_____________________________________________________________

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


                                   FORM 10-KSB


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

For the fiscal year ended December 31, 2004        Commission File No. 000-30183

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

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

          8/F East Area
Century Golden Resources Business Center                 +86-10-884-52568
         69 Banjing Road                            (Issuer's telephone number)
        Haidian District
 Beijing, People's Republic of China
             100089
(Address of principal executive offices)


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

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

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

YES  X    NO
   -----     ------

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

      The issuer's revenues for its most recent fiscal year are $83,733.

      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 3, 2005 is:$1,038,404.

      The number of shares outstanding of the issuer's common stock as of April
3, 2005 is 145,496,004.


<PAGE>

                           FORWARD-LOOKING STATEMENTS

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

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

General

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

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

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

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


<PAGE>

      We aim to become China's leading manufacturer of hybrid electric vehicles
and a 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 contributor to worldwide research and development
efforts of environmentally compatible vehicles.

The Environmental Vehicle Company

      The Environmental Vehicle Company is our primary operating subsidiary, and
its main business is the development, production and sale of hybrid vehicles. In
September 2000, the Environmental Vehicle Company successfully developed its
first prototype hybrid electric bus. Since then, in May 2004, the Environmental
Vehicle Company developed its second generation hybrid vehicle. We sold two of
our second generation hybrid vehicles to Chingsha Unite Electromotion Technology
Co. Ltd. at a below market price and on a trial basis in the third quarter of
2004.

Products and Product Development

Environmentally-Friendly Vehicles

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

      The performance parameters for the prototypes are as follows:

------------------------------------------------------------ -------------------
Number of Seats                                              45
------------------------------------------------------------ -------------------
Maximum vehicle speed:                                       90 kph
------------------------------------------------------------ -------------------
Distance utilizing electric power exclusively:               More than 40 km
------------------------------------------------------------ -------------------
Fuel consumption per 100 km:                                 Less than 50 liters
------------------------------------------------------------ -------------------
Maximum hybrid driving efficiency:                           160 kw
------------------------------------------------------------ -------------------
Continuous driving distance:                                 More than 400 km
------------------------------------------------------------ -------------------
Maximum incline:                                             4 degrees
------------------------------------------------------------ -------------------
0-50 km speedup time:                                        Less than 30 sec
------------------------------------------------------------ -------------------

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

      We expect to produce prototypes of the LPG bus (in addition to the minibus
prototype) and LPG/electric bus before the end of fiscal year 2005.

      We also plan to develop a bus that runs exclusively on electric power
without any secondary fuel source.


<PAGE>

Diesel Busses

      On March 13, 2003, we acquired the Guangzhou City View Bus Installation
Company, a People's Republic of China limited company (the Guangzhou Bus
Installation Company). See "Manufacturing Our Product" below for more details
regarding this acquisition. The Bus Installation Company had historically been a
manufacturer of standard diesel busses. As our subsidiary, the Guangzhou Bus
Installation Company now also manufactures our prototype hybrid vehicles. We
plan to continue manufacturing diesel busses in the future along with our hybrid
and other environmentally friendly vehicles. We sold five standard diesel busses
in 2004.

      Our diesel busses consist of large sleeper busses (accommodates 39
passengers), large passenger busses (accommodates up to 53 passengers) and
medium sized passenger busses (accommodates up to 37 passengers). These vehicles
are sold under the Eagle brand name. They run on diesel fuel, have six tires,
two axels and can be equipped with leather interiors, pneumatic boot doors,
imported compressed air conditioners, multiple color televisions, VCDs, a middle
door, lavatory and water dispensers.

Manufacturing Our Products

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

      The acquisition of the equity interest was subject to certain governmental
approvals. Due to the delay in obtaining the required governmental approvals, on
January 27, 2004, the parties to the Acquisition Agreement entered into, and
simultaneously consummated the transactions contemplated by, a supplemental
agreement (the Supplemental Agreement), which replaced the original Acquisition
Agreement. Pursuant to the Supplemental Agreement, instead of acquiring the
Guangzhou Bus Installation Company directly, Minghua EPST acquired a controlling
interest in the entities that control the Guangzhou Bus Installation Company.
More specifically, Minghua EPST acquired 9,999 of the total 10,000 authorized
shares of Good View (which owns 23.8% of the Guangzhou Bus Installation Company)
and 1,199,999 of the total 1,200,000 authorized shares of Eagle (which owns 66%
of the Guangzhou Bus Installation Company) from the stockholders of Good View
and Eagle, respectively. Therefore, Minghua EPST is now the indirect owner of an
89.8% equity interest in the Guangzhou Bus Installation Company. The remaining
10.2% is held by Guangzhou Public Automobile No. 2 Company.

      The deposit of RMB 8,000,000 (US$967,585) that had been paid upon entering
into the Acquisition Agreement was distributed to the prior stockholders of Good
View and Eagle. Furthermore, Minghua EPST issued to Mr. Kok, a former
stockholder of Good View, a 43% equity interest in Minghua EPST. Thereafter, in
October 2004, our wholly-owned subsidiary, Euromax Limited, acquired Mr. Kok's
interest in Minghua EPST for RMB 14 million. Accordingly, we now indirectly own
100% of Minghua EPST, which in turn owns 89.8% of the Guangzhou Bus Installation
Company.

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

      As a result of the acquisition of the Guangzhou Bus Installation Company,
we now have the ability to manufacture our products. In 2004 we manufactured ten
busses. Five of these busses were diesel busses. Four of these busses were our
second generation hybrid busses and the last bus was a minibus prototype that
runs exclusively on LPG. Of the five diesel busses, three were sold to Manzhouli
Goldenbridge Tourism Overseas Bus Transportation Co., Ltd. in Inner Mongolia
Autonomous Region; one to Guangzhou Merchants Tourism Passenger Transportation
Co., Ltd and one to Tongfaheping Company, subsidiary of Heyuan Traffic Group in
Guangdong Province. The sale of the diesel busses occurred in fiscal year 2005.
Two of the second generation hybrid busses were sold to Chingsha United
Electromotion Technology Co. Ltd. in fiscal year 2004 and are being used on a
pilot or test basis. The other two second generation hybrid busses are kept in
our inventory for further research and development. The purely LPG minibus is
being used as a prototype for this new technology.


<PAGE>

Market

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

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

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

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

Marketing Strategy

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

Competition

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

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


<PAGE>

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

Research and Development

      Our research and development activities are conducted through our
subsidiary, the Guangzhou Bus Installation Company. The Guangzhou Bus
Installation Company has 12 employees who work exclusively on research and
development of future generation products. The Environmental Vehicle Company has
invested approximately US$33,311 in the research and development in fiscal year
2004 and nothing was invested during the fiscal year ending December 31, 2003.

Regulation

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

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

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

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

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

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

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

      We currently hold 16 types of vehicle production and sales permits.
Through January 2005, we had sold a total of five diesel engine passenger
vehicles. In addition to carrying out research and development of
environmentally-friendly vehicles, we will continue production and sales of
ordinary passenger vehicles in 2005.

Employees

      As of March 24, 2004, we had a total of 130 employees (excluding
consultants and temporary help). Of these employees, 20 are management personnel
at our parent company and our subsidiaries, 6 are in accounting, 10 are
administrative staff, 10 are engaged in research and development, 84 are
involved in our newly acquired manufacturing operations and 18 are involved in
sales and related support.


<PAGE>

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

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

ITEM 2.  DESCRIPTION OF PROPERTY

      Our business is conducted at our executive offices, which are located at
8/F East Area, Century Golden Resources Business Center, 69 Bangjing Road,
Haidian District, Beijing, People's Republic of China 100089. Our executive
offices consist of approximately 130 square meters consisting entirely of
administrative office space. This lease expires December 31, 2005.

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

      The Environmental Vehicle Company leases 200 square meters of office space
in Shenzhen, China at a monthly rental rate of approximately $1,220 per month
under a lease that expires in June 2005.

ITEM 3.  LEGAL PROCEEDINGS

      On May 9, 2003, a civil proceeding in The Jurisdiction of the Intermediate
People's Court of Shenzhen Municipality in the People's Republic of China was
commenced by Mr. Chun Fu Wang against the Environmental Vehicle Company as the
second defendant arising from the dispute as to Patent No. ZI992112168. The
Environmental Vehicle Company filed a counterclaim against Mr. Wang for, inter
alia, breach of duties and declaration of annulment of the Transfer of Patents
and License to Use the Patent Agreements. The Shenzhen Municipal Court ruled in
favor of the Environmental Vehicle Company on October 21, 2003. On January 13,
2004, Mr. Wang filed an appeal with the appellate division of the same court.
The court has not yet rendered a decision on the matter. We expect a decision in
this matter to be rendered before the end of 2005.

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 2004.


<PAGE>

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

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

FISCAL YEAR          QUARTER ENDING               HIGH                LOW

2004                 December 31, 2004            $0.30               $0.12

                     September 30, 2004           $0.25               $0.10

                     June 30, 2004                $0.45               $0.19

                     March 31, 2004               $0.64               $0.28


2003                 December 31, 2003            $0.62               $0.12

                     September 30, 2003           $0.64               $0.08

                     June 30, 20023               $0.15               $0.05

                     March 31, 2003               $0.17               $0.12

Holders

      The number of holders of record of our common stock as of February 15,
2005 was 268.


<PAGE>

Dividends

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

Securities Authorized for Issuance under Equity Compensation Plans

Plan category

<TABLE>
<CAPTION>
                                Number of securities to be   Weighted-average exercise    Number of securities
                                issued upon exercise of      price of outstanding         remaining available for
                                outstanding options,         options, warrants and        future issuance
                                warrants and rights          rights

<S>                                      <C>                            <C>                       <C>
Equity compensation plans
  approved by security holders                  --                         --                     16,000,000

Equity compensation plans not
  approved by security holders           2,000,000                      $1.75                              0

Total                                    2,000,000                                                16,000,000
</TABLE>

Recent Sales of Unregistered Securities

      We have not sold any equity securities during the fiscal year ended
December 31, 2004 that were not previously disclosed in a quarterly report on
Form 10-QSB or a current report on Form 8-K that was filed during the 2004
fiscal year.

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

Overview

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

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

      Our focus is on bringing our vehicles to production so that we can begin
to market and sell our vehicles and generate revenues. We have entered into
financing agreements with Beijing Qiang Long Real Estate Development Co. Ltd.
("Qiang Long"). Pursuant to these arrangements, Qiang Long has funded $6,600,000
to us through December 31, 2004 and is obligated to fund an additional
$28,800,000 through December 31, 2006. We plan to use the proceeds of this
financing arrangement with Qiang Long to manufacture vehicles and to begin
marketing our vehicles so that we can generate revenues. Without this financing,
we have no other source of revenues and would not be able to execute our
business plan unless alternate financing is obtained. The financing with Qiang
Long is contingent. See "Liquidity and Capital Resources" below.


<PAGE>

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

Plan of Operation

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

      At December 31, 2004 we had $714,576 in cash. Without receipt of financing
from Qiang Long or from some other source, we would not have enough working
capital to sustain our operations for the next twelve months.

      Subject to receiving sufficient capital, we plan to purchase the following
equipment in 2005 in order to carry out our business plan:

----------------------------------------------------- --------------------------
Type of Equipment                                      Approximate Cost in U.S.$

----------------------------------------------------- --------------------------
Painting workshop                                              $1,000,000
----------------------------------------------------- --------------------------
Rain testing workshop                                          $  300,000
----------------------------------------------------- --------------------------
Lathe                                                          $   80,000
----------------------------------------------------- --------------------------
Milling machine                                                $  100,000
----------------------------------------------------- --------------------------
Drill press                                                    $   70,000
----------------------------------------------------- --------------------------
Electric welding machine                                       $   48,000
----------------------------------------------------- --------------------------
Testing line                                                   $  250,000
----------------------------------------------------- --------------------------
Noise tester                                                   $   12,000
----------------------------------------------------- --------------------------
Exhaust gas tester                                             $   30,000
----------------------------------------------------- --------------------------
Paint filtering and purifying equipment                        $  100,000
----------------------------------------------------- --------------------------
Total:                                                         $1,990,000
----------------------------------------------------- --------------------------

      We also plan to hire approximately 50 new employees in 2005. Of these
employees 10 would be employed in research and development activities and the
other 40 would be employed as workers at our manufacturing facility.


<PAGE>

Results of Operations

Fiscal Year Ended December 31, 2004 Compared to December 31, 2003

      The following table summarizes the results of our operations during the
fiscal year ended December 31, 2004 and 2003 and provides information regarding
the dollar and percentage increase or (decrease) from the 2004 fiscal year to
the 2003 fiscal year.

<TABLE>
<CAPTION>
------------------------------------ ------------------ ------------------- ----------------- ---------------
                                                                                                  Percentage
                                                                                                    Increase
                                                                                    Increase      (Decrease)
                                                                                  (Decrease)
Line Item                                     12/31/04            12/31/03
------------------------------------ ------------------ ------------------- ----------------- ---------------
<S>                                        <C>                  <C>                <C>               <C>
Revenues                                        83,733                   0            83,733         83,733%
------------------------------------ ------------------ ------------------- ----------------- ---------------
Net (Loss)                                 (11,024,215)         (1,761,393)        9,262,822            526%
------------------------------------ ------------------ ------------------- ----------------- ---------------
Operating Expenses                           5,457,544           1,388,705         4,068,839            293%
------------------------------------ ------------------ ------------------- ----------------- ---------------
Earnings (Loss) per common share                (0.10)              (0.03)            (0.07)         233.33%
------------------------------------ ------------------ ------------------- ----------------- ---------------
</TABLE>

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

      We had revenues of 83,733 during fiscal year 2004 as compared to no
revenues in 2003. These revenues are the result of the sale by us of five diesel
busses and two second generation hybrid busses in 2004.

      Our net loss for the year ended December 31, 2004 was 11,024,215 compared
with 1,761393 for the prior year. This represents an increase of $9,262,822 or
526%. This significant increase in net loss was the result of the following
factors:

      o     The acquisition expense in the amount of US$4,940,038 relating to
            our acquisition of Asia Key Group

      o     Increased general and administrative expenses resulting in part from
            the payment of accrued salary amounts for employees and increased
            legal and accounting fees as a result of acquisitions undertaken
            during the year

      Our operating expenses for the fiscal year ended December 31, 2004 were
5,457,544 as compared to 1,388,705 during the same period in 2003. This increase
of 4,068,839 or 293% is the result of increased general and administrative
expenses resulting in part from the payment of accrued salaries for employees
and increased legal and accounting fees as a result of acquisitions undertaken
during the year.

      Loss per common share for the fiscal year ended December 31, 2004 was
(0.10) as compared to a loss of (0.03) during the same period of 2003. This
decrease of 233.33% is the result of the factors described above that
contributed to our net loss for the year.


<PAGE>

Liquidity and Capital Resources

      We had $2,650,693 in cash, cash equivalents and short-term investments as
of December 31, 2004. As of such date, we also had total current assets of
$4,121,655 and total assets of $6,164,755. We have total current liabilities
(consisting of accounts payable, accrued liabilities, and short term notes
payable) in the amount of $5,192,019. Our stockholder's equity as of December
31, 2004 was $972,736. Since inception, we have accumulated a deficit (net loss)
of $27,648,909.

      We entered into the following contracts with Qiang Long which will result
in a change of control of Minghua: (i) that certain Regulation S Subscription
Agreement, dated September 29, 2003 (the "September 29 Contract"), (ii) that
certain contract, dated January 29, 2004, (iii) that certain amendatory letter,
dated April 13, 2004, amending the September 29 Contract and the January 29
Contract, and (iv) that certain amendatory letter, dated October 29, 2004,
further amending the September 29 Contract and the January 29 Contract (the
September 29 Contract and the January 29 Contract, together with the amendments
referred to in clauses (iii) and (iv), are referred to as the Qiang Long
Contracts).

      Pursuant to the Qiang Long Contracts, Qiang Long has funded Minghua a
total of $6,600,000 through December 31, 2004 and Minghua has issued to Qiang
Long a total of 15,000,000 shares of Minghua's common stock for such funds.
Under the Qiang Long Contracts, Qiang Long is obligated to fund an additional
US$12,000,000 on December 31, 2005, and an additional US$16,800,000 on December
31, 2006. The funding under the Qiang Long Contracts is subject to, among other
things, Minghua increasing its authorized capital stock so that it has
sufficient authorized, but unissued capital stock to consummate the transactions
contemplated by the Qiang Long Contracts.

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

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

      Over the next twelve months, we will need approximately [$3,000,000] to
fund our operations and to continue to execute our business plan. We expect to
obtain the necessary funding though our financing arrangement with Qiang Long.
However, the next installment from Qiang Long is not due until December 31,
2005. Prior to receiving that installment, we must seek other means of financing
our current operations. We have no commitments from any person to provide such
interim financing. We expect that our shareholders will extend loans to us,
however, they are not obligated to do so.

Critical Accounting Policies

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

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


<PAGE>

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

Off-Balance Sheet Arrangements

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

Inflation

      We believe that inflation has not had a material impact on our results of
operations for the years ended December 31, 2004 or December 31, 2003.

Seasonality

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

Risk Factors Affecting Our Business

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

      Risks Relating to Our Financial Condition

      We are an early stage development company and we have a limited operating
history. We have never earned any revenues and it is uncertain whether we will
earn any revenues in the future or whether we will ultimately be profitable.

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


<PAGE>

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

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

      As described above under "Liquidity and Capital Resources," pursuant to
the Qiang Long Contracts, Qiang Long is obligated, subject to certain
contingencies, to fund us in the amount of US$12,000,000 on or before December
31, 2005 and an additional US$16,800,000 on or before December 31, 2006. No
assurance can be given that we will be able to consummate the Qiang Long
financing. Qiang Long has extended payment dates in the past and may do so again
in the future. Our inability to consummate this financing would have a material
adverse effect on us. Furthermore, the first installment of this financing is
not due until December 31, 2005. We will need interim financing to satisfy our
working capital needs prior to such date. We have no commitments for such
interim financing.

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

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

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

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


<PAGE>

      Business Risks

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

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

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

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

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

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

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

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

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

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

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

      o     expanding, training and managing our employee base; and

      o     expanding our finance, administrative and operations staff.


<PAGE>

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

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

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

      Risks Relating to Doing Business in China

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

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

      Governmental policies in China could impact our business.

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

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

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

      o     changes in the rate or method of taxation;

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

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


<PAGE>

      Economic policies in China could negatively impact our business.

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

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

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

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

      Risks Relating to the Market for Our Securities

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

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

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

      o     actual or anticipated fluctuations in operating results;

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

      o     changes in governmental regulations or policies in China;

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

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

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


<PAGE>

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

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

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

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

      If the transactions contemplated by the Qiang Long Contracts are
consummated, then we will have issued, in the aggregate, 150,481,925 shares of
our common stock to Qiang Long at prices ranging between 0.21 and 0.40 per
share. Upon the issuance of these shares you may experience dilution in the net
tangible book value of your Minghua common stock.

ITEM 7.  FINANCIAL STATEMENTS

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

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

      Effective as of January 10, 2005, we formally engaged Child, Sullivan &
Company as our principal independent auditor to audit our financial statements
for the year ending December 31, 2004 and simultaneously we dismissed
Livingston, Wachtell & Co., LLP (the Former Auditor).

      The report of the Former Auditor for the fiscal year ended December 31,
2003 contained no adverse opinion, disclaimer of opinion or qualification or
modification as to uncertainty, audit scope or accounting principles. However,
the former principal accountants' report of the financial statements for the
fiscal year ended December 31, 2003 did contain a going concern comment in
respect of our recurring losses from operations and net capital deficiency. The
Former Auditor did not act as the our independent auditor for the fiscal year
ended December 31, 2002.


<PAGE>

      The decision to change accountants was recommended, authorized and
approved by our board of directors. During the period from the engagement of the
Former Auditor through the date of the dismissal of the Former Auditor,
including our most recent fiscal year and the subsequent interim period, there
were no disagreements with the Former Auditors, whether or not resolved, on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which, if not resolved to the Former Auditor's
satisfaction, would have caused it to make reference to the subject matter of
the disagreement(s) in connection with its report.

      Child, Sullivan & Company did not advise us with respect to any of the
matters described in paragraphs (a)(2)(i) or (ii) of Item 304 of Regulation S-B.

      We requested the Former Auditor to furnish us with a letter addressed to
the Securities and Exchange Commission stating whether it agrees with the above
statements. A copy of that letter, dated January 25, 2005, is filed as Exhibit
16.1 to our current report on Form 8-K/A, which was filed with the Securities
and Exchange Commission on January 6, 2005.

ITEM 8A.  CONTROLS AND PROCEDURES

      Within 90 days of the filing of this Form 10-KSB, an evaluation was
carried out under the supervision and with the participation of our management,
including Chang-de Li, our Interim Chief Executive Officer, of the effectiveness
of our disclosure controls and procedures. Disclosure controls and procedures
are procedures that are designed with the objective of ensuring that information
required to be disclosed in our reports filed under the Securities Exchange Act
of 1934, such as this Form 10-KSB, is recorded, processed, summarized and
reported within the time period specified in the Securities and Exchange
Commission's rules and forms. Based on that evaluation, Mr. Li concluded that as
of December 31, 2004, and as of the date that the evaluation of the
effectiveness of our disclosure controls and procedures was completed, our
disclosure controls and procedures were effective to satisfy the objectives for
which they are intended.

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

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

Directors and Executive Officers of Minghua

      The directors and executive officers of Minghua are as follows:

Name                                Age              Position

Chang-de Li                          48              Chairman of the Board

Han Li Ping                          46              Director

Li Hong Liang                        43              Director

Yun Dong Luan                        68              Director

Jie Chen                             49              Director


<PAGE>

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

      Han Li Ping has served as a director since May 10, 2004. Ms. Han acted as
general manager of China Manzhouli TianRui Ltd., a real estate development and
investment company, from 1993 to 1999 and acted as vice general manager from
1999 to 2003. Ms. Han has served as vice general manager of Chuang Sheng, Ltd.,
a securities investment company, since 2003.

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

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

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

Audit Committee Financial Expert

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

Code of Ethics

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

Compliance with Section 16(a) of the Exchange Act

      Section 16(a) of the Exchange Act required our executive officers and
directors, and person who beneficially own more than ten percent of our equity
securities, to file reports of ownership and changes in ownership with the
Securities and Exchange Commission. Officers, directors and greater than ten
percent shareholders are required by SEC regulation to furnish us with copies of
all Section 16(a) forms they file. Based on its review of the copies of such
forms received by us, we believe that during the year ended December 31, 2004,
all such filing requirements applicable to its officers and directors were
complied with, during the fiscal year ended December 31, 2004.


<PAGE>

ITEM 10.  EXECUTIVE COMPENSATION

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

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                Annual Compensation                     Long-Term Compensation
                                -------------------                     ----------------------
                                                                        Awards                       Payouts
                                                                        ------                       -------
Name                                                                                  Securities                 All
And Principal                                               Other                     Under-lying                Other
Position                                                    Annual      Restricted    Options/                   Compen-
                       Year     Salary           Bonus      Comp-       Stock         SARs           LTIP        Sation
                                ($)              ($)        ensation    Awards        (#)            Payouts      ($)
                                                              ($)         ($)                          ($)
<S>                    <C>      <C>                  <C>        <C>         <C>           <C>           <C>          <C>
Chang-de Li (1),       2004     77,120               0          0           0             0             0            0
Chairman & Interim     2003          0               0          0           0             0             0            0
CEO                    2002          0               0          0           0             0             0            0

Albert Wong (1),       2004          0               0          0           0             0             0            0
former Chief           2003     30,769           2,564          0           0       500,000             0            0
Executive Officer      2002     23,077           2,564          0      60,000             0             0            0
and President
</TABLE>

-------------------
(1)   Mr. Wong held the positions stated until June 30, 2004, at which time he
      was dismissed and Mr. Li became the Interim CEO of Minghua.


<PAGE>

                     OPTION/SARs GRANTS IN LAST FISCAL YEAR

      The following table sets forth the grant of stock options and stock
appreciation rights (SARs) made during the year ended December 31, 2004, to the
persons named in the Summary Compensation Table:

<TABLE>
<CAPTION>
                                                       Percent of Total
                          Number of Securities       Options/SARs Granted          Exercise of
                               Underlying              to Employees in              Base Price         Expiration
Name                      Options/SARs Granted           Fiscal Year                  ($/Sh)              Date
----                      --------------------           -----------                  ------              ----

<S>                              <C>                         <C>                      <C>                <C>
Chang-de Li(1),                        -                        -                         -                   -
Chairman & Interim CEO

Albert Wong (1),                 500,000                     12.5%                    $0.12              2/29/04
former Chief Executive
Officer, President,
Secretary and Treasurer
</TABLE>

-------------------
(1)   Mr. Wong held the positions stated until June 30, 2004, at which time he
      was dismissed and Mr. Li became the Interim CEO of Minghua.

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

      The following table sets forth information with respect to unexercised
stock options held by the persons named in the Summary Compensation Table at
December 31, 2004. No stock options were exercised in 2004 by those persons.

<TABLE>
<CAPTION>
                                                                 Number of Unexercised      Value of Unexercised
                                                                 Securities Underlying          In-The-Money
                                                                 Options/SARs at FY-End    Option/SARs at FY-End
                          Shares Acquired    Value Realized         (#) Exercisable/          ($) Exercisable/
          Name              on Exercise            ($)               Unexercisable             Unexercisable

<S>                           <C>                <C>                       <C>                       <C>
Chang-de Li (1),
Chairman & Interim CEO

Albert Wong (1),              500,000            100,000                   0                         0
former Chief Executive
Officer, President,
Secretary and Treasurer
</TABLE>

-------------------
      (1)   Mr. Wong held the positions stated until June 30, 2004, at which
            time he was dismissed and Mr. Li became the Interim CEO of Minghua.


<PAGE>

             LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR

      The following table sets forth information with respect to awards made to
persons named in the Summary Compensation Table pursuant to a long-term
incentive plan in the fiscal year ending December 31, 2004.

<TABLE>
<CAPTION>
        Name              Number of        Performance or            Estimated Future Payouts Under Non-Stock
                      Shares, Units or      Other Period                        Price-Based Plans
                        Other Rights      Under Maturation
                                             or Payout           Threshold            Target             Maximum

<S>                           <C>                <C>                 <C>                <C>                 <C>
Chang-de Li (1),              0                  0                   0                  0                   0
Chairman & Interim
CEO

Albert Wong (1),              0                  0                   0                  0                   0
former Chief
Executive Officer,
President,
Secretary and
Treasurer
</TABLE>

-------------------
(1)   Mr. Wong held the positions stated until June 30, 2004, at which time he
      was dismissed and Mr. Li became the Interim CEO of Minghua.

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

      Effective May 10, 2004, the employment agreement between the Company and
Mr. Albert Wong as Chief Executive Officer was terminated. Under the agreement,
Mr. Wong received monthly compensation equal to HK$20,000 (approximately
US$2,564) and was reimbursed for any expenses that he incurred on behalf of
Minghua.

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


<PAGE>

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

      The following table sets forth, as of December 31, 2004, the number of
shares of common stock owned of record and beneficially by any person who holds
5% or more of the outstanding common stock of Minghua.

<TABLE>
<CAPTION>
Name and Address Of Beneficial Owner              Amount and Nature of Beneficial         Percentage of Class(1)
                                                              Ownership

<S>                                                          <C>                                  <C>
Chuquan Li                                                   16,200,000                           11.13%
Guangdong Bian Fang Building, 10th Floor
Futian District, Shenzhen, 518033
People's Republic of China

Kingsrich Development Limited                                14,000,000                             9.6%
Sincere Insurance Building
4 - 6 Hennessey Road
Wanchai, Hong Kong

China Cardinal Limited of Hong Kong                          10,000,000                             6.9%
Flat/Rm 708
7th Floor
Dunnies House
20 Luard Road
Wanchai
HONG KONG

Beijing Qiang Long Real Estate Development Co.              155,000,000(2)                         54.3%(2)
Ltd.
No. 95 Kangxi Road
Ba Da Xia Industrial Development Zone
Yanqing County, Beijing
People's Republic of China

Chang-de Li                                                 155,000,000(3)                         54.3%(3)
No. 95 Kangxi Road
Ba Da Xia Industrial Development Zone
Yanqing County, Beijing
People's Republic of China
</TABLE>

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

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

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


<PAGE>

      The following table sets forth, as of December 31, 2004, the number of
shares of common stock owned of record and beneficially by all directors, each
of the named officers in the Summary Compensation Table, and the directors and
executive officers of the Company as a group.

<TABLE>
<CAPTION>
Name and Address Of Beneficial Owner              Amount and Nature of Beneficial         Percentage of Class(1)
                                                              Ownership

<S>                                                       <C>                                     <C>
Chang-de Li                                               155,000,000(2)                          54.3%(2)
Chairman & Interim CEO
8/F East Area
Century Golden Resources Business Center
69 Banjing Road
Haidian District
Beijing, People's Republic of China
100089

Han Li Ping                                                         0                                0
Director
8/F East Area
Century Golden Resources Business Center
69 Banjing Road
Haidian District
Beijing, People's Republic of China
100089

Li Hong Liang                                                       0                                0
Director
8/F East Area
Century Golden Resources Business Center
69 Banjing Road
Haidian District
Beijing, People's Republic of China
100089

Yun Dong Luan                                                       0                                0
Director
8/F East Area
Century Golden Resources Business Center
69 Banjing Road
Haidian District
Beijing, People's Republic of China
100089

Jie Chen                                                            0                                0
Director
8/F East Area
Century Golden Resources Business Center
69 Banjing Road
Haidian District
Beijing, People's Republic of China
100089

Albert Wong                                                   500,000                              0.3%
former Chief Executive Officer, President,
Secretary and Treasurer
14/F., West Wing, Sincere Insurance Bldg.,
4-6 Hennessy Road, Wanchai, Hong Kong

All Directors and Executive Officers as a Group           155,000,000(2)                          54.3%(2)
(5 people)
</TABLE>

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

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


<PAGE>

Changes in Control

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

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

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

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

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

Item 13.  EXHIBITS

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


<PAGE>

                                    EXHIBITS


Exhibit    Description
Number

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

*2.2    Stock Purchase Agreement, dated January 19, 2004, among the Company,
        Minghua Group International Holding (Hong Kong) Limited and Li Jinmou
        relating to the acquisition of Asia Key Group Limited [Incorporated by
        reference to Exhibit 10.3 of the Form 8-K filed on February 12, 2004 in
        Commission file number 0-30183]

*2.3    Stock Purchase Agreement, dated April 27, 2001, among the Company,
        Minghua Acquisition Corp., Li Chuquan and Chan Kuen Kwong [Incorporated
        by reference to Exhibit 2.1 of the Form 8-K filed on May 3, 2001 in
        Commission file number 0-30183]

*3.1    Certificate of Incorporation of the Company [Incorporated by reference
        to Exhibit 3.1 of the Form 10-KSB filed on April 15, 2002 in Commission
        file number 0-30183]

*3.2    Certificate of Amendment of Certificate of Incorporation of the Company
        [Incorporated by reference to Appendix A of the Definitive Proxy
        Statement of the Company filed on July 3, 2001 in Commission file number
        0-30183]

*3.3    Amended and Restated Bylaws of the Company [Incorporated by reference to
        Exhibit 3.3 of the Form 10-KSB filed on April 15, 2002 in Commission
        file number 0-30183 in Commission file number 0-30183]

*4.1    Warrant to Purchase Common Stock, dated April 2, 2001, between the
        Company and First Pacific Capital, Ltd. [Incorporated by reference to
        Exhibit 10.9 of the Form 10-QSB filed on August 20, 2001 in Commission
        file number 0-30183]

*4.2    Registration Rights Agreement, dated June 22, 2001, among the Company,
        Li Chuquan and Chan Kuen Kwong [Incorporated by reference to Exhibit 4.2
        of the Form 10-KSB filed on April 15, 2002 in Commission file number
        0-30183]

*4.3    Registration Rights Agreement, dated July 23, 2001, among the Company
        and the stockholders of the Company named in the Registration Rights
        Agreement [Incorporated by reference to Exhibit 4.2 of the Form 10-KSB
        filed on April 15, 2002 in Commission file number 0-30183]

*4.4    Form of Regulation D Subscription Agreement [Incorporated by reference
        to Exhibit 4.2 of the Form 10-KSB filed on April 15, 2002 in Commission
        file number 0-30183]

*4.5    Form of Regulation S Subscription Agreement [Incorporated by reference
        to Exhibit 4.2 of the Form 10-KSB filed on April 15, 2002 in Commission
        file number 0-30183]

*10.1   Letter Agreement, dated as of October 29, 2004, between the Company and
        Qiang Long Real Estate Development Co., Ltd. [Incorporated by reference
        to Exhibit 10 of the Form 8-K filed on November 3, 2004 in Commission
        file number 0-30183]

*10.2   Loan Agreement, dated May 10, 2004, between ShenZhen Ruichijuntong
        Industry Co., Ltd. and Minghua Environment Protection Vehicles Ltd.
        [Incorporated by reference to Exhibit 10.1 of the Form 10-QSB filed on
        August 23, 2004 in Commission file number 0-30183]


<PAGE>

*10.3   Guangzhou City View Bus Installation Company Limited Agreement
        [Incorporated by reference to Exhibit 10.1 of the Form 8-K filed on
        March 28, 2003 in Commission file number 0-30183]

*10.4   Kingsrich Development Limited Loan Agreement [Incorporated by reference
        to Exhibit 10.2 of the Form 8-K filed on March 28, 2003 in Commission
        file number 0-30183]

*10.5   Kingsrich Development Limited Convertible Promissory Note [Incorporated
        by reference to Exhibit 10.3 of the Form 8-K filed on March 28, 2003 in
        Commission file number 0-30183]

*10.6   Registration Rights Agreement, dated March 17, 2003, between the Company
        and Kingsrich Development Limited [Incorporated by reference to Exhibit
        10 of the Form 10-QSB filed on August 28, 2003 in Commission file number
        0-30183]

*10.7   Regulation S Subscription Agreement, dated September 29, 2003, between
        the Company and Beijing Qiang Long Real Estate Development Company, Ltd.
        relating to subscription rights for 15,000,000 shares of the Company's
        Common Stock [Incorporated by reference to Exhibit 10.1 of the Form
        10-QSB filed on December 2, 2003 in Commission file number 0-30183]

*10.8   Contract, dated January 29, 2004, between Beijing Qiang Long Real Estate
        Development Co. Ltd. and the Company [Incorporated by reference to
        Exhibit 10.1 of the Form 8-K filed on February 12, 2004 in Commission
        file number 0-30183]

*10.9   Contract, dated January 13, 2004, between China Cardinal Limited and the
        Company [Incorporated by reference to Exhibit 10.2 of the Form 8-K filed
        on February 12, 2004 in Commission file number 0-30183]

*10.10  Employment/Co-Operation Agreement, dated April 10, 2002, between the
        Company and Albert Wong [Incorporated by reference to Exhibit 99.1 of
        the Form 8-K filed on May 2, 2002 in Commission file number 0-30183]

*10.11  Employment Agreement, dated July 11, 2001, between the Company and Li
        Chuquan [Incorporated by reference to Exhibit 10.1 of the Form 10-QSB
        filed on August 20, 2001 in Commission file number 0-30183]

*10.12  Non-Qualified Stock Option Agreement, dated July 11, 2001, between the
        Company and Li Chuquan [Incorporated by reference to Exhibit 10.2 of the
        Form 10-QSB filed on August 20, 2001 in Commission file number 0-30183]

*10.13  Stock Option Agreement, dated July 11, 2001, between the Company and Li
        Chuquan [Incorporated by reference to Exhibit 10.3 of the Form 10-QSB
        filed on August 20, 2001 in Commission file number 0-30183]

*10.14  Employment Agreement, dated April 5, 2001, between the Company and
        Ronald C. H. Lui [Incorporated by reference to Exhibit 10.4 of the Form
        10-QSB filed on August 20, 2001 in Commission file number 0-30183]

*10.15  Incentive Stock Option Agreement, dated April 5, 2001, between the
        Company and Ronald C. H. Lui [Incorporated by reference to Exhibit 10.5
        of the Form 10-QSB filed on August 20, 2001 in Commission file number
        0-30183]


<PAGE>

*10.16  Non-qualified Stock Option Agreement, dated April 5, 2001, between the
        Company and Ronald C. H. Lui [Incorporated by reference to Exhibit 10.6
        of the Form 10-QSB filed on August 20, 2001 in Commission file number
        0-30183]

*10.17  Amendment to Stock Option Agreements, dated April 12, 2001, between the
        Company and Ronald C. H. Lui [Incorporated by reference to Exhibit 10.7
        of the Form 10-QSB filed on August 20, 2001 in Commission file number
        0-30183]

*10.18  Consulting Agreement, dated April 2, 2001, between the Company and First
        Pacific Capital Ltd. [Incorporated by reference to Exhibit 10.8 of the
        Form 10-QSB filed on August 20, 2001 in Commission file number 0-30183]

*10.19  Letter Agreement, dated April 5, 2001, between the Company and First
        Pacific Capital Ltd. [Incorporated by reference to Exhibit 10.10 of the
        Form 10-QSB filed on August 20, 2001 in Commission file number 0-30183]

*10.20  2001 Stock Plan [Incorporated by reference to Appendix B of our
        Definitive Proxy Statement on Schedule 14A filed on July 3, 2001 in
        Commission file number 0-30183]

*10.21  Placement Agency Agreement, dated July 23, 2001, between the Company and
        Chicago Investment Group Incorporated [Incorporated by reference to
        Exhibit 10.11 of the Form 10-KSB filed on April 15, 2002 in Commission
        file number 0-30183]

*10.22  Letter Agreement repayment of stockholder loan, dated December 11, 2001,
        between the Company and Li Chuquan [Incorporated by reference to Exhibit
        99.1 of the Form 8-K filed on December 20, 2001 in Commission file
        number 0-30183]

10.23   Technology Development Contract, dated February 15, 2004, between
        Tsinghua University and the Company.

10.24   Sales Contract of Guangzhou Cityview Bus Installation Co., Ltd., dated
        August 6, 2004, between Changsha United Electric Power Science and
        Technology Co., Ltd. and Guangzhou Cityview Bus Installation Co., Ltd.

10.25   Lease Agreement, dated May 30, 2004, between Liu Gui Zhi and Beijing
        China Cardinal Real Estate Consulting Ltd.

10.26   Lease Agreement, dated May 20, 2004, between Shenzhen Minghua
        Environmental Protection Vehicle Co., Ltd. and Richard Zhang.

*14     Code of Ethics [incorporated by reference to Exhibit 14 of the Annual
        Report on Form 10-KSB of the Company for the fiscal year ended December
        31, 2003]

*16     Letter on change in certifying accountant, dated January 25, 2005, by
        Livingston, Wachtell & Co., LLP [Incorporated by reference to Exhibit
        16.1 of the Form 8-K/A filed on January 26, 2005 in Commission file
        number 0-30183]

21      A description of the subsidiaries of the registrant

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

32      Section 1350 Certifications

*       Incorporated by reference as indicated.


<PAGE>

ITEM 14  PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees

      The aggregate fees billed for each of the fiscal years ended December 31,
2004 and 2003 for professional services rendered by the principal accountant for
the audit of our annual financial statements and review of the financial
statements included in our Form 10-QSB or services that are normally provided by
the accountant in connection with statutory and regulatory filings or
engagements for those fiscal years were $37,500 and $45,000, respectively.

Audit-Related Fees

      The aggregate fees billed in each of the fiscal years ended December 31,
2004 and 2003 for assurance and related services by the principal accountant
that are reasonably related to the performance of the audit or review of the
registrant's financial statements and are not reported under the paragraph
captioned "Audit Fees" above are $16,233 and $8,000, respectively.

Tax Fees

      The aggregate fees billed in each of the fiscal years ended December 31,
2004 and 2003 for professional services rendered by the principal accountant for
tax compliance, tax advice, and tax planning were $5,000 and $10,000,
respectively.

All Other Fees

      The aggregate fees billed in each of the fiscal years ended December 31,
2004 and 2003 for products and services provided by the principal accountant,
other than the services reported above under other captions of this Item 14 are
$0 and $0, respectively.

Pre-Approval Policies and Procedures

      On January 10, 2005 our board of directors adopted resolutions in
accordance with the Sarbanes-Oxley Act of 2002 requiring pre-approval of all
auditing services and all audit related, tax or other services not prohibited
under Section 10A(g) of the Securities Exchange Act of 1934, as amended, to be
performed for us by our independent auditors, subject to the de minimus
exception described in Section 10A(i)(1)(B) of the Exchange Act. These
resolutions authorized our independent auditor to perform audit services
required in connection with the annual audit relating to the fiscal year ended
December 31, 2004 and the quarterly reviews for the subsequent fiscal quarters
of 2005 through the review for the quarter ended September 30, 2005 at which
time additional pre-approvals for any additional services to be performed by our
auditor would be sought from the Board. Our board of directors also appointed
and authorized Chang-de Li to grant pre-approvals of other audit, audit-related,
tax and other services requiring board approval to be performed for us by our
independent auditor, provided that the designee, following any such
pre-approvals, thereafter reports the pre-approvals of such services at the next
following regular meeting of the Board.

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


<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/ Chang-de Li
                                       ----------------------------------------
                                       Name:  Chang-de Li
                                       Title: Chairman of the Board of Directors

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

Chang-de Li          Chairman of the Board of Directors         April 14, 2005
------------------
Chang-de Li

Han Li Ping          Director                                   April 14, 2005
------------------
Han Li Ping

Li Hong Liang        Director                                   April 14, 2005
------------------
Li Hong Liang

Yun Dong Luan        Director                                   April 14, 2005
------------------
Yun Dong Luan

Jie Chen             Director                                   April 14, 2005
------------------
Jie Chen


<PAGE>

                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)

                        CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 2004


<PAGE>


                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)



                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


--------------------------------------------------------------------------------
                                                                            PAGE
--------------------------------------------------------------------------------

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS                                    1
--------------------------------------------------------------------------------

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                       2
--------------------------------------------------------------------------------

CONSOLIDATED BALANCE SHEET                                                    3
--------------------------------------------------------------------------------

CONSOLIDATED STATEMENTS OF OPERATIONS                                         4
--------------------------------------------------------------------------------

CONSOLIDATED STATEMENTS OF CASH FLOWS                                         5
--------------------------------------------------------------------------------

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY                    6
--------------------------------------------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                               7 - 27
--------------------------------------------------------------------------------


                                       1
<PAGE>

                            Child, Sullivan & Company
           A Professional Corporation of CERTIFIED PUBLIC ACCOUNTANTS
            1284 W. Flint Meadow Dr., Suite D, Kaysville, U T 84037
                   PHONE: (801) 927-1337 FAX: (801) 927-1344

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders
MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
New York, New York

We have audited the accompanying consolidated balance sheet of MINGHUA GROUP
INTERNATIONAL HOLDINGS LIMITED (a New York development stage company) and
subsidiaries as of December 31, 2004, and the related consolidated statements of
operations, stockholders' equity (deficit), and cash flows for the year ended
December 31, 2004. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. We did not audit the consolidated
financial statements of MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED for the
year ended December 31, 2003, or from the period from June 4, 1997 (inception)
to December 31, 2003. Those statements were audited by other auditors whose
report thereon, dated March 12, 2004, included an explanatory paragraph that
described going concern considerations.

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

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

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

/s/ Child, Sullivan & Company
Child, Sullivan & Company
Kaysville, Utah
March 24, 2005


                                       2
<PAGE>

                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)

                           CONSOLIDATED BALANCE SHEET


                                                                    December 31,
                               ASSETS                                  2004
                                                                    -----------
Current assets
  Cash and cash equivalents                                         $   715,521
  Notes receivable                                                      264,459
  Prepaid expenses                                                      298,452
  Short term investment                                               1,935,172
  Inventories                                                           908,051
                                                                    -----------
Total current assets                                                  4,121,655

Property, plant and equipment (net)                                   1,210,409

Other assets
  Licenses                                                              832,691
                                                                    -----------
Total other assets                                                      832,691
                                                                    -----------

Total assets                                                        $ 6,164,755
                                                                    ===========

                LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
  Accounts payable                                                  $ 2,086,577
  Accrued liabilities                                                 1,837,471
  Short term notes payable                                              649,492
  Due to directors                                                      152,891
  Other payables                                                        465,588
                                                                    -----------
Total current liabilities                                             5,192,019

Stockholders' equity
  Common stock: par value $.01; 200,000,000 shares authorized;
    139,726,004 shares issued and outstanding                         1,397,260
  Common stock subscribed                                            29,400,000
  Additional paid in capital                                         26,570,590
  Deficit accumulated during the development stage                  (27,648,909)
                                                                    -----------
                                                                     29,718,941
  Less: stock subscription receivable                               (28,746,205)
                                                                    -----------
Total stockholders' equity                                              972,736
                                                                    -----------

Total liabilities and stockholders' equity                          $ 6,164,755
                                                                    ===========


                   The accompanying notes are an integral part
                    of the consolidated financial statements
                                        3
<PAGE>

                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                     Period from June 4, 1997
                                                                                        (inception) to
                                                      Year ended December 31,            December 31,
                                                  --------------------------------   ------------------------
                                                        2004             2003                2004
                                                        ----             ----                ----

<S>                                               <C>                <C>                <C>
Revenues
  Sales revenues                                  $      83,733      $          --      $      83,733
  Cost of sales                                          96,525                 --             96,525
                                                  -------------      -------------      -------------
Gross profit                                            (12,792)                --            (12,792)

Operating expenses
  General and administrative expenses                 5,424,185          1,388,705         13,042,752
  Research and development costs                         33,359                 --          8,809,088
                                                  -------------      -------------      -------------
    Total operating expenses                          5,457,544          1,388,705         21,851,840

Loss from operations                                 (5,470,336)        (1,388,705)       (21,864,632)

Other income (expense)
  Interest income                                        42,745                 --             42,745
  Other income                                           80,173            119,562            496,283
  Acquisition expense                                (5,663,115)        (5,663,115)
  Interest expense                                      (13,682)          (492,250)          (660,190)
                                                  -------------      -------------      -------------
    Total other income (expense)                     (5,553,879)          (372,688)        (5,784,277)
                                                  -------------      -------------      -------------

Net loss before income taxes                        (11,024,215)        (1,761,393)       (27,648,909)

Provision for income taxes                                   --                 --                 --
                                                  -------------      -------------      -------------

Net loss                                          $ (11,024,215)     $  (1,761,393)     $ (27,648,909)
                                                  =============      =============      =============

Basic and diluted net loss per share              $       (0.10)     $       (0.03)
                                                  =============      =============

Weighted average number of shares outstanding       115,065,000         52,032,906
                                                  =============      =============
</TABLE>


                   The accompanying notes are an integral part
                    of the consolidated financial statements
                                       4
<PAGE>

                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                         Period from June 4, 1997
                                                                              Year ended                   (inception) to
                                                                              December 31,                 December 31,
                                                                     ------------------------------      --------------
                                                                         2004                2003             2004
                                                                         -----               -----            ----
Cash flows from operating activities:
<S>                                                                  <C>               <C>               <C>
    Net loss                                                         $(11,024,215)     $ (1,761,393)     $(27,648,909)
    Adjustments to reconcile net loss to
      net cash provided by (used in) operations:
       Depreciation and amortization                                      425,898           163,943           752,915
       Stock issued for services                                          480,000                --         1,039,000
       (Gain) loss on disposition of assets                                    --           (46,559)          205,837
       Research and development expense recorded in organization               --                --         8,612,730
       Reorganization expenses recorded in organization                        --                --           455,830
       Loss on acquision of subsidiaries                                5,663,115                --         5,663,115
       Changes in operating liabilities and assets:
         Prepaid expense and deposits                                      87,485            44,160          (524,715)
         Inventories                                                      806,906                --           806,906
         Accounts payable and accrued liabilities                        (305,865)        1,000,630         2,582,020
                                                                     ------------      ------------      ------------
    Net cash used in operations                                        (3,866,676)         (599,219)       (8,055,271)

Cash flows from investing activities:
    Reorganization - net of cash acquired                                      --                --          (320,579)
    Purchase of short term investment                                  (1,935,172)               --        (1,935,172)
    Purchase of patent rights                                                  --                --          (295,714)
    Sales/purchases of property and equipment                             303,353            10,285          (607,101)
    Deposit on acquisition of a company                                        --          (121,000)         (121,000)
                                                                     ------------      ------------      ------------
        Net cash used in investing activities                          (1,631,819)         (110,715)       (3,279,566)

Cash flows from financing activities:
    Due to stockholders and related parties - net                        (100,298)       (2,128,654)         (284,311)
    Proceeds from issuance of stock                                     7,700,620           604,595        11,849,352
    Proceeds from convertible promissory note                                  --         3,128,225         3,128,225
    Business acquisition                                               (1,914,662)         (967,585)       (2,882,247)
    Dividends paid                                                             --        (1,000,000)
    Notes payable -bank - net                                             (66,425)            5,436           583,067
    Deposit for common stock subscribed                                    51,385           604,887           656,272
                                                                     ------------      ------------      ------------
        Net cash provided by financing activities                       5,670,620         1,246,904        12,050,358
                                                                     ------------      ------------      ------------

    Increase(decrease) in cash and cash equivalents                       172,125           536,970           715,521

    Cash and cash equivalents, beginning of period                        543,396             6,426                --
                                                                     ------------      ------------      ------------
    Cash and cash equivalents, end of period                         $    715,521      $    543,396      $    715,521
                                                                     ============      ============      ============

Supplemental disclosures of cash flow information:
    Cash paid for interest                                           $         --      $         --
                                                                     ============      ============
    Cash paid for income taxes                                       $         --      $         --
                                                                     ============      ============
</TABLE>


                   The accompanying notes are an integral part
                    of the consolidated financial statements
                                        5
<PAGE>


                  MINGHUA GROUP INTERNATIONAL HOLDINGS LIMITED
                          (A DEVELOPMENT STAGE COMPANY)

      CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
                                                                                                    Development
                                                                    Common Stock        Additional   Stage
                     Common Stock            Common Stock            Subscribed          Paid In    Accumulated Subscription
                   $.12834 Par Value        $.01 Par Value         $.01 Par Value       Capital     Deficit     Receivable    Total
                   ------------------      ----------------       ----------------     --------    --------     ----------    -----

<S>                  <C>      <C>               <C>      <C>           <C>       <C>         <C>          <C>         <C>   <C>
Common stock
  issued -
  June 4, 1997       10,000   $ 1,283                    $ -                     $ -         $ -          $ -         $ -   $ 1,283
Net loss for
  the period              -         -           -          -           -           -           -         (289)          -      (289)
                  ---------   ------- ----------- ---------- ----------- ----------- ----------- ------------ ----------- ---------
Balance December
  31, 1997           10,000     1,283           -          -           -           -           -         (289)          -       994

Net loss for
  the year                -         -           -          -           -           -           -       (3,209)          -    (3,209)
                  ---------   ------- ----------- ---------- ----------- ----------- ----------- ------------ ----------- ---------
Balance December
  31, 1998           10,000     1,283           -          -           -           -           -       (3,498)          -    (2,215)

Shares issued at
  par value
  Mar 30            990,000   127,057                                                                                       127,057
Net loss for
  the period              -         -           -          -           -           -           -         (302)          -      (302)
                  ---------   ------- ----------- ---------- ----------- ----------- ----------- ------------ ----------- ---------
Balance December
  31, 1999        1,000,000   128,340           -          -           -           -           -       (3,800)         -    124,540

Net loss for
  the year                -         -           -          -           -           -           -   (9,876,193)         - (9,876,193)
                  ---------   ------- ----------- ---------- ----------- ----------- ----------- ------------ ----------- ---------
Balance December
  31, 2000        1,000,000   128,340           -          -           -           -           -   (9,879,993)         - (9,751,653)

Shares issued at
  $.20 Apr 5                              385,685      3,857                              73,280                             77,137
Shares issued at
  $.20 Apr 17                           7,500,000     75,000                           1,425,000                          1,500,000
Shares at par
  value Jun 22                         28,000,000    280,000                                                                280,000
Recapitalization
  Jun 22         (1,000,000) (128,340)  3,600,000     36,000                            (498,280)                          (590,620)
Dividend paid
  Jun 22                                                                              (1,000,000)                        (1,000,000)
Shares issued at
  $2.00 Jul 23                            473,500      4,735                             942,265                            947,000
Shares issued at
  $2.00 Oct 1                              10,000        100                              19,900                             20,000
Shares issued for
  debt conversion                       8,500,000     85,000                           8,415,000                          8,500,000
Capital
  contributed
  debt to
  equity
  conversion                                                                           1,500,000                          1,500,000
Net loss for
  the year                -         -           -          -           -           -           -   (2,492,318)         - (2,492,318)
                  ---------   ------- ----------- ---------- ----------- ----------- ----------- ------------ ----------- ---------
Balance December
  31, 2001                -         -  48,469,185    484,692           -           -  10,877,165  (12,372,311)         - (1,010,454)

Shares issued at
  $.20 Feb 20                             372,807      3,728                              70,833                 (74,561)         -
Shares issued at
  par option
  exercise Apr 24
  for svcs                                540,260      5,403                             410,597                            416,000
Shares issued
  at $.13 Nov
  27 for services                       1,100,000     11,000                             132,000                            143,000
Net loss for
  the year                -         -           -          -           -           -           -   (2,490,990)         - (2,490,990)
                  ---------   ------- ----------- ---------- ----------- ----------- ----------- ------------ ----------- ---------
Balance December
  31, 2002                -         -  50,482,252    504,823           -           -  11,490,595  (14,863,301)   (74,561)(2,942,444)

Shares issued at
  $.12 Mar 31                           1,513,969     15,139                             166,537                            181,676
Shares subscribed
  at $.40 Sep 29                                              15,000,000   6,000,000                           (6,000,000)        -
Shares issued at
  $.40 Oct 3                            1,511,488     15,115  (1,511,488)   (604,595)    589,480                1,209,482 1,209,482
Net loss for
  the year                -         -           -          -           -           -           -   (1,761,393)         - (1,761,393)

Balance December
  31, 2003                -         -  53,507,709    535,077  13,488,512   5,395,405  12,246,612  (16,624,694)(4,865,079)(3,312,679)
                  ---------   ------- ----------- ---------- ----------- ----------- ----------- ------------ ----------- ---------
Shares issued at
  $.40 Jan 9
  Qian Long                             3,023,998     30,240  (3,023,998) (1,209,599)  1,179,359                  604,712   604,712
Shares issued at
  $.13 for
  debt conversion                      24,036,269    240,363                           2,887,862                          3,128,225
Shares subscribed
  at $.21 Jan
  29 Qian Long                                               140,000,000  29,400,000                          (29,400,000)        -
Shares subscribed
  at $.14 Jan 13
  China Cardinal                                              16,483,514   2,307,692                           (2,307,692)        -
Shares issued at
  $.14 May 28
  China Cardinal                        4,733,229     47,332  (4,733,229)   (662,652)    615,320                  662,652   662,652
Shares issued at
  $.14 May 28
  China Cardinal                       11,750,285    117,503 (11,750,285) (1,645,040)  1,527,537                1,645,040 1,645,040
Shares issued at
  $.14 Mar 31
  purch of
  Asia Key                             28,210,000    282,100                           3,667,300                          3,949,400
Options exercised
  at $.12 in
  lieu of salary                        2,500,000     25,000                             275,000                            300,000
Options exercised
  at $.12 in
  lieu of salary                          500,000      5,000                              55,000                             60,000
Options exercised
  at $.12 in
  lieu of salary                        1,000,000     10,000                             110,000                            120,000
Qian Long
  subscription
  at $.40 Dec 12                       10,464,514    104,645 (10,464,514) (4,185,806)  4,081,161                4,839,601 4,839,601
2002 stock
  subscription
  deemed to be
  uncollectible                                                                          (74,561)                  74,561         -
Net loss for
  the year                -         -           -          -           -           -           -  (11,024,215)         -(11,024,215)
                  ---------   ------- ----------- ---------- ----------- ----------- ----------- ------------ ----------- ---------
Balance December
  31, 2004                -       $ - 139,726,004 $1,397,260 140,000,000 $29,400,000 $26,570,590 $(27,648,909)$(28,746,205)$972,736
                  =========   ======= =========== ========== =========== =========== =========== ============ ============ ========
</TABLE>


                  The accompanying notes are an integral part
                    of the consolidated financial statements
                                        6
<PAGE>

1.    BUSINESS DESCRIPTION AND ORGANIZATION

      NAME CHANGE AND REORGANIZATION

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

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

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

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

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


                  The accompanying notes are an integral part
                    of the consolidated financial statements
                                       7
<PAGE>

1.    BUSINESS DESCRIPTION AND ORGANIZATION (Continued)

      TECHNOLOGY

      Minghua China is the owner of patented technology ("Technology") relating
      to hybrid vehicles powered by a combination of a combustion diesel engine
      and an electric power system. Minghua China produced its first prototype
      hybrid vehicle ("Minghua Hybrid Vehicle") in 2000. Minghua China has sold
      only Minghua Hybrid Vehicles to date. All manufacturing by Minghua China
      of the Minghua Hybrid Vehicle is done in China. Minghua Hong Kong and
      Minghua China entered into an agreement in 2003 to acquire Guangzhou City
      View Bus Installation Company Limited ("Guangzhou"), a PRC corporation,
      which owns a license to manufacture buses in China. All production is
      presently being done in one non-automated (labor intensive) production
      facility in Guangzhou.

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

      CAPITAL RESOURCES, BUSINESS RISKS AND GOING CONCERN

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

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


                  The accompanying notes are an integral part
                    of the consolidated financial statements
                                       8
<PAGE>

1.    BUSINESS DESCRIPTION AND ORGANIZATION (Continued)

      CAPITAL RESOURCES, BUSINESS RISKS AND GOING CONCERN (Continued)

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

      RESTRICTIONS ON TRANSFER OF ASSETS OUT OF CHINA

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

      CONTROL BY PRINCIPAL STOCKHOLDERS

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


                  The accompanying notes are an integral part
                    of the consolidated financial statements
                                       9
<PAGE>

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, Top Team Holdings Limited, Ming Hua
      Environmental Protection Science and Technology Limited and Minghua China.
      The consolidated financial statements for 2004 include the accounts of
      Asia Key Group Limited, Euromax International Investments Limited, Beijing
      China Cardinal Real Estate Consulting Co., Ltd., Good View Bus
      Manufacturing Company Limited, Eagle Bus Development Limited, and
      Guangzhou, in addition to those previously listed. The consolidated
      statements have been prepared in accordance with accounting principles
      generally accepted in the United States of America. All significant
      intercompany transactions have been eliminated.

      The Company has determined The Peoples Republic of China Chinese Yuan
      Renminbi to be the functional currency of Minghua China. There were no
      material gains or losses recognized as a result of translating foreign
      currencies to the U.S. dollars due to the stability of the Yuan Renmibi
      currency in 2004 and 2003. No assurance however, can be given as to the
      future valuation of the foreign currencies and how further movements in
      the foreign currencies could affect future earnings of the Company.

      The balance sheets of Minghua Hong Kong and Minghua China were translated
      at year end exchange rates. The accompanying consolidated balance sheet
      includes net liabilities of $4,026,592 and $3,259,508, relating to the
      Company's foreign facilities in the People's Republic of China, at
      December 31, 2004 and 2003, respectively. Expenses were translated at
      exchange rates in effect during the year, substantially the same as the
      year end rates.

      MINORITY INTEREST IN SUBSIDIARIES

      The Company records minority interest expense, which reflects the portion
      of the earnings of Guangzhou, which are applicable to Guangzhou Public
      Automobile Company (10.2% - December 31, 2004). The minority stockholders
      are not required to fund the Company's deficits; therefore, no minority
      interest in subsidiaries was recorded on the balance sheet and statements
      of operations at December 31, 2004 and 2003. See also notes 1 and 3
      relating to the Minority Interest.

      START-UP COSTS

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


                  The accompanying notes are an integral part
                    of the consolidated financial statements
                                       10
<PAGE>

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

      USE OF ESTIMATES

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

      SIGNIFICANT ESTIMATES

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

      REVENUE RECOGNITION

      The Company recognizes revenue as earned when the following four criteria
      are met: (1) pervasive evidence of an arrangement exists; (2) delivery has
      occurred or the services have been rendered; (3) the seller's price to the
      buyer is fixed or determinable; and (4) collectibility is reasonably
      assured.

      CASH AND CASH EQUIVALENTS

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

      PROPERTY AND EQUIPMENT

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


                  The accompanying notes are an integral part
                    of the consolidated financial statements
                                       11
<PAGE>

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

      PROPERTY AND EQUIPMENT (Continued)

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

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

      ---------------------------------------------- ---------------------------
                                                             Estimated
                                                            Useful Life

      ---------------------------------------------- ---------------------------
      Transportation equipment                                5 years
      ---------------------------------------------- ---------------------------
      Office, computer software and equipment                 5 years
      ---------------------------------------------- ---------------------------
      Furniture and fixtures                                  5 years
      ---------------------------------------------- ---------------------------
      Production equipment                                    10 years
      ---------------------------------------------- ---------------------------
      Building and improvements                               20 years
      ---------------------------------------------- ---------------------------
      Construction in progress                                20 years
      ---------------------------------------------- ---------------------------

      INTANGIBLE 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 not amortized, but are
      reviewed annually for impairment, or more frequently, if indications of
      possible impairment exist. The Company has performed the requisite annual
      transitional impairment tests on intangible assets and made the impairment
      adjustments as necessary.

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


                  The accompanying notes are an integral part
                    of the consolidated financial statements
                                       12
<PAGE>

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

      INTANGIBLE ASSET (Continued)

      As a result of the acquisition of Ghangzhou, the Company acquired certain
      licenses from the PRC. These licenses have finite lives and are being
      amortized ratably over their useful lives using the historical cost of
      Ghangzhou. Components of "Licenses" in the consolidated balance sheet at
      December 31, 2004 consisted of:

<TABLE>
<CAPTION>
                                                               Accumulated
                                        Life       Cost        Amortization          Net
                                        ----       ----        ------------          ---

<S>                                   <C>      <C>                <C>             <C>
      Industrial property rights      15 year  $  135,279         $ 88,634        $ 46,645
      Motor vehicle appraisal permit   5 year      71,254           64,324           6,930
      Land use rights                  5 year      24,190            8,668          15,522
      Bus manufacturing licenses       4 year   1,018,125          254,531         763,594
                                               ----------         --------         -------
                                               $1,248,848        $ 416,157       $ 832,691
                                               ==========       ==========       =========
</TABLE>

      ADVERTISING COSTS

      All costs associated with advertising and promoting the buses are expensed
      in the period incurred. Advertising expense was $24,357 and $8,917 for the
      years ended December 31, 2004 and 2003, respectively and $299,134 for the
      period from June 4, 1997 (inception) to December 31, 2004.

      INCOME TAXES

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

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


                  The accompanying notes are an integral part
                    of the consolidated financial statements
                                       13
<PAGE>

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

      RESEARCH AND DEVELOPMENT COSTS

      Company sponsored research and development costs, related to both present
      and future products, are charged to operations when incurred and are
      included in operating expenses. Expenditures for research and development
      for the years ended December 31, 2004 and 2003 were $33,359 and $0,
      respectively and a cumulative amount of $8,809,088 for the period from
      June 4, 1997 (inception) to December 31, 2004. Of this cumulative amount,
      $8,612,730 was the amount spent by Minghua Hong Kong shareholders to
      develop the patent, prior to the reverse merger.

      RELATED PARTY TRANSACTIONS AND STOCKHOLDER'S LOANS

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

      During the year ended December 31, 2003, the Company provided consultancy
      services to Minghua Real Estate at the request of its Chairman, in an
      amount included in other income of $115,385. No such income was received
      during 2004.

      LOSS PER SHARE

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

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

                                                        Year ended December 31,
                                                         2004             2003
                                                         ----             ----
NUMERATOR FOR BASIC AND DILUTED LPS
Net loss to common stockholders                       $(11,024,215) $(1,761,393)
                                                      ============  ===========

DENOMINATOR FOR BASIC AND DILUTED LPS
Weighted average shares of common stock outstanding    115,065,000   52,032,906
                                                      ============  ===========

LPS  - Basic and diluted                                   $ (0.10)     $ (0.03)
                                                      ============  ===========

      No dilution resulted from the 4,000,000 and 8,000,000 employee stock
      options outstanding at December 31, 2004 and 2003, respectively, because
      of the net loss reported in the statement of operations in both years.


                  The accompanying notes are an integral part
                    of the consolidated financial statements
                                       14
<PAGE>

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

      EQUITY BASED COMPENSATION

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

      COMPREHENSIVE LOSS

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

      The exchange rate for RMB to US dollars has varied by only 100ths during
      2004 and 2003, and from June 4, 1997 (inception) to December 31, 2004.
      Thus, the consistent exchange rate used has been 8.28 RMB per each US
      dollar. Since there have been no greater fluctuations in the exchange
      rate, there is no gain or loss from foreign currency translation and no
      resulting other comprehensive income or loss.

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

3.    BUSINESS ACQUISITIONS

      On March 13, 2003, Ming Hua Environmental Protection Science and
      Technology Limited, ("Ming Hua Science") a company incorporated in Hong
      Kong and owned by Top Team Holdings Limited, a BVI limited company, which
      is wholly-owned by Minghua Hong Kong, entered into a stock purchase
      agreement for the purchase of a net 51% ownership in Guangzhou City View
      Bus Installation Company Limited. The purchase price was $965,985 and
      4,300 shares (43%) of the total authorized shares of Ming Hua Science to
      Mr. Kok Sin Keung. This acquisition was made in order to obtain a
      production facility to manufacture the Minghua Hybrid Vehicle. The Company
      received formal approval on this acquisition from the State Administration
      for Industry and Commerce of the People's Republic of China of the 51%
      interest acquired and title (ownership) passed to the Company on January
      27, 2004.


                  The accompanying notes are an integral part
                    of the consolidated financial statements
                                       15
<PAGE>

3.    BUSINESS ACQUISITIONS (Continued)

      On October 21, 2004, Minghua USA purchased the 43% interest in Minghua
      Science from Mr. Kok Sin Keung for $724,489 in cash through its wholly
      owned subsidiary, Euromax International Investments Limited, a company
      incorporated in Hong Kong. The result of these transactions is that the
      Company obtained 89.8% interest in Guangzhou for a total cash price of
      $1,690,474.

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

      In 2002, Citic Worldwide Limited ("Citic") was engaged as a consultant for
      the Company. The Company agreed to issue 800,000 shares of the Company's
      common stock for services rendered in connection with the acquisition of
      the Guangzhou City View Bus Installation Company Limited. The shares to be
      issued will be valued at an approximate market value of $.30 per share for
      a total consideration of $240,000 for its services. This amount is
      included in accrued liabilities on the balance sheet at December 31, 2004.

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

4. STOCKHOLDERS' DEFICIENCY

      ISSUANCE OF COMMON STOCK

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

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


                  The accompanying notes are an integral part
                    of the consolidated financial statements
                                       16
<PAGE>

4.    STOCKHOLDERS' DEFICIENCY (Continued)

      ISSUANCE OF COMMON STOCK (Continued)

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

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

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

      On January 29, 2004 a second stock subscription agreement was entered into
      with Qiang Long. The second agreement calls for the purchase of
      140,000,000 shares of the Company's common stock at a purchase price of
      $.21 per share, for an aggregate consideration of $29,400,000. Qiang Long
      will become the controlling stockholder of the Company as a result of this
      second agreement. The agreement has been amended twice to extend the due
      dates of the payments. Accordingly, Qiang Long is to pay in the first
      required installment, $12,600,000 for 60,000,000 shares on or before
      December 31, 2005. The final installment of $16,800,000 is due by December
      31, 2006. During 2004 the Company received $653,795 as a partial payment
      toward the first installment. Prior to the issuance of the shares, the
      Company is required to hold a stockholders meeting to increase the number
      of common shares authorized, in order to have enough common shares to
      satisfy its stock obligations to Qiang Long.

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

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


                  The accompanying notes are an integral part
                    of the consolidated financial statements
                                       17
<PAGE>

4.    STOCKHOLDERS' DEFICIENCY (Continued)

      ISSUANCE OF COMMON STOCK (Continued)

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

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

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

      COMMON STOCK

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

      Common stock - par value $0.01      Authorized      Issued and outstanding
      ---------------------------------- --------------   ----------------------
            December 31, 2004             200,000,000          139,726,004
      ---------------------------------- --------------   ----------------------
            December 31, 2003             200,000,000           53,507,709
      ---------------------------------- --------------   ----------------------

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

      STOCK OPTION PLAN

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


                  The accompanying notes are an integral part
                    of the consolidated financial statements
                                       18
<PAGE>

4.    STOCKHOLDERS' DEFICIENCY (Continued)

      STOCK OPTION PLAN (Continued)

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

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

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

      The aforementioned options have fully vested at December 31, 2004
      according to the following vesting schedule:

      a.    20% of the shares vest on the first day of the sixth month following
            the date of grant.
      b.    20% of the shares vest on the first annual anniversary of the date
            of grant.
      c.    2.5% of the shares vest on the first day of each month following the
            first annual anniversary of the date of grant.

      In 2001, 2,000,000 nonqualified performance stock options were issued
      outside the stock option plan to the Chairman at $1.75 per share that vest
      only if the Company's annual revenues reach $50,000,000. At December 31,
      2004, none of these options had vested.

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

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


                  The accompanying notes are an integral part
                    of the consolidated financial statements
                                       19
<PAGE>

4.    STOCKHOLDERS' DEFICIENCY (Continued)

      STOCK OPTION PLAN (Continued)

      Stock option transactions are summarized as follows:

                                                    Stock Options
                                               2004             2003
                                               ----             ----
      Outstanding - beginning of year        8,000,000         4,000,000
      Granted                                       --         4,000,000
      Exercised                              4,000,000                --
      Forfeited                              4,000,000                --
                                            ----------                --
      Outstanding - end of year                     --         8,000,000
                                            ==========        ==========

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

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

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

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

      The Company's pro forma information for the years ended December 31, 2004
      and 2003 prepared in accordance with the provisions of SFAS No. 148, is
      provided below. For purposes of pro forma disclosures, stock-based
      compensation is amortized to expense on a straight-line basis over the
      vesting period.


                  The accompanying notes are an integral part
                    of the consolidated financial statements
                                       20

<PAGE>

4.    STOCKHOLDERS' DEFICIENCY (Continued)

      STOCK OPTION PLAN (Continued)

<TABLE>
<CAPTION>
                                                                      2004             2003
                                                                      ----             ----
<S>                                                              <C>                <C>
      Net loss, as reported                                      $ (11,024,215)     $ (1,761,393)
      Deduct: total stock-based employee compensation
        determined under fair value based method for
        all awards, net of related tax effects                        (525,000)       (1,844,616)
                                                                   -----------        ----------
      Pro forma net loss                                           (11,549,215)       (3,606,009)
                                                                   ===========        ==========

      Basic and diluted LPS - as reported                              $ (0.10)          $ (0.03)
                                                                   ===========        ==========

      Basic and diluted LPS - pro forma                                $ (0.10)          $ (0.07)
                                                                   ===========        ==========
</TABLE>

5.    INVESTMENT

      The Company has a one year deposit certificate with a financial
      institution in the PRC. The certificate earns interest at 8% per annum.
      The principal amount at December 31, 2004 is $1,935,172 and is recorded on
      the balance sheet as a short term investment.

6.    INVENTORIES

      Inventories at December 31 consist of :
                                                                         2004
                                                                         ----

      Materials                                                      $ 495,129
      Low value consumables                                             46,360
      Costs of production                                              289,204
      Finished goods                                                   251,240
                                                                     ----------
         Subtotal                                                     1,081,933
      Less: reserve for obsolescence                                   (173,882)
                                                                     ---------
      Net inventories                                                $ 908,051
                                                                     ---------


                  The accompanying notes are an integral part
                    of the consolidated financial statements
                                       21
<PAGE>

7.    PROPERTY AND EQUIPMENT

      Property and equipment at cost consists of:

                                                   2004             2003
                                                   ----             ----
      Model buses                               $ 315,780        $ 393,938
      Transportation equipment                    259,234                -
      Furniture and office equipment              379,104          264,361
      Production equipment                        236,304                -
      Buildings and improvements                1,252,969                -
      Idle equipment                               30,575                -
                                             ------------        ---------
        Subtotal                                2,473,966          658,299
      Less: accumulated depreciation           (1,263,557)        (294,023)
                                              -----------        ---------
      Net property and equipment              $ 1,210,409        $ 364,276
                                             ------------        ---------

      Depreciation expense for the years ended December 31, 2004 and 2003 was
      $130,184 and $163,943, respectively.

8.    NOTES PAYABLE

      BANK

      The bank loans consist of two separate credit line agreements with a
      weighted average interest rate of 9% per annum, denominated in Chinese
      Yuan Renminbi, from two Chinese banks. The loans are secured by a
      guarantee given by a third party. The United States dollar equivalent of
      the outstanding loans balance at December 31, 2004 and 2003 was $649,492
      and $649,492, respectively.

      As of December 31, 2004, Minghua China is in default with all notes
      payable, with a total principal balance past due of $649,492. On March 1,
      2005, the Company paid off the larger of the two notes. Minghua China
      continues to accrue interest on its outstanding notes payable. Assets are
      not subject to lien from these notes payable in default.

      CONVERTIBLE PROMISSORY NOTE

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


                  The accompanying notes are an integral part
                    of the consolidated financial statements
                                       22
<PAGE>



8.    NOTES PAYABLE (Continued)

      CONVERTIBLE PROMISSORY NOTE (Continued)

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

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

      Total interest expense incurred and charged to expense was $13,682 and
      $492,250 for the years ended December 31, 2004 and 2003 respectively, and
      $660,190 for the period from June 4, 1997 (inception) to December 31,
      2004.

9.    INCOME TAXES

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

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

      The Company has a United States federal net operating loss carryforward of
      approximately $4.5 million expiring in the years 2021 - 2024. The tax
      benefit of this net operating loss has been offset by a full valuation
      allowance. A portion of the net operating loss carryforward will be
      subject to a limitation due to the "Change of ownership provisions" under
      Section 382 of the Internal Revenue Code and similar state provisions.


                  The accompanying notes are an integral part
                    of the consolidated financial statements
                                       23

<PAGE>

9.    INCOME TAXES (Continued)

      There are net operating loss carryforwards allowed under the Hong Kong and
      China governments' tax systems. In China, the previous five years net
      operating losses are allowed to be carried forward five years to offset
      future taxable income. In Hong Kong, prior years' net operating losses can
      be carried forward indefinitely to offset future taxable income. The
      Company has available approximately $18,752,294 of unused operating losses
      carryforwards. A deferred tax asset of $5,625,688 arising from these net
      operating losses and deferred start up costs, the only significant
      deferred tax assets or liabilities, has been fully offset by a valuation
      allowance due to the uncertainty of the Company having future taxable
      profits. The change in the valuation allowance, based on an estimated 30%
      tax rate, was approximately $887,000 for the year ended December 31, 2004.

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

10.   COMMITMENTS AND CONTINGENCIES

      LEASE COMMITMENT

      The Company leases office space from a related party, under a one year
      non-cancellable lease agreement that expires in June 2005.

      Minimum future rental payments under the non-cancellable operating lease
      as of December 31, 2004 for each of the next five years and in the
      aggregate are as follows:

      Period ended December 31,
             2005                             $ 3,205
             2006                                   -
             2007                                   -
             2008                                   -
             2009                                   -
          Thereafter                                -
                                              -------
      Total minimum future lease payments     $ 3,205
                                              =======

      Total rent expense for December 31, 2004 and 2003 was $26,129 and
      $181,543, respectively, of which $26,129 and $181,543, respectively, were
      paid to a related party.


                  The accompanying notes are an integral part
                    of the consolidated financial statements
                                       24

<PAGE>

10.   COMMITMENTS AND CONTINGENCIES (Continued)

      PURCHASE COMMITMENT

      The Company has a purchase commitment as of December 31, 2004 to purchase
      equipment for a total of $102,564.

      LEGAL PROCEEDINGS

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

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

11.   SUPPLEMENTAL CASH FLOW INFORMATION

      There were no interest and income taxes paid in cash for the years ended
      December 31, 2004 and 2003.

      NON-CASH TRANSACTIONS

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

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

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

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


                  The accompanying notes are an integral part
                    of the consolidated financial statements
                                       25

<PAGE>

12.   FAIR VALUE OF FINANCIAL INSTRUMENTS

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

      As a result of the difficulties presented in the valuation of the loans
      payable to related entities/parties because of their related party nature,
      estimating the fair value of these financial instruments is not considered
      practical. The fair values of all other assets and liabilities do not
      differ materially from their carrying amounts. None of the financial
      instruments held are derivative financial instruments and none were
      acquired or held for trading purposes in 2004 and 2003.

13.   NEW ACCOUNTING PRONOUNCEMENTS

      In May 2004, the Emerging Issues Task Force of the FASB came to a
      consensus regarding EITF 02-14 "Whether an Investor Should Apply the
      Equity Method of Accounting to Investments Other Than Common Stock". The
      consensus of the task force is that the equity method of accounting is to
      be used for investments in common stock or in-substance common stock,
      effective for reporting periods beginning after September 15, 2004. The
      Company currently has no equity investments other than its consolidated
      subsidiaries. As such, this standard has no application to the Company.

      In November 2004, the FASB issued Statement No. 151, "Inventory Costs".
      SFAS No. 151 requires that items such as idle facility expense, excessive
      spoilage, double freight, and rehandling costs be recognized as current
      period charges and that allocation of fixed production overheads to the
      costs of conversion be based on the normal capacity of the production
      facilities. The statement is effective for fiscal periods beginning after
      June 15, 2005. The Company believes that the application of SFAS No. 151
      will have no significant impact on the financial statements.

      In December 2004, the FASB issued Statement No. 153, "Exchange of
      Non-Monetary Assets". SFAS No. 153 confirms that exchanges of nonmonetary
      assets are to be measured based on the fair value of the assets exchanged,
      except for exchanges of nonmonetary assets that do not have commercial
      substance. Those transactions are to be measured at entity specific
      values. The Company believes that the application of SFAS No. 153 will
      have no significant impact on the financial statements.


                  The accompanying notes are an integral part
                    of the consolidated financial statements
                                       26

<PAGE>

13.   NEW ACCOUNTING PRONOUNCEMENTS (Continued)

      In December 2004, the FASB issued SFAS No. 123 (revised 2004),
      "Share-Based Payment," which amends SFAS No. 123, "Accounting for
      Stock-Based Compensation." SFAS No. 123, as revised, requires public
      entities to measure the cost of employee services received in exchange for
      an award of equity instruments based on the grant-date fair value of the
      award. The cost will be recognized over the period during which an
      employee is required to provide service in exchange for the award. No
      compensation cost is recognized for equity instruments for which employees
      do not render the requisite service. The effective date for the Company is
      the first reporting period beginning after December 15, 2005. Management
      expects that the application of SFAS No. 123 (revised 2004) may have an
      adverse effect on its results of operations, should the Company issue
      stock options to its employees under its 2001 Stock Option Plan.

14.   SUBSEQUENT EVENTS

      On January 18, 2005, the Company issued 5,770,000 shares of its common
      stock in satisfaction of the Luck Pond consulting agreement (note 4).
      1,770,000 of the shares were valued at $.13 and 4,000,000 were valued at
      $.15, for a total valuation of $830,100, in accordance with the terms of
      the agreement.

                  The accompanying notes are an integral part
                    of the consolidated financial statements
                                       27
<PAGE>

                                  EXHIBIT INDEX

Exhibit No. Description
----------- --------------------------------------------------------------------

10.23       Technology Development Contract, dated February 15, 2004, between
            Tsinghua University and the Company.

10.24       Sales Contract of Guangzhou Cityview Bus Installation Co., Ltd.,
            dated August 6, 2004, between Changsha United Electric Power Science
            and Technology Co., Ltd. and Guangzhou Cityview Bus Installation
            Co., Ltd.

10.25       Lease Agreement, dated May 30, 2004, between Liu Gui Zhi and Beijing
            China Cardinal Real Estate Consulting Ltd.

10.26       Lease Agreement, dated May 20, 2004, between Shenzhen Minghua
            Environmental Protection Vehicle Co., Ltd. and Richard Zhang.

21          A description of the subsidiaries of the registrant

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

32          Section 1350 Certifications