



5. PROPERTY AND EQUIPMENT

      Property and equipment at cost consists of:

                                                    December 31,
                                               ----------------------
                                                 2002         2001
                                               ---------    ---------

     Transportation equipment                  $  73,171    $  73,171

     Office, computer software and equipment     313,738      434,254
                                               ---------    ---------

                                                 386,909      507,425
     Construction in progress - Model buses      275,126      240,883
                                               ---------    ---------
                                                 662,035      748,308

     Less: accumulated depreciation             (221,132)    (150,382)
                                               ---------    ---------

                         TOTAL                 $ 440,903    $ 597,926
                                               =========    =========

      Depreciation  expense for the years ended  December 31, 2002 and 2001 were
      $77,058 and $98,437, respectively.


6.    NOTES PAYABLE - BANK

      This bank loan consists of a credit line agreement, denominated in Chinese
      Yuan  Renminbi,  from a Chinese  bank  secured by a  guarantee  given by a
      related party. The United States dollar equivalent of the outstanding loan
      balance  at  December  31,  2002  and  2001  was  $644,056  and  $649,466,
      respectively.

      Total  interest  expense  incurred  and charged to expense was $80,600 and
      $54,359 for the years ended December 31, 2002 and 2001 respectively.


7.    INCOME TAXES

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

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



                                       20
<PAGE>

                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


7.    INCOME TAXES (Continued)

      The Company has a United States  federal net operating  loss  carryforward
      expiring in the year 2021.  The tax benefit of this net operating loss has
      been offset by a full  valuation  allowance.  The  utilization  of the net
      operating  loss may be  subject  to a  substantial  limitation  due to the
      "Change of ownership provisions" under Section 382 of the Internal Revenue
      Code and  similar  state  provisions.  Such  limitation  may result in the
      expiration of the net operating loss before its utilization.

      There are net operating loss carryforwards allowed under the Hong Kong and
      China's  governments'  tax systems.  In China, the previous five years net
      operating  losses are allowed to be  carryforward to offset future taxable
      income.  In  Hong  Kong,  net  operating  losses  can be  carried  forward
      indefinitely  to offset future taxable  income.  The Company has available
      $13,989,885 of unused operating losses carryforward.  A deferred tax asset
      has not been  recognized  due to the  uncertainty  of the  Company  having
      future taxable  profits.  Minghua China withholds and pays income taxes on
      its  employees'  wages,  which  funds the Chinese  government's  sponsored
      health and retirement programs of all Minghua China employees.


8. COMMITMENTS

      LEASE COMMITMENTS

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

      Minimum future rental payments under the  non-cancellable  operating lease
      as of  December  31,  2002  for  each of the next  five  years  and in the
      aggregate are as follows:


Period ended December 31,                                    Amount

         2003                                              $     177,818
         2004                                                    152,395
         2005                                                    152,395
         2006                                                    152,395
         2007 and thereafter                                     482,582
                                                           -------------

Total minimum future rental payments                       $   1,117,585
                                                           =============

      Total  rent  expense  for  December  31,  2002 and 2001 was  $342,662  and
      $415,652,  respectively,  of which $ 309,546  and  $356,649  was paid to a
      related   party  for  the  years  ended   December   31,  2002  and  2001,
      respectively.



                                       21
<PAGE>

                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


8.    COMMITMENTS (Continued)

      EMPLOYMENT CONTRACTS

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


9.    COMMON STOCK

      The Company's  capital  structure as of December 31, 2002 and 2001 were as
follows:


     Common stock - par value:
         $.12834 at December 31, 2002 and
               December 31, 2001

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

    December 31, 2001:
          Authorized - 200,000,000 shares
               Issued and outstanding - 48,469,185 shares

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


10. SUPPLEMENTAL CASH FLOW INFORMATION

Details of 2000 business reorganization transaction:

  Fair value of assets acquired (less cash included)    $       1,011,920
  Assumed liabilities to stockholder                           (9,108,327)
  Assumed other liabilities                                      (651,574)
  Research and development expenses recorded                    8,612,730
  General and administrative expenses recorded                    455,830
                                                        -----------------

  Cash paid (net of cash acquired)                      $         320,579
                                                        =================




                                       22
<PAGE>

                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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
      receivable  and payable  from  related  entities/parties  because of their
      related  party  nature,  estimating  the fair  value  of  these  financial
      instruments  is not considered  practicable.  The fair values of all other
      assets and  liabilities  do not  differ  materially  from  their  carrying
      amounts. None of the above is derivative financial instruments and none is
      held for trading purposes.


12.   SUBSEQUENT EVENTS

      On  March  13,  2003,  Ming  Hua  Environmental   Protection  Science  and
      Technology  Limited,  ("Ming Hua Science") a company  incorporated in Hong
      Kong owned by Top Team  Holdings  Limited,  a BVI limited  company  wholly
      owned by Minghua Hong Kong,  entered into a stock  purchase  agreement for
      the purchase of 89.8 % ownership of Guangzhou  City View Bus  Installation
      Company Limited. Ming Hua Science will pay $967,585 and issue 4,300 shares
      (43%) of the total  authorized  shares of Ming Hua  Science to Mr. Kok Sin
      Keung. The acquisition is currently pending formal approval from the State
      Administration for Industry and Commerce of the People's Public of China.

      To finance the  acquisition  of the Guangzhou  City View Bus  Installation
      Company  Limited  Company  and  the  operation  of the  Company  in  2002,
      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 be also become
      due and payable on such earlier date.

      The  promissory  note is convertible  into shares of the Company's  common
      stock,  anytime during the term of the promissory  note, at the discretion
      of Kingsrich  Development  Limited,  at the  conversion  rate of $0.13 per
      share. This conversion rate was based on the market price of the Company's
      stock at the time of this agreement.

      Guangzhou  City  View  Bus  Installation  Company  Limited  is  a  company
      incorporated  in the  People's  Republic of China which  manufactures  bus
      coaches for domestic sale and for export under the brand name of "EAGLE".




                                       23
<PAGE>

                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


12.   SUBSEQUENT EVENTS (Continued)

      To  assist in the  acquisition,  Citic  Worldwide  Limited  ("Citic")  was
      engaged as a consultant. The Company agreed to compensate Citic by issuing
      800,000 shares of the Company's Common Stock to Citic.

      The results of the  operations  of  Guangzhou  City View Bus  Installation
      Company  Limited  will be included  with the  results of the Company  from
      March 13,2003.  Assuming the transaction  occurred on January 1, 2002, the
      Company's net sales, net loss, basic and diluted loss per share would have
      been $15,967,017, $2,609,576 and $0.05, respectively.

      The following  unaudited  proforma condensed balance sheet gives effect to
      the above stock  purchase  agreement,  as if it  occurred on December  31,
      2002:

      PRO FORMA CONDENSED BALANCE SHEET AT DECEMBER 31, 2002



<TABLE>
<CAPTION>
                                                          As          Pro Forma      Combined
                             Assets                    Reported      Adjustments     Pro Forma
                                                     ------------    ------------   ------------
<S>                                                  <C>             <C>            <C>
     Current assets                                  $    452,813    $  6,836,544   $  7,289,357

     Property plant and equipment - net                   440,903       1,543,617      1,984,520

     Other assets                                         295,714          76,700        372,414
                                                     ------------    ------------   ------------

     Total assets                                    $  1,189,430    $  8,456,861   $  9,646,291
                                                     ============    ============   ============

          Liabilities and stockholders' deficiency


     Current liabilities                             $  4,131,874    $  8,373,478   $ 12,505,352

     Long term liabilities                                     --              --             --

     Stockholders' deficiency                          (2,942,444)         83,383     (2,859,061)
                                                     ------------    ------------   ------------

     Total liabilities and stockholders'
        Deficiency                                   $  1,189,430    $  8,456,861   $  9,646,291
                                                     ============    ============   ============
</TABLE>


                                       24
<PAGE>


                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


12.   SUBSEQUENT EVENTS (Continued)

      A civil proceedings in the People's Republic of China was commenced by Mr.
      Chun Fu Wang against Shenzhen  Minghua  Environmental  Protection  Vehicle
      Co.,  Ltd. as the second  Defendant  arising from the dispute as to Patent
      No.ZI992112168.  Shenzhen Minghua  Environmental  Protection  Vehicle Co.,
      Ltd.  filed a counterclaim  against Mr. Wang for, among others,  breach of
      duties and declaration of annulment of the Transfer of Patents and Licence
      to Use Patent  agreements.  The hearing of the proceedings  will be on 9th
      May 2003.

      The Board of Directors  was on February 24, 2003 granted  4,000,000  stock
      options to five directors,  as follows:  Mr. Chuquan Li, two million,  and
      Mr. Albert Wong,  Mr. Kuen Kwong Chan, Mr. Jikuan Li, and Mr. Wenzhi Zhuo,
      500,000 stock options each, to purchase  shares of common stock of Minghua
      Group International  Holdings Limited at US $0.12 per share, from March 1,
      2003 to February 28, 2004. During this period, they may choose to exercise
      the right of purchasing  common stock or to waive the right no matter what
      the fair market stock price shall be at that time.  Partial  purchasing is
      allowed.  But once the right is  exercised,  the  amount  of common  stock
      purchased must not be sold within six months from the exercising date.


13.   NEW ACCOUNTING PRONOUNCEMENTS

      In   January   2003,   the  FASB   issued   Interpretation   No.  46  (FIN
      46),"Consolidation  of Variable  Interest  Entities,"  which clarifies the
      application of Accounting  Research  Bulletin (ARB) No. 51,  "Consolidated
      Financial  Statements,"  relating to  consolidation  of certain  entities.
      First, FIN 46 will require  identification of the Company's  participation
      in variable interest entities ("VIE"),  which are defined as entities with
      a  level  of  invested  equity  that  is not  sufficient  to  fund  future
      activities  to permit  them to operate on a stand  alone  basis,  or whose
      equity  holders lack certain  characteristics  of a controlling  financial
      interest.  Then, for entities identified as VIE, FIN 46 sets forth a model
      to evaluate potential  consolidation based on an assessment of which party
      to the VIE,  if any,  bears a majority  of the  exposure  to its  expected
      losses, or stands to gain from a majority of its expected returns.  FIN 46
      is effective for all new variable  interest  entities  created or acquired
      after January 31, 2003.  For VIE created or acquired  prior to February 1,
      2003,  the  provisions  of FIN 46 must be applied for the first interim or
      annual  period  beginning  after  June 15,  2003.  FIN 46 also sets  forth
      certain   disclosures   regarding   interests   in  VIE  that  are  deemed
      significant,  even  if  consolidation  is not  required.  The  Company  is
      currently  evaluating  the effect that the adoption of FIN 46 will have on
      its results of operations and financial condition.




                                       25
<PAGE>

                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




13.   NEW ACCOUNTING PRONOUNCEMENTS (Continued)

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

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

      The disclosure provisions of FIN 45 are effective for financial statements
      of interim  periods or annual  periods ending after December 15, 2002. The
      Company is currently in the process of  evaluating  the  potential  impact
      that the adoption of the recognition provisions of FIN 45 will have on its
      consolidated financial position and results of operations.



                                       26