FORM 10-KSB
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

     For the fiscal year ended: December 31, 2004

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

                        Commission file number: 001-14244
                                                ---------

                         GLAS-AIRE INDUSTRIES GROUP LTD.
                         ------------------------------
                 (Name of small business issuer in its charter)

         Nevada                                         84-1072256
-----------------------------------             -------------------------------
(State  or other  jurisdiction  of             (IRS Employer Identification No.)
incorporation  or organization)

                 145 Tyee Drive, #1641, Point Roberts, WA 98281
                   ------------------------------------------
                (Mailing address of principal executive offices)

                 Registrant's telephone number: (360)-447-0210
                                                 -------------
Securities registered under Section 12(b) of the Exchange Act:

   Title of each class                 Name of each exchange on which registered
Common Stock, $0.01 par value                        Pink Sheets
-----------------------------                        -----------

Securities registered under Section 12(g) of the Exchange Act:   Common Stock
                                                               ----------------
                                                               (Title of class)

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

Yes   X     No
     ---      ----

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B 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 /

State  registrant's  revenues for its most recent fiscal year: $1,637,755

As of December 31, 2004, the aggregate  market value for the 1,046,663 shares of
the  Common  Stock,  $0.01 par  value  per  share,  held by  non-affiliates  was
approximately $10,467.

The  number  of  shares  of Common  Stock of the  registrant  outstanding  as of
December 31, 2004 were 2,711,213,  not including 93,718 shares of treasury stock
held by the Company.

Transitional Small Business Disclosure Format:   Yes  /__/       No / X/



<PAGE>


                                TABLE OF CONTENTS
<TABLE>
<CAPTION>

                                                                                                            PAGE
PART I
<S>  <C>          <C>                                                                                        <C>
     Item 1.      Description of Business                                                                      1
     Item 2.      Description of Property                                                                     19
     Item 3.      Legal Proceedings                                                                           20
     Item 4.      Submission of Matters to a Vote of Security Holders                                         21

PART II
     Item 5.      Market for Common Equity and Related Stockholder Matters                                    21
     Item 6.      Management's Discussion and Analysis or Plan of Operation                                   23
     Item 7.      Financial Statements                                                                        31
     Item 8.      Changes in and Disagreements With Accountants on
                    Accounting and Financial Disclosure                                                       32

PART III
     Item 9.      Directors, Executive Officers, Promoters and Control Persons;
                    Compliance with Section 16(A) of the Exchange Act                                         32
     Item 10.     Executive Compensation                                                                      34
     Item 11.     Security Ownership of Certain Beneficial Owners
                    and Management                                                                            38
     Item 12.     Certain Relationships and Related Transactions                                              39

PART IV
     Item 13.     Exhibits and Reports on Form 8-K                                                            40
     Item 14.     Controls and Procedures                                                                     40

SIGNATURES                                                                                                    41
</TABLE>


Glas-Aire Industries Group Ltd.     -ii-         Form 10-KSB @ December 31, 2004
<PAGE>


                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

BUSINESS

         Except for  historical  information  contained  herein,  the  following
discussion   contains   forward-looking   statements   that  involve  risks  and
uncertainties.  Such forward-looking statements include, but are not limited to,
statements regarding future events and the Company's plans and expectations. The
Company's  actual results could differ  materially from those discussed  herein.
Factors that could cause or contribute to such differences  include, but are not
limited  to,  those  discussed  below  under  "Factors  That May  Affect  Future
Results," as well as those discussed elsewhere in this Form 10-KSB.

         We have based the Specialty Equipment Market Association  ("SEMA") data
and other statistical information in this Annual Report, on information supplied
by SEMA and various  public  announcements  and filings  made by other  industry
associations. We have also relied on other sources that we believe are reliable.
While we believe that the  information  is accurate,  we have not  independently
verified any of this information or such  announcements  and filings,  and it is
possible  they may not be accurate in all material  respects.  In addition,  the
Company's  business  is  subject  to  continual  changes,  and  because of these
changes,  our estimates of our expected  industry position may become inaccurate
at any time.

         As used in this Annual Report,  the terms "our," "us" and "we" refer to
Glas-Aire Industries Group Ltd.

OVERVIEW

       Glas-Aire  Industries  Group  Ltd.  ("Glas-Aire"  or the  "Company")  was
incorporated on September 29, 1992, pursuant to the laws of the State of Nevada.
Glas-Aire designs,  develops,  manufactures and markets sunroof wind deflectors,
hood protectors,  rear air deflectors and door visors for cars, light trucks and
vans.  The Company uses plastics (as the major raw  material) and  thermoforming
technology  to produce these  products.  We supply our products  principally  to
automotive  original  equipment  manufacturers  ("OEMs").  The  OEMs  we  supply
include:  Honda, Nissan,  General Motors,  Hyundai Motor America, Inc. and other
North American/Japanese automotive manufacturers.

         Our principal  executive offices are located at 145 Tyee Drive,  #1641,
Point Roberts, Washington 98281, and our telephone number is (360) 447-0210.

         On March 24, 2004, the wholly owned subsidiary of Glas-Aire  Industries
Ltd,  the  Canadian  Operation,  filed for  bankruptcy  and on July 31, 2004 the
United States  subsidiary of Glas-Aire  Industries Inc. in Washington closed its
warehouse operation.

         In December 2001, Glas-Aire acquired Wonder Tool, Inc. ("Wonder Tool"),
a wholly-owned  subsidiary of Cyclo Manufacturing Company ("Cyclo").  The Wonder
Tool  acquisition  was  accounted  for  as a  reverse  acquisition  because  the
shareholders  of Wonder Tool became  controlling  shareholders  of the  Company.
Cyclo received  1,250,000 shares of Glas-Aire's  common stock (which constituted
approximately 50.7% of the Company's total outstanding voting stock) in exchange

Glas-Aire Industries Group Ltd.     -1-          Form 10-KSB @ December 31, 2004
<PAGE>

for  1,000  shares  of Wonder  Tool's  common  stock.  As a  consequence  of the
acquisition,  Wonder  Tool  became a  wholly-owned  subsidiary  of the  Company.
Immediately following the consummation of the acquisition, Cyclo transferred the
Glas-Aire shares it received in the acquisition to Robert C. Johnson and Raymond
J.  Gherardini.  Under these  circumstances,  United States  Generally  Accepted
Accounting  Principles  ("GAAP")  requires that Wonder Tool be identified as the
accounting acquirer.

         On January 9, 2003, we completed the sale of  substantially  all of the
assets and  certain of the  liabilities  of Wonder  Tool,  pursuant  to an Asset
Purchase  Agreement (the "WTI Asset Sale").  The transaction was effective as of
January 1, 2003,  although  the Asset  Purchase  Agreement  was executed and the
closing occurred on January 9, 2003.

         The Company sold the assets  associated  with the Wonder Tool pneumatic
polishers,   electric  polishers,  double  drum  pole  polishers,  cleaning  and
polishing compounds,  polishing bonnets, associated accessories,  airline toilet
deodorants,  and wet/dry vacuum cleaning  machines,  including the  intellectual
property  associated with these assets. The consideration for the WTI Asset Sale
was $720,140 in cash, a $200,000  promissory note and up to $200,000 that may be
earned pursuant to an earn out provision in the Asset Purchase Agreement.

         The Company's Consolidated Financial Statements included in this Annual
Report on Form 10-KSB reflect the financial position,  results of operations and
cash  flows  of the  Wonder  Tool  business  as  "discontinued  operations."  In
accordance  with Statement of Financial  Accounting  Standards  ("SFAS") No. 144
("SFAS No.  144"),  "Accounting  for the  Impairment  or Disposal of  Long-lived
Assets," the Company's  Consolidated  Financial Statements have been restated to
reflect the  financial  position,  results of  operations  and cash flows of the
Wonder Tool business as "discontinued operations."

BUSINESS SEGMENTS

         Prior to the WTI Asset Sale, Glas-Aire operated two business segments -
Automotive  Accessories and Orbital  Polishing.  The operations of each of these
segments were conducted in separate subsidiary companies.

AUTOMOTIVE ACCESSORIES

         PRINCIPAL PRODUCTS.

         We  design,  manufacture  and  market  sunroof  wind  deflectors,  hood
protectors, rear air deflectors and door visors for cars, light trucks and vans.
Management  believes that we provide  superior  product quality to customers who
are leaders within the OEM industry.

         BUSINESS STRATEGY.

         Management's  strategies  for future  operations  and  expansion are as
follows:

         INCREASING PRODUCTION  CAPACITY/EFFICIENCY.  We enhanced our production
capacity by the use of additional  capital equipment and leasing larger premises
for  operations.  We are moving  forward with our plan to  incorporate  the Cell
method  of   manufacturing   utilized  by  many  large   Japanese  and  American

Glas-Aire Industries Group Ltd.     -2-          Form 10-KSB @ December 31, 2004
<PAGE>

manufacturers. This concept involves conduct of the entire manufacturing process
in units or cells on a flow basis in order to avoid  delays  related to staging.
This concept  provides for the layout of operating in a tight sequence to permit
single piece flow and flexible  deployment of human effort.  A product  proceeds
from design to launch,  order to delivery,  and into the hands of customers with
reduction  of scrap,  reduction  of labor costs with little or no  backflows  or
stoppages.

         INCREASING  SALES TO  AUTOMOBILE  MANUFACTURERS.  Virtually  all of our
sales are to automobile manufacturers.  Management believes that increased sales
to automobile  manufacturers  can be accomplished  through sales of existing and
new  products  to current as well as  potential  new  clients in North  America,
Japan, South America and Europe.

         CONTINUE RESEARCH AND DEVELOPMENT ACTIVITIES.  Management believes that
a key to our future  success is the  continual  development  of new products and
complimentary  processes  to meet  the  demands  and  needs of our  clients.  We
continue to conduct research and development  ("R&D")  activities to enhance our
existing  products,  design new  products and develop  associated  manufacturing
processes.  Often, our clients  participate in the development of the product as
well as the process in which it is developed.

         INVESTMENT IN OR ACQUISITION OF COMPLIMENTARY BUSINESSES,  TECHNOLOGIES
OR PRODUCT LINES. We continue to evaluate  opportunities for growth or expansion
of  our  business   through   investment  in  or  acquisition  of  complimentary
businesses,  current  or  emerging  technologies  or product  lines.  Management
believes  that  opportunities  to expand will be  available to us and intends to
investigate opportunities that are consistent with our goals and expertise.

         INFRASTRUCTURE   STRENGTHENING.    We   are   actively   pursuing   the
strengthening  of our  infrastructure  by  evaluating  integrated,  computerized
information technology systems to facilitate effective control functions that we
believe  are  important  to  efficiently  operate  and  manage  our  operations.
Management  believes that solid  internal  controls  combined with an integrated
information  technology  system will ensure a strong  infrastructure  to run our
organization and operations.

INDUSTRY OVERVIEW

         Our products are used in a diverse and growing market  comprised of all
automotive  after market  accessories,  dealer installed  accessories,  car care
products and other products  purchased by consumers for the purpose of improving
their vehicles'  appearance and/or performance.  SEMA is the automotive industry
association  involved in this particular  market segment.  The latest  published
data that the Company has from SEMA is presented below.  Manufacturer's sales of
specialty  automotive  products  increased  from  $2.35  billion in 1985 to $8.6
billion in 2000.  During this period,  retail sales increased from $4.35 billion
to $24.86 billion. Our products compete in the  accessory/appearance  segment of
this market,  estimated to be approximately  $4.83 billion at the manufacturers'
level in 2000.  SEMA estimates that  accessories/appearance  products  represent
55.6%  of  the  total  specialty  equipment  market.  According  to  SEMA  data,
accessories/appearance  is the only segment of products that has shown increased
market share over the years increasing from 51.1% in 1996 to 55.6% in 2000.

Glas-Aire Industries Group Ltd.     -3-          Form 10-KSB @ December 31, 2004
<PAGE>

         The following  table shows the industry market share trend from 1990 to
2000 based upon the SEMA 2001 Market Study.
<TABLE>
<CAPTION>
   --------------------------------------------------------------------------------------------------------
                                    Industry Segment Market Share Trend*
   --------------------------------------------------------------------------------------------------------
            Segment              2000         1999         1998       1997           1996         1990
            -------              ----         ----         ----       ----           ----         ----
   -------------------------- ------------ ------------ ----------- ------------- ------------ ------------
<S>                               <C>           <C>         <C>        <C>           <C>            <C>
   Accessories and                55.6%         54.3%       53.2%      52.4%         51.1%          42.5%
   Appearance
   -------------------------- ------------ ------------ ----------- ------------- ------------ ------------
   Racing and Performance         20.0%         21.2%       22.2%      22.9%         24.1%          30.6%
   -------------------------- ------------ ------------ ----------- ------------- ------------ ------------
   Wheels, Tires and              24.4%         24.5%       24.6%      24.7%         24.4%          26.9%
   Suspension
   --------------------------------------------------------------------------------------------------------
   *  Source SEMA 2001 Market Study
   --------------------------------------------------------------------------------------------------------
</TABLE>

         According   to  SEMA,   for  the   period   from  1990  to  2000,   the
accessory/appearance  segment grew by 99.8%.  Sales increased from $4.35 billion
in 1990 to $8.69 billion in 2000.

         We operate in the OEM  portion of the SEMA  market  segment,  providing
products  to the  automotive  manufacturers  who  distribute  these  products to
consumers  through  their dealer  networks.  Management  believes that the parts
accessory  business has become an increasingly  important  profit center for the
automotive  manufacturers  at their  dealer  level and will  continue  to become
important based upon current economic  conditions and consumer  spending trends.
With a strong interest in providing  additional  profit  opportunities for their
vast dealer networks,  the manufacturers are increasing their own involvement in
developing  new and  enhanced  accessory  products.  These  products  are  often
included in "special trim  packages" and offered during the sale of the vehicle,
taking  advantage of a natural sales channel (i.e.,  dealers) as well as vehicle
financing which covers the accessory products with only a negligible increase in
monthly  payments.  Management's  studies  indicate  that  the  vast  number  of
strategically located dealers (e.g., GM has approximately 9,500 dealers in North
America),  their  background in  parts/accessories,  installation  expertise and
ability to offer almost  instant  financing  will increase their market share at
the expense of aftermarket channels.

         PRODUCTS.

         The table set forth below shows our sales on a percentage basis by type
of product sold during each of the periods indicated.

----------------------------------------------- -------------------------------
           Product Line                           Three Months      Year Ended
                                                     Ended
                                                    March 31,       December 31,
                                                      2004             2003
                                                      ----             ----
----------------------------------------------- ---------------- --------------
Sunroof Wind Deflectors                                 66%                 60%
----------------------------------------------- ---------------- --------------
Hood Protectors                                         25%                 30%
----------------------------------------------- ---------------- --------------
Rear Air Deflectors                                      6%                  8%
----------------------------------------------- ---------------- --------------
Door Visors                                              3%                  2%
----------------------------------------------- ---------------- --------------

         SUNROOF WIND DEFLECTORS.  Sunroof wind deflectors  reduce the noise and
ear  discomfort  resulting  from air  turbulence  created by open  sunroofs.  We
manufacture  sunroof wind deflectors for passenger cars,  sport utility vehicles
and mini-vans  equipped with electric  sliding  sunroofs.  We market our sunroof
wind deflectors in the United States, Canada, Japan and the United Kingdom.

Glas-Aire Industries Group Ltd.     -4-          Form 10-KSB @ December 31, 2004
<PAGE>

         HOOD  PROTECTORS.  Hood  protectors  are  designed  both to enhance the
appearance  of a vehicle and to protect the  windshield  and hood from  insects,
stones and other road debris.  We  manufacture  hood  protectors  for  crossover
vehicles  (vehicles  designed  to blend the ride and  handling  of cars with the
people and cargo  carrying  capacity of sport utility  vehicles),  sport utility
vehicles,  light duty pickup trucks and mini-vans. We market our hood protectors
in the United States, Canada and Japan.

         REAR AIR  DEFLECTORS.  Rear air deflectors are mounted on the roof of a
sport utility  vehicle or mini-van over the rear hatchback door. This product is
designed  to reduce  dust and  grime  buildup  on the rear  window  and  improve
visibility.  We manufacture  rear air deflectors for sport utility  vehicles and
mini-vans. We market our rear air deflectors in the United States and Canada.

         DOOR  VISORS.  Door  visors  allow  for air  circulation,  keep out the
elements and reduce wind noise when windows are open.

         NEW PRODUCTS.  With every new model of automobile  brought to market by
our  customers,  we must  design,  develop  and deploy our  products to meet the
design  specifications of the new models.  Thus, we are continually  engineering
and developing new molds and products to meet these specifications for these new
products.

         In order to build on our  basic  product  groups  (i.e.,  sunroof  wind
deflectors,  hood protectors,  rear air deflectors and door visors), we continue
to  development  new products in order to address our  clients' and  prospective
clients'   demands.   We  intend  to  continue   producing  our  products  on  a
cost-effective   basis  with  unique  designs,   superior  finishes,   alternate
attachment  mechanisms and  dimensional  accuracy.  This strategy is expected to
increase our competitiveness and help expand our target markets.

         OBSOLESCENCE/DESIGN  CHANGES.  Due  to  automobile  design  changes  by
automobile  manufacturers,  our automotive  products will become obsolete and/or
require  modification.  Continued  utilization  of our  products  by the OEMs is
substantially  dependent  upon our  ability to quickly and  reliably  adjust the
design  of  our  products  to  conform  to  design  changes  by  the  automobile
manufacturers.  We intend to  continue  improving  our lead  times by using more
efficient  design software and innovative  prototype tools  fabricated in house,
and changes in the design process in keeping with the Cell manufacturing method.
This process will further reduce lead times by  facilitating  remote fittings of
prototypes anywhere in the world.

         MARKETING AND SALES.

         Sales are made directly by the Company.  We promote the Company and our
products  primarily  through personal  contact,  brochures,  attendance at trade
shows, press releases, etc. We provide access to information on our filings with
the United States  Securities  and Exchange  Commission  and our products on our
website www.glasaire.com.

         During the year ended  December  31,  2004,  prior to the  cessation of
operations  and the  bankruptcy  filing of its  Canadian  operating  subsidiary,
approximately  100% of our  sales  were to  OEMs.  The  Company's  clients/joint
product development partners include DaimlerChrysler Corporation, General Motors

Glas-Aire Industries Group Ltd.     -5-          Form 10-KSB @ December 31, 2004
<PAGE>

Corporation, Gulf States Toyota, Inc., Honda Access America, Inc., Hyundai Motor
America,  KIA Motors America,  Inc.,  Mazda North America  Corporations,  Nissan
Canada,  Inc.,  Nissan North  America,  Inc.,  Saturn  Corp.,  Southeast  Toyota
Distributors,  LLC, Subaru of America,  Inc., Toyota Canada, Inc. and others. We
manufacture products according to specifications  either developed jointly with,
or provided by our clients, who in turn market the products,  on a retail basis,
under their own brand names through their dealership and distribution  networks.
Management  believes that we offer our customers high quality product design and
development capabilities.

         We received a number of awards from our customers and various  business
associations during the last ten years. The latest award was the "Valued Partner
2002" award from KIA Motors America, Inc.

         We sell our  automotive  accessories  products  in the  United  States,
Canada and Japan.  Net sales based upon total revenue to customers by geographic
area  consisted of the following  for each of the years ended  December 31, 2003
and three months ended March 31, 2004.
<TABLE>
<CAPTION>

----------------------------- ------------------------------------------------------------
                                                  March 31, December 31,
                                                      (in 000's)
                              ------------------------------- ----------------------------
                                           2004                          2003
----------------------------- ---------------- -------------- -------------- -------------
<S>                                <C>               <C>         <C>                <C>
United States                      $1,578            96.4%       $9,856             90%
----------------------------- ---------------- -------------- -------------- -------------
Canada                                $57             3.5%       $1,090            8.4%
----------------------------- ---------------- -------------- -------------- -------------
Japan                                  $3             0.1%          $34              1%
----------------------------- ---------------- -------------- -------------- -------------
Other                                   $              0.%         $115            0.6%
----------------------------- ---------------- -------------- -------------- -------------
</TABLE>

         We have contracts with two sales representative companies in the United
States who have established relationships with large automobile manufacturers in
North America as well as Japan.  As our sales  increase,  we may hire additional
personnel or may contract with other sales representatives.

         Management  plans to expand our product  offerings  by  increasing  the
number and type of products offered for sale, to expand our customer base and to
penetrate   into  new   market   segments.   (See   "Item  1.   Description   of
Business--Business Strategy.") Management's strategy to achieve these objectives
is described below:

         o    Representatives  of the Company  will  continue  traveling  to the
              United  States,  Japan,  Europe,  South  America,  China,  etc. to
              present  the  Company  and its  products  to  prospects  or  other
              potential strategic partners.

         o    We  will  continue   increasing   our  presence   (attendance   or
              participation)  in major trade shows in North America,  Europe and
              Japan associated with our products.

         o    We will continue to evaluate opportunities for growth or expansion
              of  our  business  through   investment  in  current  or  emerging
              technologies  or product lines. We believe that  opportunities  to
              expand  will  be  available  to  us  and  intend  to   investigate
              opportunities   that  are  consistent   with  our  goals  and  our
              expertise.

Glas-Aire Industries Group Ltd.     -6-          Form 10-KSB @ December 31, 2004

<PAGE>

         DISTRIBUTION.

         We generally  sell and ship our products  "F.O.B.  factory" and most of
our customers are responsible for the  transportation  of finished products from
our factory or warehouse  facility to their final  destination and bear the risk
of loss  during  transportation.  We  commonly  bulk ship  ordered  parts to the
customers' parts distribution  centers within a mutually  acceptable  lead-time,
varying from 59 minutes to 30 days.

         In the United  States and Canada,  we ship our  products to  customer's
parts  distribution  centers and vehicle  processing  centers.  For the Japanese
market,  the OEMs  generally  have one  centralized  distribution  center.  With
General Motors, we drop ship the ordered parts on behalf of our client, directly
to the General Motors' network of 9,500 dealers.

         We have Electronic Data  Interchange  ("EDI")  capability to facilitate
receipt of orders from  customers  and  transmission  of  invoices to  customers
electronically after shipment of parts.

         MAJOR CUSTOMERS.

         We sell  principally to automobile  manufacturers in the United States,
Canada and Japan.  For the three months  ended March 31, 2004,  sales based upon
our revenue in the United States,  accounted for 96.4% of the Company's revenues
(including   sales  to  United  States   subsidiaries   of  foreign   automobile
manufacturers),  sales in Canada accounted for 3.5% of these revenues, and sales
in other countries accounted for 0.1%.

         For most of our customers,  particularly the importer and Japanese auto
makers,  we  engage  in a  simultaneous  design/sales  process  with  the  OEM's
engineering and purchasing  organizations  that normally  results in a series of
purchase orders geared to coincide with the release of a particular car model.

         As  reflected  below,  we have three  major  customers  who,  together,
accounted for 72% or more of the Automotive  Accessories Division's sales during
the last fiscal year:
<TABLE>
<CAPTION>

--------------------------- ----------------------------------- ------------------------- ------------------------
                                                                  Three months ended            Year ended
         Customer                        Products                    March 31, 2004          December 31, 2003
         --------                        --------                    ---------------         -----------------
--------------------------- ----------------------------------- ------------------------- ------------------------
<S>                         <C>                                           <C>                      <C>
General Motors              Hood   protectors   and  rear  air            %0                        23%
(USA & CDN)                 deflectors
--------------------------- ----------------------------------- ------------------------- ------------------------
Honda Access                Sunroof wind  deflectors  and rear            31%                       29%
America, Inc.               air deflectors
--------------------------- ----------------------------------- ------------------------- ------------------------
Nissan North America, Inc.  Sunroof  wind   deflectors,   hood            28%                       26%
                            protectors and rear air deflectors
--------------------------- ----------------------------------- ------------------------- ------------------------
Gulf State/Southeast        Sunroof wind deflectors                       13%                       N/A
Toyota Inc.
--------------------------- ----------------------------------- ------------------------- ------------------------
</TABLE>

         We  manufacture  accessories  for the  majority of our  customers  on a
purchase  order/invoice  basis.  For General  Motors  Corporation  in the United
States,  we have a virtual  just-in-time  drop  shipment  program  utilizing our
operating and warehousing facilities in Bellingham, Washington.

Glas-Aire Industries Group Ltd.     -7-          Form 10-KSB @ December 31, 2004


<PAGE>

         COMPETITION.

         We have several  competitors who have substantially  greater technical,
financial and marketing  resources.  For the sunroof wind deflector market,  the
primary  competitor  has been Plastic  Form, a subsidiary  under the umbrella of
Masco Tech.  In the hood  protector  and rear air  deflector  market,  our major
competitor is Autotron,  a subsidiary of LUND  International  Holdings ("Lund").
EGR, an Australian based company and Auto Ventshade, an additional subsidiary of
Lund, produce hood protectors and door visors in competition with us.

         We  believe  that  the  principal  competitive  factors  we face in the
automobile accessories industry, in order of importance,  are quality,  customer
service and price.  Management believes that we can effectively compete with our
competitors  because of the high quality of our products and our  commitment  to
customer service and product innovation.

         MANUFACTURING.

         In June 2002 we moved our operations to a larger  facility in Richmond,
B.C.,  Canada.  Prior to this move, we conducted  operations  at the  Vancouver,
B.C., Canada facility. See "Item 2. - Description of Property."

         Our automotive  accessories  manufacturing  operation consists of three
major  functions:  (i)  thermoforming,  (ii)  machining,  and  (iii)  finishing.
Thermoforming  involves heating a sheet of acrylic to soften it and then molding
the  softened  acrylic  into  the  desired  shape.  We are  able  to  meet  auto
manufacturers' stringent surface requirements by using proprietary thermoforming
processes (e.g.,  Matched Compression Molding) and production tooling (including
milled aluminum tools), in a clean-air facility. We currently utilize slide-tray
and  state-of-the-art   in-line  thermoformers,   plus  a  three-station  rotary
thermoformer  that performs several  functions  simultaneously  without operator
intervention.  Machining  operations  are performed  with  three-axis as well as
five-axis  Computer  Numeric  Control ("CNC") routers to shape the blades of the
wind deflectors. Finishing includes: (i) polishing the edges of the blades; (ii)
stamping   identifying   marks   on   the   product;    (iii)   application   of
gasket/extrusion/brackets; (iv) labeling; (v)-cleaning; and (vi) boxing.

         RAW MATERIALS AND  SUPPLIERS.  Acrylic is the single most expensive raw
material used in manufacturing our products.  We currently  purchase our acrylic
from Acrylco  Manufacturing  Ltd. (a Canadian  distributor for Mitsubishi Canada
Limited),  Aristech  Acrylics  LLC in Florence,  Kentucky and Laird  Plastics (a
Canadian  distributor for Atofina  Chemicals,  Inc. in Pennsylvania).  We do not
have a long-term contract with any of these suppliers. If these suppliers should
become  unavailable in the future,  it is expected that other suppliers would be
readily available.

         In additional to acrylic,  the principal components in our products are
extrusions  (long  plastic  strips  used in  mounting  the  deflector  blades to
vehicles),  gaskets  for  sealing  deflector  blades  onto  vehicles'  roofs and
corrugated  boxes.  Supplies  of these  components  are readily  available  from
various suppliers.  We are exploring the possibility of acquiring supply sources
for  our  major  components,  and  are  investigating  development  of  our  own
manufacturing capability for certain of our major components.

Glas-Aire Industries Group Ltd.     -8-          Form 10-KSB @ December 31, 2004

<PAGE>

         The price of acrylic is connected  to the price of petroleum  and other
chemicals used in its construction.  We are susceptible to the fluctuating price
of acrylic  and a  significant  increase in the price of  petroleum  and acrylic
could have a material affect on of the price of acrylic.

         QUALITY  ASSURANCE.   We  are   ISO9001/QS9000   registered  and  these
international  quality standards control virtually all of our business practices
as well as our operations.

         Our mission  includes  providing  our clients with quality  products on
time  and  cost  effectively  based  on  innovative  engineering  solutions  and
manufacturing  processes.  The fitness-for-use of products/services is the vital
principle that guides all of our  activities.  Further,  the application of this
principle is demanded from all  suppliers.  One of our primary  objectives is to
support the need of our employees as well as suppliers to foster this principle.

         We warrant  our  products  to  coincide  with the  automobile  warranty
provided  by the  automobile  manufacturer  to the  consumer,  or in the case of
replacement  parts  and  accessories,  for the  balance  of the  life of the new
vehicle  warranty  or a minimum of 36 months or 36,000  miles  after the date of
installation on the vehicle, whichever is greater. We are obligated to reimburse
our OEM customers for all legitimate  quality  related  warranty  claims paid by
them.

         With the  exception of the fiscal  years  ending  December 31, 2003 and
December 31, 2004, our level of defective products should be approximately 1% of
annual net sales. For the three months ended March 31, 2004 it was approximately
0%.  This  change in the three  months  ended  March 31,  2004 was  deemed to be
primarily  the  result  of  timing.  In 2003 it was  7.64%  was the  result of a
chemical  reaction between a specific type of acrylic and the defective  gaskets
used on some sunroof wind deflectors, and included carryover of outstanding late
claim from a major customer that was related to product defects from prior year.
A significant amount of research has since been completed on the different types
of  gasket  materials  to  determine  compatibility  and the  problem  has  been
eliminated.  In response to such defects, we employed two outside consultants to
evaluate our processes,  procedures and supplies used in the  manufacture of our
products.  Additionally, we employed a new quality control manager to manage the
quality control process and we continuously  test the processes,  procedures and
supplies  used in the  manufacture  of our  products  to detect and  correct any
problems that may lead to defective products in the future.  However,  there can
be no  assurance  that  we will  not  incur  increased  defective  products  and
increased  warranty  claims.  See "Factors that May Affect Our Future  Results -
Increase in Warranty Claims."

         During the three months ended March 31, 2004,  we expensed  approximate
$38,000  related to warranty  claims as  compared to $847,875  during the fiscal
year ended December 31, 2003.

         RESEARCH AND DEVELOPMENT.

         We believe that our product  development  capabilities are important to
the future success of our business.  We have 14 permanent  employees  engaged in
R&D  at  our  Richmond  facility.   They  conduct  activities   associated  with
development  of  new  products,   improvements  to  existing  products  and  the
development of new manufacturing processes. Management believes that spending on
research and development activities will continue to support increased business.

Glas-Aire Industries Group Ltd.     -9-          Form 10-KSB @ December 31, 2004
<PAGE>

We expensed  $71,857 on research  and  development  activities  during the three
months ended March 31, 2004,  and  $560,796  during the year ended  December 31,
2003.

         PRODUCT DESIGN.

         We have all the necessary soft and hard  engineering  tools to meet the
exacting  standards for product design  imposed by our  automobile  manufacturer
clients.  Management  is also  optimistic  that we will  continue to shorten the
product  development  cycle through more efficient  design  processes as well as
enhanced  tooling.  We will  continue  improving  our lead  times by using  more
efficient  design software and innovative  prototype tools  fabricated in house,
and changes in the design process in keeping with the Cell manufacturing method.

         When the  design  of a vehicle  model  changes  configuration,  we must
retool our products to insure proper fit to the new vehicle.  Although  frequent
model or  configuration  changes  would  increase our costs,  tooling  costs are
frequently passed on to the customer,  often over a two-year period.  Successful
deployment of the new  production  process now under  development is expected to
result in improved quality, and less scrap/rework.

         SEASONALITY.

         Our products are not subject to  significant  seasonal  variation.  Our
backlog as of any given date is not a meaningful  measure of our future business
because our customers generally require rapid shipment of orders.

         PATENTS,  TRADEMARKS,  LICENSES,  FRANCHISES,  CONCESSIONS  OR  ROYALTY
AGREEMENTS.

         Currently,  we do not hold patents on any of our  automotive  accessory
products, nor do we have any licenses,  trademarks,  franchises,  concessions or
royalty  agreements.  During the period ended December 31, 2000, we filed patent
applications  for a  proprietary  molding  process  known as  Match  Compression
Molding  ("MCM.") In March 2003,  our patent  counsel  was  informed  that these
applications  would be denied by the United States  Patent and Trademark  Office
because of conflicts with other patent and trademarks. We also filed a trademark
application  for MCM in Canada,  which has been approved for  publication in the
Trademark  Journal  and will be allowed  for  registration  in due course in the
absence of any third party opposition.

         We rely on a combination of trade secret laws, employee and third party
disclosure  agreements and other  intellectual  property  protection  methods to
protect  our  proprietary  rights.  Although  our  competitive  position  may be
adversely   affected  by  unauthorized  use  of  our  proprietary   information,
management believes that the ability to fully protect our intellectual  property
is less  significant to our success than other  factors,  such as the knowledge,
ability and experience of our employees and our ongoing product  development and
customer support  activities.  There can be no assurance that the protections in
place by us will be adequate.

         There  can  be  no  assurance   that  third  parties  will  not  assert
infringement  or other claims  against us with respect to any existing or future
products,  or that  licenses  would be  available  if any of our  technology  or
products  were  successfully  challenged  by a  third  party,  or if  it  became
desirable to use any third party technology to enhance our products.  Litigation

Glas-Aire Industries Group Ltd.     -10-         Form 10-KSB @ December 31, 2004
<PAGE>

to protect our proprietary information or to determine the validity of any third
party claims could result in significant expense to us and divert the efforts of
our  technical  and  management  personnel,  whether or not such  litigation  is
determined in our favor.

         While we do not believe we are infringing upon the  proprietary  rights
of any third  party,  there can be no  assurance  that such  claims  will not be
asserted in the future with respect to any of our  existing or future  products.
Any such  assertion  by a third  party  could  require us to pay  royalties,  to
participate in costly  litigation and defend  licenses in any such suit pursuant
to indemnification  agreements, or to refrain from selling an alleged infringing
product or service.

         GOVERNMENT/ENVIRONMENT REGULATION.

         We are subject to federal,  provincial and local regulations concerning
consumer  products  and  occupational  safety and  health.  We believe  that our
operations  currently  comply  in all  material  respects  with  these  laws and
regulations.  In general, we have not experienced any difficulty  complying with
such regulations and compliance has not had a material affect on our business.

         We are subject to various federal,  provincial and local  environmental
laws and regulations.  Management believes that our operations  currently comply
in all  material  respects  with  applicable  laws and  regulations.  Management
believes the trend in environmental litigation and regulation is toward stricter
standards,  and that these stricter  standards may result in higher costs for us
and our competitors.  Such changes in the laws and regulations may require us to
make additional capital  expenditures  which, while not presently estimable with
certainty,  are not presently  expected to be material.  Costs for environmental
compliance and waste disposal have not been material in the past.

         ORBITAL POLISHING

         Pursuant to the  decision  to sell the Wonder  Tool assets in 2002,  in
January 2003, the Company sold the Wonder Tool assets.  For this reason,  Wonder
Tool has been reflected as discontinued operations in our consolidated financial
statements.

         PRINCIPAL PRODUCTS.

         During 2002, Wonder Tool, the Orbital  Polishing  segment  manufactured
and distributed a twin-head  aircraft and automobile orbital polisher as well as
polishing and detailing compounds, pads and additional supplies.

         ORBITAL   POLISHERS.   The  aircraft  and  automobile   polishers  were
manufactured  by Cyclo  under the name  "Wonder  Tool"  since  1953.  Management
believed  that prior to the WTI Asset  Sale,  Wonder Tool was one of the leading
manufacturers  of  orbital  polishers  sold into the  aircraft  maintenance  and
automobile detailing markets. The polisher features dual orbital action heads, a
lightweight balanced design and 4" heads to manage large areas and hard to reach
contours with equal  efficiency.  The polisher is versatile,  allowing the quick
change of bonnets,  discs,  pads,  and brushes to perform a variety of finishing
jobs.  Wonder  Tool  produced  a variety of  polishers  including  electric  and
pneumatic versions.

Glas-Aire Industries Group Ltd.     -11-         Form 10-KSB @ December 31, 2004
<PAGE>

         POLISHING  SUPPLIES.   Wonder  Tool  also  manufactured  polishing  and
detailing  compounds,  pads and  additional  supplies  for use with its  orbital
polisher.  The supplies included bonnets,  Velcro disks,  pads,  brushes,  and a
complete line of deoxidizing and polishing compounds.

         INDUSTRY OVERVIEW.

         The random  orbit  polisher  dates  back to the mid  1950's  when Cyclo
Manufacturing Company invented and developed the dual head orbital polisher. The
original  patents for single,  dual and the triple head orbital  polishers  came
from Cyclo. The orbital polisher plays a key role in the aircraft and automotive
polishing  and  detailing  industry by offering an  alternative  to polishing by
hand.  For over 45 years major  airlines  and the  military  have  utilized  the
aircraft  polisher in the appearance and  maintenance of aircraft,  missiles and
ground support equipment. The polishers are a reliable tool for car dealerships,
service stations, car washes and detail shops.

         MARKETING AND SALES.

         Wonder Tool sales were made directly by the Company.  A limited  amount
of resources was spent in this effort.

         DISTRIBUTION.

         We  directly  fulfilled  all orders  placed for orbital  polishers  and
related  suppliers to the auto detail industry via  distributors  and mail order
catalogues.  Shipments  were made on either a prepayment  basis or on a purchase
order with terms for larger, more established customers.

         MAJOR CUSTOMERS.

         We had  no  contracts  with  any of its  major  customers  for  orbital
polishers or products.  We used multiple  distributors  of our orbital  polisher
products and a total of over 3,000 customers worldwide.

         COMPETITION.

         We faced several competitors in the orbital polishing  industry.  Prior
to the WTI Asset Sale,  management  believed that the primary  competitors to be
Gem Industries, Inc. and Waxcoa/Chamberlain,  who both market only a single head
orbital polisher.

         MANUFACTURING.

         Wonder Tool orbital  polishing  products were  manufactured  in Denver,
Colorado.

         The orbital  polisher  manufacturing  process  consisted of  machining,
polishing,  installation,  finishing,  assembling  and  testing  of the  orbital
polisher.  Prior to the WTI  Asset  Sale,  we also  manufactured  in  house  the
majority of the chemical  product line as well as its bonnets and other  orbital
polisher accessories.

Glas-Aire Industries Group Ltd.     -12-         Form 10-KSB @ December 31, 2004
<PAGE>

         RAW  MATERIALS  AND  SUPPLIERS.   We  purchased   components  including
unfinished aluminum castings, gears, bearings,  electrical cords and motors used
in the  manufacturing  process of the orbital polisher and foam disks, wool pile
and raw  rubber  used in the  manufacturing  of  bonnets.  We did not  have  any
contracts with any of our suppliers.

         QUALITY  CONTROL.  The orbital  polisher was  manufactured  for over 45
years and we internally set its specifications and high quality standards. Prior
to the WTI Asset Sale,  we performed a testing  procedure to conduct  individual
inspections of each polisher to ensure proper  functioning  and compliance  with
its  specifications.  We did not  experience any  significant  problems with the
orbital polishing products.

         PRODUCT DESIGN.

         Tests were  performed  to determine  if  improvements  could be made to
either the orbital polisher or in the manufacturing and assembly process for the
orbital polisher.  Further,  tests were performed on alternative components such
as motors,  bearings and pads in an attempt to improve upon the  performance  of
the orbital polisher and related accessories. Adhesives were continuously tested
to ensure  orbital  pads  remain  intact  throughout  their use with the orbital
polisher.

         SEASONALITY.

         The orbital polishing products were not subject to significant seasonal
variation.

         PATENTS,  TRADEMARKS,  LICENSES,  FRANCHISES,  CONCESSIONS  OR  ROYALTY
AGREEMENTS.

         In connection with the WTI Asset Sale, we sold our rights in one patent
and three trademarks, including the Double Drum Polisher, Free-Flight, Soil-Zorb
and Solv-it.

         EMPLOYEES

         As of December 31, 2004, the Company had no employees and two executive
officers  working  without  salary as a result of the  bankruptcy  filing of its
Canadian  operating  subsidiary in March 2004,  and the closing of the warehouse
operation of its United States subsidiary in July 2004.

         On September  11,  2002,  the  Canadian  Auto  Workers  Labor Union was
certified by a vote that was monitored by the BC Labor Relations  Board. We were
successful in negotiating  the first  contract.  We believe there is an adequate
supply of suitable labor, as well as professionals, available.

         FACTORS THAT MAY AFFECT OUR FUTURE RESULTS

         You should carefully  consider the following  risks,  together with all
other information  included in this Annual Report. The realization of any of the
risks  described  below could have a material  adverse  effect on our  business,
results of operations and future prospects.

Glas-Aire Industries Group Ltd.     -13-         Form 10-KSB @ December 31, 2004
<PAGE>

         IMPORTANT FACTORS RELATED TO FORWARD-LOOKING  STATEMENTS AND ASSOCIATED
RISKS.  This  Report  contains  certain  forward-looking  statements  within the
meaning of Section 27A of the  Securities  Act of 1933, as amended,  and Section
21E of the Securities Exchange Act of 1934, as amended,  and the Company intends
that such  forward-looking  statements  be subject to the safe  harbors  created
thereby.  These  forward-looking  statements include the plans and objectives of
management for future operations, including plans and objectives relating to our
products  and  future  economic  performance.   The  forward-looking  statements
included herein are based on current expectations that involve a number of risks
and  uncertainties.  These  forward-looking  statements are based on assumptions
that we will continue in business as a "going concern," that we will continue to
develop, market and ship products on a timely basis, that competitive conditions
within the  automotive  industry will not change  materially or adversely,  that
demand  for our  products  will  remain  strong,  that we will  retain  existing
customers  and key  management  personnel,  that our forecasts  will  accurately
anticipate  market  demand,  that our bank will  continue to provide our various
credit  facilities and loans,  and that there will be no material adverse change
in our  operations or business.  Assumptions  relating to the foregoing  involve
judgments with respect to, among other things, future economic,  competitive and
market conditions and future business  decisions,  all of which are difficult or
impossible  to predict  accurately  and many of which are  beyond  our  control.
Although we believe the assumptions  underlying the  forward-looking  statements
are reasonable,  any of the assumptions  could prove inaccurate and,  therefore,
there can be no  assurance  that the  results  contemplated  in  forward-looking
information  will be realized.  In addition,  our  business and  operations  are
subject to  substantial  risks that  increase the  uncertainty  inherent in such
forward-looking  statements.  In light of the significant uncertainties inherent
in the  forward-looking  information  included  herein,  the  inclusion  of such
information  should not be  regarded as a  representation  by the Company or any
other person that the objectives or plans of the Company will be achieved.

         In  addition,  as disclosed  elsewhere  under other risk  factors,  our
business and  operations are subject to  substantial  risks,  which increase the
uncertainty  inherent  in  such  forward-looking  statements.  In  light  of the
significant  uncertainties inherent in the forward-looking  information included
herein,  the  inclusion  of  such  information  should  not  be  regarded  as  a
representation  by us or any other person that our  objectives  or plans will be
achieved.  The Private  Securities Reform Act of 1995 contains a safe harbor for
forward-looking  statements  on which we rely in  making  such  disclosures.  In
connection  with this safe harbor we are hereby  identifying  important  factors
that could cause actual results to differ materially from those contained in any
forward-looking  statements  made by or on our  behalf.  Any such  statement  is
qualified  by  reference to the  cautionary  statements  included in this Annual
Report.

         BANKRUPTCY  FILING  AND  CESSATION  OF  OPERATIONS.  In March  2004 the
Company's Canadian operating subsidiary declared bankruptcy and in July 2004 the
Company's  United States  subsidiary  closed its warehouse  facilities  and also
ceased  operation.  Management  does not  expect  the  Company  to  successfully
reorganize  and  resume  its prior  business.  It expects  the  Company  and its
subsidiary  to  liquidate  the business  and seek a new  acquisition  of another
private operating  company.  There is no assurance that the Company will ever be
successful in acquiring or operating another business,  or that its Common Stock
will ever have value.

         DEPENDENCE UPON MAJOR CUSTOMERS.  Our Automotive  Accessories  division
has three  customers,  which together,  accounted for  approximately  72% of our
sales during the three months ended March 31, 2004. See "Item 1.  Description of
Business - Major Customers." There can be no assurance that these customers will

Glas-Aire Industries Group Ltd.     -14-         Form 10-KSB @ December 31, 2004
<PAGE>

continue to purchase our products at these levels in the future. The loss of any
one of these major  customers,  or a significant  reduction in their  purchases,
would have a material adverse effect upon the Company.

         DEPENDENCE UPON INDUSTRIES. Our current products consist exclusively of
automobile accessories,  specifically sunroof wind deflectors,  hood protectors,
rear air deflectors and door visors. Accordingly, the market for our products is
tied to the success of the  automobile  industry,  and our success is  dependent
upon this industry. Demand in the automotive industry is significantly dependent
on the United States and global economies and our business and profitability are
exposed to current  and future  uncertainties  including a  continuation  of the
current  downturn in the economy.  Our operations are dependent upon  automotive
production and consumer demand.  The automotive market is highly cyclical and is
dependent  on consumer  spending  and is  particularly  sensitive  to changes in
interest  rates,  the level of  consumer  debt,  and  consumer  confidence.  The
military conflict with Iraq and other recent political and economic developments
have adversely  affected  consumer  confidence  throughout the United States and
much of the world. Any sustained weakness in demand or continued downtown in the
economy would have a material adverse effect upon our sales,  profitability  and
cash flow.

         DEPENDENCE UPON AUTOMOBILE  MANUFACTURERS IN JAPAN AND RELATED RISKS. A
significant percentage of our sales are to Japanese automobile  manufacturers in
the United States or Canadian subsidiaries of Japanese automobile manufacturers.
The passage of protectionist legislation, including increased import tariffs, or
public sentiment against imports could result in a decrease in sales of Japanese
automobiles which would have a direct negative impact on our sales. In addition,
the  economic  problems  experienced  in Japan could have a material and adverse
effect upon Japanese  customers,  which could have a material and adverse effect
on us.  Further,  the  devaluation  of the Japanese yen could result in Japanese
automobile manufacturers looking to Japanese suppliers of automobile accessories
that also could have a material adverse effect upon sales.

         COMPETITION.  Our sales and profitability should be considered in light
of the competitive  environments in which we operate.  We operate in an industry
that  is  highly  competitive,  and  many of our  competitors,  both  local  and
international,  have substantially  greater  technical,  financial and marketing
resources than us. The principal factors that determine our competitive position
include quality,  customer care and price. Management believes that our research
and development capabilities, concentration on increased production efficiencies
and  commitment  to  customer  service and  product  innovation  will enable the
Company to continue to compete effectively.  However,  there can be no assurance
that our  products  will be  competitive  in the  face of  advances  in  product
technology developed by competitors or by automobile  manufacturers  themselves.
In addition, there are no significant technological or manufacturing barriers to
entry into the automobile accessories industry in which we operate.

         CURRENCY  FLUCTUATION.  Our sales are principally  transacted in United
States dollars, whereas our labor, overhead and most component costs are paid in
Canadian dollars.  Recent  fluctuations in the value of the United States dollar
versus other currencies (primarily the Canadian dollar), and fluctuations in the
relative  values  of those  currencies,  have  had a  negative  impact  upon our
financial performance. During 2003, we did not engage in hedging activities with
respect to currency fluctuations. However, management intends to take corrective
action in an effort to attempt to minimize any negative impact foreign  currency

Glas-Aire Industries Group Ltd.     -15-         Form 10-KSB @ December 31, 2004
<PAGE>

fluctuations  may have  upon us.  However,  if we are  unsuccessful  in  hedging
against currency fluctuations, it may have a material adverse effect on us.

         DEPENDENCE ON COMPONENT AND RAW  MATERIALS  SUPPLIERS.  We purchase raw
materials,  primarily acrylic from various suppliers. Although we have long term
relationships with our key suppliers we do not have long term supply agreements.
We do not anticipate  significant  delays or disruption in the  manufacture  and
delivery of our raw materials or components,  but there can be no assurance that
delays or disruptions will not occur. The loss or breakdown of our relationships
with our suppliers  could subject us to delays in the delivery of our product to
customers and even the loss of customers. In addition,  increased prices for raw
materials  or  component   parts  could  have  a  material   adverse  effect  on
profitability.

         RAW  MATERIALS  PRICE  INCREASE.  We  purchase  acrylic  for use in our
products.  The price of acrylic is connected to the price of petroleum and other
chemicals  used  in  its   construction.   Recently   because  of  geo-political
conditions,  the price of petroleum has  increased.  We are  susceptible  to the
fluctuating  price  of  acrylic  and a  significant  increase  in the  price  of
petroleum could significantly  affect the price of acrylic.  Any increase in the
price of acrylic could have a material adverse effect upon us.

         MANUFACTURING  RISKS.  Our  business  is  subject  to many of the risks
inherent in manufacturing,  including risks associated with production equipment
failure,  fluctuating  costs of raw materials and component parts,  shortages of
raw  materials,  changes in  governmental  regulations,  labor  shortages,  work
stoppages  and  other  labor  difficulties.   Any  significant  interruption  of
manufacturing activities could have a material adverse effect on us.

         INCREASE IN WARRANTY  CLAIMS.  With the  exception  of the fiscal years
ending  December 31, 2002 and 2003,  our level of defective  products  should be
approximately  1% of annual  net  sales.  For the last  fiscal  year 2003 it was
approximately  7.64%.  This  increase was deemed to be primarily the result of a
chemical reaction between a specific type of acrylic and the gasket used on some
sunroof wind deflectors, and included carryover of outstanding late claim from a
major customer that was related to product defects from prior year.  There is no
assurance that future warranty claims will be consistent with past history,  and
in the event we experience a significant  increase in warranty claims,  there is
no  assurance  that our  reserves  are  sufficient.  This  could have a material
adverse effect on our business, financial condition and results of operations.

         DEPENDENCE ON A LIMITED  NUMBER OF PRODUCTS.  We  manufacture  and sell
sunroof wind deflectors,  hood  protectors,  rear air deflectors and door visors
for cars,  light trucks and  mini-vans.  Our sales of each of these products are
dependent on the  popularity of the type of vehicle or the vehicle  accessory to
which the product  relates.  For example,  a decline in  popularity  of sunroofs
would result in decreased sales of sunroof wind  deflectors,  while a decline in
popularity of light trucks  (which  includes  sport utility  vehicles as well as
pickup trucks) and mini-vans  would result in decreased sales of hood protectors
and rear air deflectors.  Although not  anticipated in the  foreseeable  future,
such events could have a material adverse effect on our business.

         AUTOMOTIVE OEMS HAVE  HISTORICALLY HAD SIGNIFICANT  LEVERAGE OVER THEIR
OUTSIDE  SUPPLIERS.  The automotive  industry is fragmented and serves a limited
number of OEM's. As a result,  OEMs have historically had and continue to have a
significant  amount of leverage over their outside  suppliers.  Our arrangements

Glas-Aire Industries Group Ltd.     -16-         Form 10-KSB @ December 31, 2004
<PAGE>

with our customers  required us to supply our products at  predetermined  prices
that may decline over time.  The costs we incur to fulfill  orders may vary from
our initial estimates due to a number of factors, including changes in the costs
of labor,  components  or raw  materials.  If we are unable to pass along  these
increased costs, our margins and profitability  will be adversely  affected.  In
April 2000 and April  2002,  a major  customer  of the  Company  demanded  price
reductions  on existing  products from all its  suppliers  (worldwide)  in three
stages.  These  reductions  became  effective  in April 2000 and the third stage
started in April 2002.  This  customer  has since  required  that its  suppliers
integrate this cost reduction  program into all quotes for new products that are
to be introduced  over the next few years.  In turn, we have been assured future
business.  Management has agreed to the reductions and is planning to compensate
for them via value engineering  activities  expected from the development of the
newly developed  processes and the less expensive materials these processes will
allow.  However,  since the Company has had limited  commercial  experience with
these  processes,  at  this  time no  assurance  can be  given  that  the  price
reductions can be counter  balanced with the use of these new processes plus the
less  expensive  materials.  Further,  there can be no assurance that the future
business will actually  result in firm orders from, or sales,  to this customer.
Our  failure  to  realize  sales  from new and  existing  programs  would have a
material adverse effect on our net sales, income and cash flow.

         WE HAVE  INDEBTEDNESS.  At  March  23,  2004,  our  total  indebtedness
consisted of $2,064,100  under our banking  facilities  and  $3,163,349 of other
trade payables and accrued  liabilities.  Additionally,  our banking  facilities
agreement contains  covenants that, among other things,  require the maintenance
of certain financial ratios  (including  compliance with certain working capital
and debt to equity ratios), and failure to maintain these financial ratios could
lead to the  revocation of these banking  facilities.  On December 16, 2003 HSBC
(the  lender)  called the loan into  default as the  Company was deemed to be in
violation of certain covenants contained in the facilities agreement. On January
5, 2004 the Company entered into a forbearance agreement with HSBC to attempt to
restructure  its debt within the next three months.  The  forbearance  agreement
expired  on March 23,  2004.  On March 24,  2004 the  Supreme  Court of  British
Columbia (Case No. L040758) appointed KPMG. Inc. as receiver over all the right,
title and interest of Glas-Aire  Industries Ltd, the wholly owned  subsidiary of
Glas-Aire  Industries  Group  Ltd  (the  "Corporation"),  property  assets,  and
undertaking.  The Corporation was in default of certain  financial ratios in its
banking  facilities  agreement  with  HSBC  and was  indebted  to HSBC  Bank for
approximately $2.7 million (Canadian).

         Our indebtedness may:

         o        make us more vulnerable to unfavorable economic conditions;

         o        make it more difficult to obtain  additional  financing in the
                  future for  working  capital,  capital  expenditures  or other
                  general corporate purposes;

         o        require us to dedicate or reserve a large  portion of our cash
                  flow from  operations  to make  payments on our  indebtedness,
                  which would prevent us from using it for other purposes,  such
                  as capital  expenditures  for new product  launches  and other
                  items  which  may be  required  in  order  for us to bid on or
                  accept new business;

Glas-Aire Industries Group Ltd.     -17-         Form 10-KSB @ December 31, 2004
<PAGE>

         o        make us more  susceptible to  fluctuations  in market interest
                  rates that affect the cost of our borrowings; and

         o        make   it  more   difficult   for  us  to   pursue   strategic
                  acquisitions, alliances and partnerships.

         WE HAVE LIQUIDITY PROBLEMS WHICH MAY REQUIRE FURTHER  FINANCING.  There
can be no assurance  that, if required,  any  additional  bank financing will be
available  upon terms and  conditions  acceptable to us, if at all.  Although we
believe  that we have  funds  sufficient  to meet our  immediate  needs,  we may
require  further funds to finance the  development  of any business  opportunity
that we acquire.  There can be no assurance that such funds will be available or
available  on terms  satisfactory  to us.  Our  inability  to obtain  additional
financing  in a  sufficient  amount  when  needed and upon terms and  conditions
acceptable to us could have a material adverse effect upon us.

         GOING CONCERN.  The  independent  auditor's  reports  accompanying  our
December  31,  2002  and  2003  consolidated  financial  statements  contain  an
explanatory  paragraph expressing  substantial doubt about the Company's ability
to continue as a going concern. The consolidated  financial statements have been
prepared  "assuming  that the Company will continue as a going  concern,"  which
contemplates   that  the  Company  will  realize  its  assets  and  satisfy  its
liabilities and commitments in the ordinary course of business. However, we have
a  significant  working  capital  deficit and are in  violation  of certain loan
covenants with our primary lender. Although we believe that we have reversed our
operating losses and are currently operating at a profitable level, there can be
no assurance that we will be able to generate sufficient positive cash flow from
operations to address all of our cash flow needs. If our current lenders were to
"call" our loans and we were not able to find  alternative  sources of cash, our
shareholders would be materially and adversely affected.

OUR BUSINESS MAY BE SIGNIFICANTLY ADVERSELY AFFECTED BY WORK STOPPAGES AND OTHER
LABOR MATTERS

         OUR  EMPLOYEES.  As of March  23,  2004,  approximately  84.75%  of our
employees were unionized. We were successful in negotiating our first agreement.
If we are  unsuccessful in negotiating with our union, we may encounter a strike
or binding contractual limitations, either of which could:

         o        have an adverse  effect on our ability to produce our products
                  in accordance with customer contracts;

         o        interfere with the launch of new product programs;

         o        cause us to lose business to competitors; or

         o        limit  our  flexibility  in  dealing  with our  workforce  and
                  promptly adjusting to changing economic conditions.

Glas-Aire Industries Group Ltd.     -18-         Form 10-KSB @ December 31, 2004
<PAGE>

         Our inability to manufacture or deliver products as a result of strikes
or binding  contractual  limitations could have a material adverse effect on our
net sales, net income and cash flow.

         OEMS AND SUPPLIERS.  Many OEMs and their  suppliers have unionized work
forces.  Work  stoppages or slow-downs  experienced  by OEMs or these  suppliers
could result in slow downs or closures of assembly plants where our products are
included in assembled  vehicles.  For example,  over the past four years,  there
have been labor  strikes  against  General  Motors  that have  resulted  in work
stoppages.  Material  work  stoppages  by one or more of our  customers or these
other  suppliers  could  have  a  material   adverse  effect  on  our  business.
Furthermore,  organizations responsible for shipping our customers' products may
be  impacted  by   occasional   strikes   staged  by  the  unions   representing
transportation  employees. Any interruption in the delivery of our customers' or
their other  suppliers'  products would reduce demand for our products and could
have a material adverse effect on our sales, profitability and cash flow.

         On September 11, 2003,  the Company  issued a press release  announcing
that ALC Holdings, LLC ("ALC") purchased a majority of the outstanding shares of
common stock of Glas-Aire Industries Group, Ltd, from several shareholders.  ALC
is  newly  formed  company  controlled  by  several  managers,  including  Craig
Grossman,  our Chief  Executive  Officer and President.  In connection  with the
acquisition  of the  Glas-Aire  shares,  five  directors of  Glas-Aire  resigned
effective September 3, 2003.

ITEM 2. DESCRIPTION OF PROPERTY

         Richmond, British Columbia.

         We lease 52,080  square feet of office and  warehouse  space located at
7791 Alderbridge Way, Richmond, B.C., Canada. The lease term is for seven years,
and is renewable  for a five year term.  The total rent per month of CDN $22,785
(i.e.,  US $14,754) during the first two years of the lease term. The total rent
per month  during the third,  fourth and fifth year is CDN $23,870 (US  $15,500)
and the remaining two years rent is CDN $24,955 (US $16,205) per month.

         Vancouver, British Columbia.

         We are also  responsible for the lease of our prior facility located at
3137  Grandview  Highway,  Vancouver,  and B.C.,  Canada V5M 2E9. This facility,
leased  from  Rockmore  Investments  Ltd.,  consists  of 27,777  square  feet of
factory,  warehouse and office space. The lease term is five years and is due to
expire in September  2004. On October 6, 2003 the Landlord  agreed to accept the
surrender of the Lease together with the sum of $125,000 in five installments as
settlement  for the release of the  Company's  obligation  under the term of the
lease agreement.

         Bellingham, Washington.

         We also lease  5,000  square  feet of  warehouse  space in  Bellingham,
Washington,  at a rental rate of US $1,800 per month on a month-to-month  basis.
This facility is used primarily for  warehousing  products for  distribution  to
certain United States  customers.  We are in default on this lease as our United
States subsidiary ceased all warehouse operations on July 31, 2004.

Glas-Aire Industries Group Ltd.     -19-         Form 10-KSB @ December 31, 2004
<PAGE>


ITEM 3. LEGAL PROCEEDINGS

         ALEX DING LITIGATION.

         Following his  termination  for cause from his position as President of
the Company on September 12, 2001,  Alex Ding, a former  director of the Company
and the  Company's  former  President,  filed a Writ of Summons on September 13,
2001, in the Supreme Court of British Columbia (Action No. S015104).  Mr. Ding's
claims  were made  against  the  Company,  Multicorp  Holdings  Inc.,  Glas-Aire
Industries  Ltd.,  William R.  Ponsoldt,  Craig  Grossman,  Todd  Garrett,  Mark
Baldinger,  Regency  Affiliates,  Inc. and  Speed.com,  Inc.  (collectively  the
"Defendants").  Mr.  Ding  asserted  among  other  things  that  the  redemption
transaction  involved a breach of  agreements  with HSBC Bank  Canada  ("Bank"),
securities laws,  corporate laws, and fiduciary duties owed by the Defendants to
the  Company's  shareholders.  Mr. Ding  asserted  that the court should  enjoin
various actions relating to the redemption and grant other relief.  Mr. Ding has
not served all of the  Defendants  personally,  and has not filed a Statement of
Claim.  The Company  discussed the redemption with its Canadian counsel prior to
effecting the  redemption,  and determined  that  proceeding with the redemption
would not be in violation of a court order or otherwise prohibited. Further, the
Bank reviewed the proposed redemption  transaction with both outside counsel and
an outside  accounting firm. After completion of these reviews,  the Bank loaned
the Company the funds necessary to effect the  redemption.  On January 14, 2003,
Mr.  Ding  filed a notice  of  discontinuance  against  the  Company,  Multicorp
Holdings Inc., Glas-Aire  Industries Ltd., William R. Ponsoldt,  Craig Grossman,
Todd Garrett, Mark Baldinger, Regency Affiliates, Inc. and Speed.com, Inc.

         On  November  14,  2001,  the  Company  filed a Writ of Summons  with a
Statement  of Claim  against Mr. Ding in the Supreme  Court of British  Columbia
alleging  that Mr.  Ding had  breached  his  fiduciary  duty of  loyalty  to the
Company.  The  Statement of Claim  alleges that Mr. Ding  violated his fiduciary
duty after he was terminated for cause by making false statements to HSBC Canada
that the Company would be rendered  insolvent by proceeding  with the redemption
and  would be  unable to repay the  funds  advanced  by the Bank.  Further,  the
Company alleges that as a result of Mr. Ding's actions the Company was forced to
incur  additional  expense with the Bank for a separate  accounting firm and the
Bank's attorneys to review the proposed  redemption  transaction.  Further,  Mr.
Ding after his  dismissal  retained a laptop  computer that had been provided to
him by the Company for approximately one week and during that time he improperly
deleted communications to and from the Company's customers and other information
that was on the laptop  computer  ("Data").  The Data deleted was  important and
sensitive  information  owned  by  the  Company  and  critical  to  the  ongoing
operations of the Company.  The Company alleges that it was temporarily deprived
of the laptop computer, and permanently deprived of the Data since there are not
other copies of the Data in the Company's  files.  The Company  alleges that Mr.
Ding's  actions were in breach of his  fiduciary  duties to the Company and that
the Company has suffered damages as a result of Mr. Ding's actions.  The Company
is  seeking:  (i) an order that Mr.  Ding  return all copies of the Data that he
retained;  (ii) damages and costs, and (iii) other relief.  Mr. Ding has filed a
counterclaim against the Company for wrongful dismissal. These matters are still
pending.

Glas-Aire Industries Group Ltd.     -20-         Form 10-KSB @ December 31, 2004
<PAGE>

         DRAGON CAPITAL

         On August 8, 2003,  Dragon Capital,  LLC ("dragon")  filed suit against
the Company in Denver District Court (Case No. 03CV6198). Dragon alleges that we
have  refused to pay a success fee in the amount of $59,000 in  connection  with
the  Company's  merger with Wonder Tool,  Inc. The  Claimant  alleges  breach of
contract  claim,  promissory  estoppel  and  unjust  enrichment  against  us. On
September 25, 2003, we filed our answer to the  Complaint.  Management  believes
this claim is entirely  without merit and intends to vigorously  defend  against
this claim.


         CELCO PLASTICS, LTD. LITIGATION.

         On July 31, 2002, we filed suit against Celco  Plastics Ltd.  ("Celco")
in the Supreme Court of British Columbia  (Action No.  SO24264).  We allege that
Celco,  our supplier of  extrusions in the form of gaskets,  supplied  defective
gaskets to us  commencing  in 2000.  We are alleging  breach of contract and the
negligent  manufacture of gaskets against Celco. We are seeking general damages,
special damages, interests and costs. Celco has commenced a counterclaim against
us for payment of  outstanding  invoices in the amount of CDN $32,521.24 as well
as general damages, special damages, interests and costs.

         UNIVERSAL DYNAMICS LIMITED LITIGATION.

         On February 14, 2003,  Universal Dynamics Limited  ("Universal")  filed
suit against us in the Supreme Court of British  Columbia  (Action No. S024878).
The  statement  of  claim  alleges  that we have  refused  or  neglected  to pay
outstanding   invoices  to  Universal  for  services  provided  in  the  design,
preparation of drawings and  consulting  work with regard to our new facility in
Richmond,  B.C.  Universal is seeking damages in the amount of approximately CDN
$90,000,  plus  interest  and  costs.  We have  not  yet  filed  a  response  to
Universal's claims, however, we assert that Universal failed to perform pursuant
to our agreement and we were forced to employ an additional  consulting  company
to complete the tasks. We intend to vigorously defend against this claim.

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

         No  matters  were  submitted  by us to a vote of our  security  holders
through the  solicitation  of proxies or otherwise  during the fourth quarter of
the fiscal year covered by this Annual Report.

                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         MARKET INFORMATION.

         The Company's Common Stock is currently traded on the  over-the-counter
market on the NASDAQ Electronic Bulletin Board under the symbol GLAR.PK

Glas-Aire Industries Group Ltd.     -21-         Form 10-KSB @ December 31, 2004
<PAGE>

         Our  common  stock  was  traded in the  over-the-counter  market on the
NASDAQ Small Cap Market  under the symbol  "GLAR" until it was delisted in March
2002. Our common stock was delisted from the NASDAQ  SmallCap Market for failure
to comply  with the  requirement  to hold an  annual  meeting  of the  Company's
shareholders  during the fiscal year ended December 31, 2001, and for failure to
obtain the approval of our  shareholders for the consummation of the acquisition
of Wonder Tool.

         Our common stock was also listed on the Pacific  Stock  Exchange  under
the Symbol GLA until it was delisted on November 22, 2002. The Company's  common
stock was  delisted  from the  Pacific  Stock  Exchange  for failure to meet the
minimum share bid price.

         The table set forth below presents the range, on a quarterly  basis, of
high and low bid prices per share of common  stock,  as reported by NASDAQ.  The
quotations  reflect  interdealer  prices  without retail  mark-up,  mark-down or
commission and may not represent actual transactions.
<TABLE>
<CAPTION>
<S>                                                                           <C>                  <C>
                  Year Ended December 31, 2004                                High                 Low
                  ------------------------------------------                  -----                -----
                  January 1, 2004 through March 31, 2004                      $0.20                $0.03
                  April 1, 2004 through June 30, 2004                         $0.20                $0.03
                  July 1, 2004 through September 30, 2004                     $0.06                $0.06
                  October 1, 2004 through December 31, 2004                   $0.06                $0.05

                  Year Ended December 31, 2003                                High                 Low
                  ------------------------------------------                  -----                -----
                  January 1, 2003 through March 31, 2003                      $0.47                $0.15
                  April 1, 2003 through June 30, 2003                         $0.47                $0.17
                  July 1, 2003 through September 30, 2003                     $0.20                $0.03
                  October 1, 2003 through December 31, 2003                   $0.03                $0.03
</TABLE>

         The closing  price of the common  stock on March 29, 2005 was $0.05 per
share.  As of March 29, 2005, the Company had  approximately  33 shareholders of
record and estimates that its common stock was  beneficially  owned by more than
500 shareholders based upon ownership in "street name."

         SECURITIES AUTHORIZED FOR ISSUANCE UNDER COMPENSATION PLANS.

         The  table set forth  below  presents  the  securities  authorized  for
issuance with respect to  compensation  plans under which equity  securities are
authorized for issuance:

Glas-Aire Industries Group Ltd.     -22-         Form 10-KSB @ December 31, 2004
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
                                       Equity Compensation Plan Information
------------------------------ -------------------------- ----------------------- ---------------------------------
                                                                                   Number of securities remaining
                                Number of securities to      Weighted-average      available for future issuance
        Plan Category           be issued upon exercise     exercise price of     under equity compensation plans
                                of outstanding options,    outstanding options,   (excluding securities reflected
                                  warrants and rights      warrants and rights           in the 1st column)
------------------------------ -------------------------- ----------------------- ---------------------------------
<S>                                    <C>                       <C>                          <C>
Equity Compensation Plans              230,000                   $ 2.25                           N/A
approved by security holders
------------------------------ -------------------------- ----------------------- ---------------------------------
Equity compensation plans              255,000 (1)               $ 0.01                       320,000 (2)
not approved by security
holders
------------------------------ -------------------------- ----------------------- ---------------------------------
                                       350,000                   $ 2.76                       320,000
Total
------------------------------ -------------------------- ----------------------- ---------------------------------
</TABLE>

(1)      Includes  85,000  shares  vested  on April  12,  2002  pursuant  to Mr.
         Grossman's  employment  agreement  not  issued  pursuant  to any equity
         compensation  plan. Mr.  Grossman has an addition 85,000 warrants which
         vest on April 12,  2003 and  85,000  warrants  which  vest on April 12,
         2004.

(2)      Includes  160,000  options that may be issued pursuant to the Incentive
         Compensation  Plan and 160,000  options that may be issued  pursuant to
         the Non-Qualified Option Plan.

         SALES OF UNREGISTERED SECURITIES.

         On December 21,  2001,  we  consummated  a reverse  merger  transaction
whereby we acquired 100% of the issued and outstanding  stock of Wonder Tool for
1,250,000 shares of our common stock. Prior to the merger,  Wonder Tool's common
stock was held by Cyclo,  a private  company owned by two  shareholders  each of
whom management believes is an "accredited investor." Cyclo then distributed the
Glas-Aire  shares  to its  shareholders.  As a result of this  transaction,  the
owners of Cyclo acquired 50.7% of the Company's  outstanding  voting stock.  The
acquisition was a privately negotiated transaction, and management believes that
this transaction was exempt from the  registration  provisions of the Securities
Act of 1933,  as amended  (the "1933 Act")  pursuant to Section 4(2) of the 1933
Act.

         DIVIDENDS.

         No  dividends  were  declared  or paid  during  the  fiscal  year ended
December 31, 2004 and 2003. Although the board of directors may elect to declare
stock  dividends  in the  future,  there  are no  present  plans,  arrangements,
understandings or commitments to do so.

         The payment of cash  dividends is within the discretion of the board of
directors.  The Board of Directors advised that they do not anticipate declaring
and paying cash dividends in the foreseeable future.

         PROCEEDS OF OFFERING.

         The Company  received net proceeds  from a registered  public  offering
amounting to approximately  $2,773,000 in May 1996. The  registration  statement
for that  offering was declared  effective on May 1, 1996,  and the SEC File No.
was 33-99258-LA.  During 2002, we used the remaining $450,000 from this offering
on moving expenses to our new facility in Richmond, B.C. Canada.

Glas-Aire Industries Group Ltd.     -23-         Form 10-KSB @ December 31, 2004
<PAGE>

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

         Our consolidated  financial  statements are prepared in accordance with
United States generally accepted accounting  principles and are stated in United
States  dollars.  The selected  consolidated  financial data is qualified in its
entirety  by  reference  to,  and  should  be  read  in  conjunction  with,  the
Consolidated  Financial Statements,  related Notes and the information set forth
below under this Item 6.

         In January  2003,  the Company sold the Wonder Tool assets,  therefore,
the assets,  liabilities,  results of operations  and cash flows for Wonder Tool
have been classified as Discontinued  Operations in the  consolidated  financial
statements.

         The independent  auditors' reports appearing elsewhere in this document
contain explanatory paragraphs that state that the Company's losses and negative
cash flows from operations raise substantial doubt about our ability to continue
as a going  concern.  The  consolidated  financial  statements  and the selected
financial data do not include any adjustments that might result from the outcome
of that uncertainty.

         OVERVIEW.

         The  Company's  losses for the  preceding  year were  substantial,  and
management  believes  that it is  important to note that certain of the expenses
incurred   were  one-time   expenses  that  impacted  the  Company's   financial
performance  during  the 2003  fiscal  year.  The  Company  experienced  several
one-time  charges  associated with a relocation of its  manufacturing  plant and
costs associated with warranty claims for defective products introduced in 2001.

         The Company retrofitted and moved into a new manufacturing  facility in
Richmond,   B.C.  Canada.  In  the  course  of  this  move,  the  Company  spent
approximately  $82,885  on moving  expenses  and  equipment  and  truck  rental.
Further, the Company wrote off leasehold  improvements on the Vancouver property
in the amount of  $114,105.  Additionally,  pursuant  to GAAP,  the  Company has
accrued for its rental  obligations for the Vancouver  facility in the amount of
$253,696.

         The Company experienced  increased warranty claims related to defective
products introduced to market in 2002 and 2001. In connection with these claims,
the Company hired  consultants  and performed  laboratory  tests to identify and
resolve  the  problems  associated  with the  defective  products.  The  Company
recognized  expenses for the consultants  and laboratory  tests in the amount of
$145,847

BALANCE SHEET DATA.
<TABLE>
<CAPTION>
------------------------------------------- ----------------------------------------------------------
                                                                   Period From
------------------------------------------- ----------------------------- ----------------------------
                                                 December 31, 2004             December 31, 2003
------------------------------------------- ----------------------------- ----------------------------
<S>                                                <C>                            <C>
Working Capital (deficiency)                       $ (105,958)                    $(2,483,145)
------------------------------------------- ----------------------------- ----------------------------
Total Current Assets                               $   34,550                     $ 2,676,957
------------------------------------------- ----------------------------- ----------------------------
Total Current Liabilities                          $  140,508                     $ 5,160,102
------------------------------------------- ----------------------------- ----------------------------
Total Assets                                       $   34,550                     $ 4,935,394
------------------------------------------- ----------------------------- ----------------------------

Glas-Aire Industries Group Ltd.     -24-         Form 10-KSB @ December 31, 2004
<PAGE>

Total Long Term Debt                               $        -                     $         -
------------------------------------------- ----------------------------- ----------------------------
Capital Lease Obligations                          $        -                     $    19,711
------------------------------------------- ----------------------------- ----------------------------
Deferred Income Taxes                              $        -                     $   234,783
------------------------------------------- ----------------------------- ----------------------------
Stockholders' Equity                               $ (105,958)                    $  (479,202)
------------------------------------------- ----------------------------- ----------------------------
</TABLE>


INCOME STATEMENT DATA.

<TABLE>
<CAPTION>
                                                                          Period from
  ---------------------------------------------- ------- -------------------- -----------------------
                                                             Year Ended        Year Ended December
                                                            December 31,               31,
                                                                2004                   2003
  ---------------------------------------------- ------- -------------------- -----------------------
<S>                                                        <C>                     <C>
  Sales                                                    $ 1,637,755             $11,094,906
  ---------------------------------------------- ------- -------------------- -----------------------
  Cost of Sales                                              1,553,037               9,133,090
  ---------------------------------------------- ------- -------------------- -----------------------
  Gross Profit                                                  84,718               1,961,816
  ---------------------------------------------- ------- -------------------- -----------------------
   Research and Development                                     71,857                 560,796
  ---------------------------------------------- ------- -------------------- -----------------------
  Selling and Distribution                                      61,473               1,317,790
  ---------------------------------------------- ------- -------------------- -----------------------
  General and Admin.                                           398,747               1,715,199
  ---------------------------------------------- ------- -------------------- -----------------------
  (Loss) Income from Operations                               (447,359)             (1,631,969)
  ---------------------------------------------- ------- -------------------- -----------------------
  Loss from Continuing Operations                             (477,955)             (1,610,796)
  ---------------------------------------------- ------- -------------------- -----------------------
  Income from discontinued operations                                                  458,442
  ---------------------------------------------- ------- -------------------- -----------------------
  Gain on disposition of operations                            662,792                       -
  ---------------------------------------------- ------- -------------------- -----------------------
  Income taxes                                                  37,860                       -
  ---------------------------------------------- ------- -------------------- -----------------------
  Net (loss) Income from the period                            146,977              (1,152,354)
  ---------------------------------------------- ------- -------------------- -----------------------
  (loss) earnings per share
  - basic and diluted - Continuing operations                     0.05                   (0.60)
  Discontinued Operations                                         0.00                    0.17
                                                                  ----                    ----
  Not (loss) income per share                                     0.05                   (0.43)
  ---------------------------------------------- ------- -------------------- -----------------------
  Weighted average number of shares outstanding              2,711,213               2,693,822
  ---------------------------------------------- ------- -------------------- -----------------------
</TABLE>

         RESULTS OF OPERATIONS.

         The following  table sets forth selected income data as a percentage of
net sales for the periods indicated.

Glas-Aire Industries Group Ltd.     -25-         Form 10-KSB @ December 31, 2004
<PAGE>

------------------------------------- -----------------------------------------
                                                    Period From
------------------------------------- -------------------- --------------------
                                      Year Ended December   Year Ended December
                                           31, 2004              31, 2003
------------------------------------- -------------------- --------------------
Net Sales                                        100%                    100%
------------------------------------- -------------------- --------------------
Cost of Sales                                   94.8%                   82.3%
------------------------------------- -------------------- --------------------
Gross Profit                                     5.2%                   17.7%
------------------------------------- -------------------- --------------------
Research and Development                         4.4%                    5.1%
------------------------------------- -------------------- --------------------
Selling and distribution                         3.8%                   11.9%
------------------------------------- -------------------- --------------------
General and Administrative                      24.3%                   15.5%
------------------------------------- -------------------- --------------------
Income (loss) from operations                  (29.2%)                 (14.5%)
------------------------------------- -------------------- --------------------

      YEAR ENDED DECEMBER 31, 2004 COMPARED TO YEAR ENDED DECEMBER 31, 2003

         As a result of the sale of Wonder Tool net assets in January  2003,  we
now  operate in one  industry  segment:  the  automotive  accessories  business.
Results of operations of the orbital  polishing  business are  segregated in our
financial statements as discontinued operations.

         SALES. Sales decreased from $11,094,906 for the year ended December 31,
2003 to $1,637,755 for the period ended March 24, 2004.  This sales decrease was
the main result of the Canadian  operation's  filing for bankruptcy on March 24,
2004 and ceasing its operation after that date.

         GROSS PROFIT.  Gross profit margins  decreased from  $1,961,816 for the
year ended  December  31, 2003 to $84,718 for the period  ended March 24,  2004.
This net decrease  was due  primarily  to the  Canadian  operation's  filing for
bankruptcy on March 24, 2004 and ceasing its operation after that date.

         RESEARCH AND DEVELOPMENT.  Expenses for R&D decreased from $560,796 for
the year ended December 31, 2003 to $71,857 for the period ended March 24, 2004.
This  decrease  was  due  primarily  to  the  Canadian  operation's  filing  for
bankruptcy on March 24, 2004 and ceasing its operation after that date.

         SELLING AND DISTRIBUTION.  Selling and distribution  expenses decreased
from $1,317,790 for the period ended December 31, 2003 to $61,473 for the period
ended  March  24,  2004.  This  decrease  was  primarily  due  to  the  Canadian
operation's  filing for  bankruptcy  on March 24, 2004 and ceasing its operation
after that date.

         GENERAL  AND  ADMINISTRATIVE.   General  and  administration   expenses
decreased  from  $1,715,199 for the year ended December 31, 2003 to $398,747 for
the  year  ended  December  31,  2004.  This  was  the  result  of the  Canadian
operation's  filing for  bankruptcy  on March 24, 2004 and ceasing its  Canadian
operation after that date. The General and Administrative  expenses increased in
legal fees  related to the  forbearance  agreement  with HSBC.  Accounting  fees

Glas-Aire Industries Group Ltd.     -26-         Form 10-KSB @ December 31, 2004
<PAGE>

related to the preparation of quarterly and annual reports,  and consulting fees
related to public relations were reduced due to the bankruptcy.

         INTEREST EXPENSE. Interest expense decreased from $170,073 for the year
ended December 31, 2003 to $31,450 for the period ended March 24, 2004. This was
the result of the Canadian  operation's  filing for bankruptcy on March 24, 2004
and ceasing its operation  after that date.  Interest  expenses for the 3 months
included interest resulting from the forbearance agreement.

         INCOME  FROM  OPERATIONS.  The  loss  from  operations  decreased  from
$1,152,354  for the year ended  December  31, 2003 to a gain of $184,834 for the
year ended  December 31, 2004.  This was the result of the Canadian  operation's
filing for  bankruptcy  and ceasing its operation as of March 24, 2004. The gain
of $662,792 was related to the elimination of the assets and liabilities

         INCOME TAXES.  Recovery of income taxes was $190,980 for the year ended
December 31, 2003 compared to $0 for the year ended March 24, 2004.

         DISCONTINUED OPERATION. On January 9, 2003, the Company sold the assets
and liabilities of its Orbital Polishing Division for $920,140 comprised of cash
of $792,140 and promissory note  receivable of $200,000.  The sale resulted in a
gain of  $458,442,  which  was  recognized  in  2003.  The note  receivable  was
subsequently  sold on October 10, 2003 to a third party individual for $125,000.
All rights and title have been transferred to the purchaser.

         CAPITAL RESOURCES AND LIQUIDITY.

         Cash provided by operating  activities  for the year ended December 31,
2003 was $829,294  compared to  $2,050,510  for the period ended March 24, 2004.
This can be attributed to (i) the Canadian operation's filing for bankruptcy and
ceasing its operation on March 24, 2004,  (ii) an inflow of cash of $662,792 due
to the disposal of assets and liabilities of the Canadian  operation,  and (iii)
an unrealized foreign exchange loss on translation of inter-company  accounts of
$224,056.

         Cash used in financing  activities for the year ended December 31, 2003
was ($43,975) compared to cash used in financing  activities of ($2,018,171) for
the period  ended March 24,  2004.  This can be  attributed  to (i) the Canadian
operation's  filing for  bankruptcy and ceasing its operation on March 24, 2004,
(ii) the  repayment  of  long-term  debt,  and  (iii)  the write off of all bank
indebtedness, capital lease obligation and long-term debt.

         The investing  activities included the purchase of fixed assets for the
year ended December 31, 2003 of $848,124 compared to $0 for the year ended March
24, 2004. All operations ceased after March 24, 2004 as the Canadian operation's
filed for bankruptcy on that date.

         During  2004,  the  Company  was  in  violation  of  certain  covenants
contained in the banking facilities agreement. Pursuant to GAAP, and as a result
of the covenant  breach  invoking the Bank's right to call the long-term debt on
demand, the long-term debt has been reclassified as a current liability.

Glas-Aire Industries Group Ltd.     -27-         Form 10-KSB @ December 31, 2004
<PAGE>
         We are dependent upon these existing  banking  facilities.  Our banking
facilities  agreement contains covenants that, among other things,  requires the
maintenance  of certain  financial  ratios  (including  compliance  with certain
working  capital  and debt to equity  ratios),  and  failure to  maintain  these
financial  ratios could lead to the revocation of these banking  facilities.  On
December 16, 2003 HSBC (the lender)  called the loan into default as the Company
was  deemed to be in  violation  of certain of the  covenants  contained  in the
facilities agreement.  On January 5, 2004 the Company entered into a forbearance
agreement with HSBC to attempt to restructure its debt within the next 3 months.
However the forbearance  agreement  expired on March 23, 2004. On March 24, 2004
the Supreme Court of British Columbia (Case No. L040758) appointed KPMG. Inc. as
receiver over all the right, title and interest of Glas-Aire Industries Ltd, the
wholly owned subsidiary of Glas-Aire  Industries Group Ltd (the  "Corporation"),
property  assets,  and  undertaking.  The  Corporation was in default of certain
financial ratios in its banking facilities  agreement with HSBC and was indebted
to HSBC Bank for approximately $2.7 million (Canadian).

         Our  ability  to  continue  as a going  concern is  dependent  upon our
ability to  generate  profitable  operations  and,  if we are unable to generate
profitable operations, to obtain the necessary financing to meet our obligations
and pay our liabilities  arising from normal business  operations when they come
due. We will be unable to  continue as a going  concern if we are unable to earn
sufficient  revenues from our operations or to raise additional  capital through
debt or equity  financings to meet our working  capital and  subsidiary  capital
requirements.

         IMPACT OF INFLATION.

         We  believe  that  inflation  has  not  had a  material  affect  on our
business.  Although  the  cost  to us of  certain  raw  materials  used  in  the
manufacture of our products,  primarily acrylic, has increased over the past few
years, we have been able to increase the prices of our products accordingly.

         EXCHANGE RATES.

         We sell most of our products to international  customers. Our principal
markets are the United States and Japan.  We sell most of our products in United
States  Dollars,  but pay for  material  components  and  labor  principally  in
Canadian  Dollars.  During 2004,  we did not engage in hedging  activities  with
respect to currency fluctuations. However, management intends to take corrective
action in an effort to attempt to minimize any negative impact foreign  currency
fluctuations may have upon us.

         Exchange  rates between the United  States and Canadian  Dollar for the
year ended December 31, 2004,  and the year ended  December 31, 2003,  including
the average exchange rate for the year, are as follows:

FISCAL YEAR ENDED         EXCHANGE RATE                   AVERAGE FOR PERIOD

December 31, 2004         1.U.S.$: 1.2176 Cdn.$           1 U.S.$: 1.2988 Cdn.$
December 31, 2003         1.U.S.$: 1.2965 Cdn.$           1 U.S.$: 1.4215 Cdn.$

Glas-Aire Industries Group Ltd.     -28-         Form 10-KSB @ December 31, 2004
<PAGE>

         RECENTLY ISSUED ACCOUNTING STANDARDS.

         In April  2002,  the FASB  issued  SFAS No.  145,  "Rescission  of FASB
Statements No. 4, 44 and 64, Amendment of FASB No. 13 and Technical Corrections"
("SFAS No. 145"). Among other things,  SFAS No. 145 requires any gain or loss on
early extinguishment of debt to be included in income from continuing operations
instead of being classified as an extraordinary  item. SFAS No. 145 is effective
for fiscal years  beginning  after May 15, 2002. We did not  extinguish any debt
during the year.  Accordingly,  adoption of the new  standards  did not have any
effect on our financial statements.

         Statement of Financial  Accounting  Standards No. 146,  "Accounting for
Costs  Associated  with  Exit or  Disposal  Activities"  ("SFAS  146")  provides
guidance on the recognition and measurement of liabilities for costs  associated
with exit or disposal activities. The provisions of this Statement are effective
for exit or disposal activities that are initiated after December 31, 2002.

         In November 2002, the FASB issued FASB  Interpretation  ("FIN") No. 45,
"Guarantor's  Accounting and Disclosure  Requirements for Guarantees,  Including
Indirect  Guarantees of  Indebtedness of Others," which addresses the accounting
for and  disclosure  of  guarantees.  FIN 45 requires a guarantor to recognize a
liability for the fair value of a guarantee at inception. The recognition of the
liability is required  even if it is not probable that payments will be required
under the guarantee.  The disclosure  requirements are effective for interim and
annual  financial  statements  ending  after  December  15,  2002.  The  initial
recognition and measurement  provisions are effective for all guarantees  within
the scope of FIN 45 issued or modified after December 31, 2002.

         FIN 46,  "Consolidation of Variable Interest  Entities,"  clarifies the
application  of Accounting  Research  Bulletin No. 51,  "Consolidated  Financial
Statements,"  to certain  entities  in which  equity  investors  do not have the
characteristics  of a controlling  financial  interest or do not have sufficient
equity at risk for the  entity to  finance  its  activities  without  additional
subordinated  financial  support  from  other  parties.  FIN  46  is  applicable
immediately for variable  interest  entities created after January 31, 2003. For
variable  interest entities created prior to January 31, 2003, the provisions of
FIN 46 are applicable no later than July 1, 2003.

         The  implementation  of these new  standards  is not expected to have a
material effect on our financial statements.

         CRITICAL ACCOUNTING POLICIES AND ESTIMATES.

ACCOUNTING ESTIMATES.

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

Glas-Aire Industries Group Ltd.     -29-         Form 10-KSB @ December 31, 2004
<PAGE>

INVENTORIES.

         Inventories are recorded at the lower of cost, on a first-in, first-out
basis, or market value. Market value for raw materials is defined as replacement
cost and for work-in-process and finished goods as net realizable value.

REVENUE RECOGNITION.

         We  recognize  revenue on the sale of products at the time the products
are shipped to customers.

ALLOWANCE FOR DOUBTFUL ACCOUNTS.

         The  Company  records  an  allowance  for  doubtful  accounts  based on
specifically  identifiable  amounts  that we  believe to be  uncollectible.  The
criteria for the allowance  provision  included  historical  experience  and the
Company's  assessment of the general financial  conditions  affecting its client
base. If the Company's actual collections  experience changes,  revisions to the
allowance may be required.

RESEARCH AND DEVELOPMENT.

         Research and development costs are expensed as incurred.

WARRANTY ACCRUAL.

         The  Company  records  a  liability  for  estimated  costs  that may be
incurred  under its  warranties at the time that product  revenue is recognized.
The  Company  periodically  assesses  the  adequacy  of  its  recorded  warranty
liability and adjusts the amounts as necessary.

CONTRACTUAL OBLIGATIONS.

         The Canadian  operation  filed  bankruptcy on March 24, 2004. All lease
obligations and capital leases on manufacturing equipment were cancelled.

         The  following  table  sets  forth  information  with  respect  to  our
contractual obligations and commercial commitments as of December 31, 2004.

                             CONTRACTUAL OBLIGATIONS
<TABLE>
<CAPTION>

                                                                          Payments due by Period
  ----------------------------------- ------------------ ------------------ ------------------- -------------------
                                            Total          2 to 3 years        4 to 5 years     More than 5 years
  ----------------------------------- ------------------ ------------------ ------------------- -------------------
<S>                         >              <C>                  <C>                    <C>                <C>
  Richmond Lease Payments (1)              $     -              $     -                $-                 $-
  ----------------------------------- ------------------ ------------------ ------------------- -------------------
  Vancouver Lease Payments (2)             $     -              $     -                 -                  -
  ----------------------------------- ------------------ ------------------ ------------------- -------------------
  Craig Grossman Employment                $     -              $     -                 -                  -
  Contract (3)
  ----------------------------------- ------------------ ------------------ ------------------- -------------------
  Principal Payments on Debt to            $77,500              $77,500                 -                  -
  HSBC (4)
  ----------------------------------- ------------------ ------------------ ------------------- -------------------
  Capital Lease Manufacturing              $     -              $     -                 -                  -
  Equipment (5)
  ----------------------------------- ------------------ ------------------ ------------------- -------------------
</TABLE>

Glas-Aire Industries Group Ltd.     -30-         Form 10-KSB @ December 31, 2004

<PAGE>

(1)      We have a seven-year  lease agreement that began on October 1, 2002 for
         our facility located at 7791 Alderbridge  Way,  Richmond,  B.C. Canada.
         See "Item 2--Description of Property."
(2)      The lease for the Vancouver facility located at 3137 Grandview Highway,
         Vancouver,   B.C.   Canada   expires  in  September   2004.  See  "Item
         2--Description  of Property." On October 6, 2003 the Landlord agreed to
         accept the surrender of the Lease  together with the sum of $125,000 as
         settlement for the release of the Company's  obligation  under the term
         of the Lease agreement.
(3)      Mr.  Grossman's  base salary  calculated  as of December 31, 2003.  Mr.
         Grossman's  Employment  Agreement  terminates on December 31, 2004. See
         "Item 10 - Executive Compensation."
(4)      For further explanation, see Note 6 to the Financial Statements.
(5)      For further explanation, see Note 7 to the Financial Statements.

ITEM 7. FINANCIAL STATEMENTS

         Included beginning at page F-1.


Glas-Aire Industries Group Ltd.     -31-         Form 10-KSB @ December 31, 2004
<PAGE>
                                                 Glas-Aire Industries Group Ltd.
                                               Consolidated Financial Statements
                                           For the year ended December 31, 2004,
                                                        (Stated in U.S. Dollars)




                                                                        Contents

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


INDEPENDENT AUDITORS' REPORT

CONSOLIDATED FINANCIAL STATEMENTS

                  Balance Sheets                                            F-2

                  Statements of Operations                                  F-3

                  Statement of Stockholders' Equity                         F-4

                  Statements of Comprehensive Loss                          F-5

                  Statements of Cash Flows                                  F-6

                  Summary of Significant Accounting Policies                F-8

                  Notes to Financial Statements                             F-14









<PAGE>

                            CHANG G. PARK, CPA, PH.D.
             371 E Street * Chula Vista * California * 91910-26150
         Telephone (858)722-5953* Fax (858)408-2695 * Fax (619)422-1465
                          E-MAIL changgpark@gmail.com


            Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders
Glas-Aire Industries Group, Ltd.

We have  audited  the  accompanying  consolidated  balance  sheets of  Glas-Aire
Industries  Group Ltd. (the  "Company") as of December 31, 2005 and 2004 and the
related statements of operations, changes in shareholders' equity and cash flows
for the years then ended.  These financial  statements are the responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance  with 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 financial position of Glas-Aire Industries Group Ltd.
as of December 31, 2005 and 2004, and the results of its operations and its cash
flows for the years  then  ended in  conformity  with  U.S.  generally  accepted
accounting principles.

The  financial  statements  have been  prepared  assuming  that the Company will
continue as a going concern. As discussed in Note 6 to the financial statements,
the  Company's  losses from  operations,  bankruptcy  and closing its  warehouse
operation  raise  substantial  doubt  about its  ability to  continue as a going
concern.  The  financial  statements do not include any  adjustments  that might
result from the outcome of this uncertainty.


/s/Chang G. Park, CPA
____________________________
Chang G. Park, CPA

August 9, 2006
Chula Vista, CA  91910

        Member of the California Society of Certified Public Accountants
         Registered with the Public Company Accounting Oversight Board

                                      F-1
<PAGE>


                                                 Glas-Aire Industries Group Ltd.
                                           Consolidated Condensed Balance Sheets
                                                        (Stated In U.S. Dollars)

December 31, 2004
--------------------------------------------------------------------------------

ASSETS
Current
     Cash and equivalents                                   $    34,550
                                                            --------------------
                                                                 34,550
                                                                      -
                                                            --------------------
                                                            $    34,550
--------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT

     Accrued Liabilities                                        105,008
     Income tax payable                                          35,500
                                                            --------------------
                                                                140,508

STOCKHOLDERS' EQUITY
     Common stock                                                27,112
     Additional paid in capital                               1,549,313
     Accumulated deficit                                     (2,335,161)
     Deferred compensation                                            -
     Accumulated other comprehensive income
     - foreign currency translation adjustment                  652,778
                                                            --------------------
                                                               (105,958)
                                                            --------------------
                                                            $    34,550
--------------------------------------------------------------------------------



                                      F-2

<PAGE>



                                                 Glas-Aire Industries Group Ltd.
                                           Consolidated Statements of Operations
                                                        (Stated In U.S. Dollars)
--------------------------------------------------------------------------------
                                                                 Year ended
                                                                 December 31,
                                                                     2004
--------------------------------------------------------------------------------

SALES                                                       $        1,637,755
COST OF GOODS SOLD                                                   1,553,037
                                                            --------------------
GROSS PROFIT                                                            84,718
                                                            --------------------
EXPENSES
     Research and development                                           71,857
     Selling and distribution                                           61,473
     General and administrative                                        398,747
                                                            --------------------
                                                                       532,077
LOSS FROM OPERATIONS                                                   447,359
                                                            --------------------
OTHER INCOME (EXPENSE)
     Interest income                                                       855
     Interest expense                                                  (31,451)
                                                            --------------------
                                                                       (30,596)
                                                            --------------------
LOSS FROM OPERATION                                                    477,955
GAIN ON DISPOSITION OF OPERATIONS                                      662,792
                                                            --------------------
INCOME (LOSS) BEFORE INCOME TAXES                                      184,837
                                                            --------------------
INCOME TAXES (RECOVERY)
     Current                                                                 -
     Deferred                                                           37,860
                                                            --------------------
                                                                        37,860
                                                            --------------------
Net income (loss)                                           $          146,977
--------------------------------------------------------------------------------
Income (loss) earnings per share - basic and diluted        $             0.05
--------------------------------------------------------------------------------
Weighted average shares outstanding                                  2,711.213
--------------------------------------------------------------------------------








           See accompanying notes to consolidated financial statements

                                      F-3
<PAGE>
                                                 Glas-Aire Industries Group Ltd.
                                 Consolidated Statements of Stockholders' Equity
                                                        (Stated In U.S. Dollars)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                              Common       Stock       Additional    Deferred      Accumulated     Accumulated       Stockholders'
                              Stock        Amount      Paid-in       Compensation  Deficit         Other             Equity
                                                       Capital       expense                       Comprehensive
                                                                                                   Income
---------------------------- ------------- ----------- ------------- ------------- --------------- ----------------- ---------------
<S>                          <C>           <C>         <C>           <C>           <C>             <C>               <C>
     Balance -
        December 31, 2003       2,711,213  $   27,112  $  1,549,313  $          -  $   (2,482,138) $      426,511    $     (479,202)
---------------------------- ------------- ----------- ------------- ------------- --------------- ----------------- ---------------
     Net Income                         -           -             -             -         146,977               -           146,977
---------------------------- ------------- ----------- ------------- ------------- --------------- ----------------- ---------------
     Deferred compensation              -           -             -             -               -               -                 -
---------------------------- ------------- ----------- ------------- ------------- --------------- ----------------- ---------------
     Shares issued                      -           -             -             -               -               -                 -
---------------------------- ------------- ----------- ------------- ------------- --------------- ----------------- ---------------
     Foreign currency                   -           -             -             -               -         226,267           226,267
      translation adjustment
---------------------------- ------------- ----------- ------------- ------------- --------------- ----------------- ---------------
     Balance -
        December 31, 2004       2,711,213  $   27,112  $  1,549,313  $          -  $  (2,335,161)  $      652,778    $     (105,958)
---------------------------- ------------- ----------- ------------- ------------- --------------- ----------------- ---------------
</TABLE>








                 See accompanying notes to financial statements.

                                      F-4
<PAGE>


                                                 Glas-Aire Industries Group Ltd.
                         Consolidated Condensed Statements of Comprehensive Loss
                                                        (Stated in U.S. Dollars)
--------------------------------------------------------------------------------

                                                            Year  ended
                                                            December 31,
                                                                2004
                                                            ------------
Net income (loss)                                            $146,977
Foreign currency translation adjustment                       226,267
Comprehensive income (loss)                                  $373,244
--------------------------------------------------------------------------------































                 See accompanying notes to financial statements


                                      F-5
<PAGE>

                                                  Glas-Aire Industries Group Ltd
                                 Consolidated Condensed Statements of Cash Flows
                                                        (Stated in U.S. Dollars)
--------------------------------------------------------------------------------
                                                                   Year ended
                                                                   December 31,
                                                                       2004
                                                            --------------------
CASH FLOWS FROM:
OPERATING ACTIVITIES
      Net (loss) for the period from continuing operations  $          (477,955)
      Adjustments to reconcile net (loss)
        Income to net cash provided by (used in) operating:
           activities from continuing operations
        Deferred income taxes                                          (114,492)
        Unrealized foreign exchange loss                                224,056
        Gain on disposal of operation                                   662,792
        Disposal of fixed assets                                      2,258,437

     (Increase) decrease in assets:
         Accounts receivable, net                                     1,087,660
         Deferred income taxes                                          196,011
         Inventories                                                  1,264,126
         Prepaid expenses                                                60,617
      Increase (decrease) in liabilities:
         Accounts payable                                            (2,330,440)
         Accrued liabilities                                           (726,194)
         Deferred income taxes                                         (158,151)
         Income taxes payable, net                                      104,043
                                                            --------------------
      Net cash (used in) provided by operating activities             2,050,510
FINANCING ACTIVITIES
      Repayment of long-term debt                                      (317,958)
      Repayment of capital lease obligation                             (54,792)
      Increase (decrease) in bank indebtedness                       (1,645,421)
                                                            --------------------
      Net cash (used in) provided by financing activities            (2,018,171)
                                                            --------------------
INVESTING ACTIVITIES
     Purchase of equipment                                                    -
                                                            --------------------
     Net cash provided by (used in) investing activities                      -
                                                            --------------------
FOREIGN CURRENCY TRANSLATION ADJUSTMENT
     EFFECT ON CASH BALANCES                                              2,211
                                                            --------------------
DECREASE IN CASH AND EQUIVALENTS DURING THE PERIOD                       34,550
CASH AND EQUIVALENTS,
     BEGINNING OF PERIOD                                                      -
                                                            --------------------
CASH AND EQUIVALENTS,  END OF PERIOD                        $            34,550
--------------------------------------------------------------------------------

                 See accompanying notes to financial statements

                                      F-6
<PAGE>

                                                 Glas-Aire Industries Group Ltd.
                               Consolidated Statements of Cash Flows (continued)
                                                        (Stated in U.S. Dollars)
--------------------------------------------------------------------------------
                                                                 Year ended
                                                                 December 31,
                                                                    2004
                                                                 ------------
Supplemental Information:

     Interest received                                             $   855

     Interest paid                                                 $31,451

     Income taxes paid                                             $     -
--------------------------------------------------------------------------------


























                 See accompanying notes to financial statements

                                      F-7
<PAGE>


                                                 Glas-Aire Industries Group Ltd.
                                      Summary of Significant Accounting Policies
December 31, 2004
--------------------------------------------------------------------------------
NATURE OF BUSINESS

         Glas-Aire  Industries Group Ltd., a Nevada  corporation (the "Company")
was incorporated on September 29, 1992. The Company manufactures and distributes
wind deflector products to automobile manufacturers in the United States, Canada
and Japan.

BANKRUPTCY

         On March 24,  2004 the  Supreme  Court of  British  Columbia  (Case No.
L040758)  appointed KPMG Inc. as receiver over all the right, title and interest
of Glas-Aire Industries Ltd, the wholly owned subsidiary of Glas-Aire Industries
Group  Ltd  (the  "Corporation"),   property,  assets,  and  undertakings.   The
Corporation was in default of certain financial ratios in its banking facilities
agreement with HSBC as was indebted to HSBC Bank for approximately  $2.7 million
(Canadian).  The Corporation  entered into a forbearance  agreement with HSBC to
attempt  to  restructure  its  debt  within  the  next  3  months.  However  the
forbearance  agreement  expired on March 23, 2004 and HSBC called the loans into
default. HSBC has security on the Corporation's assets,  however, the assets are
expected  to yield  significantly  less  than the  Corporation's  debt and it is
expected that no recovery is likely for the Corporation's unsecured creditors.

         Craig  Grossman,   President  and  Chief   Executive   Officer  of  the
Corporation  resigned as the sole officer and  director of Glas-Aire  Industries
Ltd. effective March 22, 2004.


BASIS OF PRESENTATION

         These  financial  statements  exclude the  accounts of its wholly owned
subsidiary  Glas-Aire  Industries Ltd. On March 24, 2004 the Canadian  Operation
filed  Bankruptcy with the Supreme Court of British  Columbia.  On July 31, 2004
Glas-Aire   Industries,   Inc.'s  warehouse  operation  was  closed.   Glas-Aire
Industries Group, Ltd. and all inter-company transactions and accounts have been
eliminated from the statements.

         These financial statements have been prepared in accordance with United
States generally accepted accounting principles and are in pursuant to the rules
and regulations of the United States Securities and Exchange  Commission.  These
financial  statements  represent the  financial  position of the Company for the
years ended December 31, 2004.




                                      F-8

<PAGE>


                                                 Glas-Aire Industries Group Ltd.
                                      Summary of Significant Accounting Policies
December 31, 2004
--------------------------------------------------------------------------------


PER SHARE INFORMATION

         The Company has adopted Financial  Accounting  Standards Board ("FASB")
Statement of Financial  Accounting  Stands (`SFAS')  No.128,  Earnings Per Share
(`EPS')  requiring dual presentation of basic EPS and diluted EPS on the face of
all  income  statements.  Basic EPS is  computed  as net  income  divided by the
weighted average number of shares of common stock outstanding during the period.
Diluted EPS reflects the  potential  dilution  that could occur if securities or
other  contracts were  exercised.  In a loss year,  dilutive  common  equivalent
shares are excluded from the loss per share  calculation  as the effect would be
anti-dilutive.  Basic and  diluted  loss per  share are the same for the  period
presented.  For the year ended December 31, 2004,  stock options and warrants to
purchases  230,000 shares of the Company's common stock were not included in the
calculation of loss per share because their effect was anti-dilutive.

CASH EQUIVALENTS

         Cash equivalents consist of short-term deposits were maturity of ninety
days or less.

RESEARCH AND DEVELOPMENT

         Research and development costs are expensed as incurred.

INCOME TAXES

         The Company  accounts for income taxes in accordance with SFAS No. 109,
which  requires  the  liability  method of  accounting  for  income  taxes.  The
liability method requires the recognition of deferred tax assets and liabilities
for the future tax consequences of temporary  differences  between the financial
statement basis and the tax basis of assets and liabilities.

STOCK BASED COMPENSATION

         The Company applies Accounting Principles Board ("APB") Opinion No. 25,
"Accounting  for Stock  issued to  Employees",  and related  interpretations  in
accounting for stock option plans.  Under APB Opinion No. 25,  compensation cost
is  recognized  for stock  options  granted at prices  below market price of the
underlying common stock on date of grant.

         SFAS NO.123,  "accounting for Stock-Based  Compensation".  Requires the
Company to provide pro forma  information  regarding net income and earnings per
share as if  compensation  cost  for the  Company's  stock  options  granted  to
employees had been  determined  in  accordance  with the fair value based method
prescribed in SFAS No. 123.

                                      F-9
<PAGE>

                                                 Glas-Aire Industries Group Ltd.
                                      Summary of Significant Accounting Policies
December 31, 2004
--------------------------------------------------------------------------------

         Stock options granted to non-employees  are accounted for in accordance
with SFAS No. 123. There were no stock options  granted to  non-employee  during
the periods covered by these financial statements.

         The Company does not plan do adopt the fair value method of  accounting
for  stock-based  compensation  to employees.  Consequently,  related  pro-forma
information  as  required  under  SFAS  No.  123 has  been  disclosed  below  in
accordance with SFAS No. 148.

                                                                Year ended
                                                               December 31,
                                                                   2004

                                                          ----------------------
         Net income (loss), as reported                             $    146,977
         Add: stock-based compensation expense included
                  in reported net loss                                         -
         Deduct: total stock-based compensation expense determined
                  under fair-value based                                       -
                                                          ----------------------
                                                                    $    146,977
                                                          ----------------------

         Income (loss) per share
                  - basic and diluted - as reported           $         0.05
                  - basic and diluted - pro forma             $         0.05

COMPREHENSIVE INCOME

         The Company has adopted SFAS No. 130, "Reporting Comprehensive Income",
which establishes  standards for reporting and display of comprehensive  income,
its  components  and  accumulated  balances.  The  Company  is  disclosing  this
information on its Statements of Operations and  Comprehensive  Loss and Changes
in Stockholders' Equity.  Comprehensive income is comprised of net income (loss)
and all charges to stockholders'  equity except those resulting from investments
by owners and distributions to owners.

FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS

         The Company conducts  business in both Canada and the United States and
uses the U.S. dollar as its reporting  currency.  The functional currency of the
Canadian  subsidiaries is the Canadian dollar.  The financial  statements of the
Canadian  subsidiaries  have been  translated  under  SFAS No.  52.  Assets  and
liabilities are translated at the rate of exchange at the balance sheet date and
revenues and expenses are  translated at the average  exchange  rates during the
year. The resulting exchange gains and losses are shown as a separated component
of stockholders' equity.

                                      F-10
<PAGE>

                                                 Glas-Aire Industries Group Ltd.
                                      Summary of Significant Accounting Policies
December 31, 2004
--------------------------------------------------------------------------------

         Transactions conducted in foreign currencies are translated as follows:

         At the transaction date, each asset, liability,  revenue and expense is
translated by the use of the exchange rate in effect at that date. At the period
end date,  monetary  assets and liabilities are translated by using the exchange
rate in effect at that date. The resulting foreign exchange gains and losses are
included in income in the current period.

ACCOUNTING ESTIMATES

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

FINANCIAL INSTRUMENTS

         The  Company's  financial  assets and  liabilities  consist of cash and
equivalents,  accrued  liabilities.  Unless  otherwise noted, it is management's
opinion  that the Company is not exposed to  significant  interest,  currency or
credit risks arising from these financial  instruments.  The fair value of these
financial  instruments,  approximate their carrying values due to the short-term
nature of these instruments.

CONCENTRATION OF EXCHANGE RISK

         As a Canadian  manufacturer,  the Company has a  significant  volume of
expense transactions denominated in Canadian currency.

CONCENTRATION OF CREDIT RISK

         As a manufacturer of automotive accessories,  the Company grants credit
to customers exclusively within the automotive manufacturing industry.

REVENUE RECOGNITION

         The Company  recognizes revenue on the sale of products at the time the
products are shipped.

WARRANTY ACCRUAL

         The  Company  offers  warranties  of various  lengths to its  customers
depending on the specific product and terms of the customer purchases agreement.
The  Company's  typical  warranties  require if to repair or  replace  defective
products during the warranty period at no cost to the customer. At the time that
revenue is recognized,  the Company records a liability for estimated costs that
may be

                                      F-11
<PAGE>

                                                 Glas-Aire Industries Group Ltd.
                                      Summary of Significant Accounting Policies
December 31, 2004
--------------------------------------------------------------------------------

incurred  under  its  warranties.  The cost is  estimated  based  on  historical
experience  and  expectation  of future  conditions.  The  Company  periodically
assesses the adequacy of its recorded warranty liability and adjusts the amounts
as  necessary.  While the Company  believes  that its  estimated  liability  for
product warranties is adequate and that the judgment applied is appropriate, the
estimated  liability for product  warranties could differ materially from future
actual warranty costs.

         Changes in the Company's  warranty  liability  during the years were as
follows:

                                                        2004
                                               -----------------------
         Balance, beginning of period                  $    229,940
         Warranty expense                                     1,483
         Settlements made                                  (231,423)
                                               -----------------------
         Balance, end period                           $          -
                                               -----------------------

VALUATION OF LONG-LIVED ASSETS

         The Company  evaluates  the future  recoverability  of its fixed assets
when  events or changes in business  circumstances  indicate  that the  carrying
amounts of the assets may not be fully recoverable.  An impairment loss would be
recognized  when  the net  book  value  of such  assets  exceeds  the  estimated
undiscounted future cash flows attributable to such assets.  Impairment, if any,
is assessed using discounted cash flows.  Long-lived assets to be disposed of by
sale are to be measured at the lower of carrying  amount or fair value less cost
of sale.  No  impairment  was  required  to be  recognized  during  the  periods
presented in these consolidated financial statements.

NEW ACCOUNTING PRONOUNCEMENTS

         In April  2002,  the FASB  issued  SFAS No.  145,  "Rescission  of FASB
Statements No. 4, 44 and 64, Amendment of FASB No. 13 and Technical  Corrections
("SFAS No. 145"). Among other things,  SFAS No. 145 requires any gain or loss on
early extinguishments of debt to be included in income from continuing operation
instead of being  classified as an  extraordinary  item. SFAS No. 145 will be in
effect for fiscal  years  beginning  after May 15,  2002.  The  Company  did not
extinguish any debt during the year. Accordingly,  adoption of the new standards
did not have any effect on the Company's financial statements.

         Statement of Financial  Accounting  Standards No. 146,  "Accounting for
Costs  Associated  with Exit or Disposal  Activities"  provides  guidance on the
recognition  and  measurement of liabilities  for costs  associated with exit or
disposal  activities.  The provisions of this Statement are effective to exit or
disposal activities that are initiated after December 31, 2002

                                      F-12
<PAGE>


                                                 Glas-Aire Industries Group Ltd.
                                      Summary of Significant Accounting Policies
December 31, 2004
--------------------------------------------------------------------------------

         In November 2002, the FASB issued FASB  interpretation  {"FIN") No. 45,
"Guarantor's  Accounting and Disclosure  Requirements for Guarantees,  Including
Indirect  Guarantees of Indebtedness of Others",  which addresses the accounting
for and  disclosure  of  guarantees.  FIN 45 requires a guarantor to recognize a
liability for the fair value of a guarantee at inception. The recognition of the
liability is required  even if it is not probable that payments will be required
under the  guarantee.  The  disclosure  requirement is effective for interim and
annual  financial   statement  ending  after  December  15,  2002.  The  initial
recognition and measurement  provisions are effective for all guarantees  within
the scope of FIN 45 issued or modified after December 31, 2002.

         FIN 46,  "Consolidation of Variable Interest  Entities",  clarifies the
application  of Accounting  Research  Bulletin No. 51,  "Consolidated  Financial
Statements",  to certain  entities  in which  equity  investors  do not have the
characteristics  of a controlling  financial  interest or do not have sufficient
equity at risk for the  entity to  finance  its  activities  without  additional
subordinated  financial  support  from  other  parties.  FIN  46  is  applicable
immediately for variable  interest  entities created after January 31, 2003. For
variable  interest entities created prior to January 31, 2003, the provisions of
FIN 46 are applicable no later than July 1, 2003.

         On May 15, 2003,  the Financial  Accounting  Standards  Board  ("FASB")
issued Statement of Financial  Accounting Standard ("SFAS") No. 150, "Accounting
for Certain Financial  Instruments with  Characteristics of both Liabilities and
Equity".  SFAS No. 150 changes the accounting for certain financial  instruments
that,  under  previous  guidance,  could be classified as equity or  "mezzanine"
equity,  by now requiring those  instruments to be classified as liabilities (or
assets in some  circumstances)  in the  balance  sheet.  Further,  SFAS No.  150
requires  disclosure  regarding the terms of those  instruments  and  settlement
alternatives.  SFAS No. 150 affects an entity's  classification of the following
freestanding  instruments:  a)  Mandatory  redeemable  instruments  b) Financial
instruments  to  repurchase  an entity's  own equity  instruments  c)  Financial
instruments embodying obligations that the issuer must or could choose to settle
by issuing a variable  number of its shares or other  equity  instruments  based
solely on (i) a fixed monetary amount known at inception or (ii) something other
than  changes  in its own equity  instruments  d) SFAS No. 150 does not apply to
features  embedded in a financial  instrument  that is not a  derivative  in its
entirety.  The guidance in SFAS No. 150 is generally effective for all financial
instruments  entered  into or  modified  after May 31,  2003,  and is  otherwise
effective at the beginning of the first interim period  beginning after June 15,
2003.

         The  implementation of this new standard did not have a material effect
on our consolidated financial statements



                                      F-13

<PAGE>



                                                 Glas-Aire Industries Group Ltd.
                                      Notes to Consolidated Financial Statements
                                                        (Stated in U.S. Dollars)
December 31, 2004
--------------------------------------------------------------------------------
1.  COMMON STOCK

         (a)      Authorized

                  30,000,000 Common shares with a par value of $0.01 each

                  1,000,000 Preferred shares with a par value of $0.01 each


         (b)      Issued and outstanding

                  2,711,213 Common shares

         On April 12, 2003 and August 12, 2003, the company issued 85,000 shares
of common stock respectively from the exercise of warrants,  at a price of $0.01
each.

         On April 1, 2003 the Company granted 50,000 common stock options at the
exercise  price of $0.75 to the  directors  in  accordance  with the  director's
compensation  program approved by the stockholders.  The options vested on April
1, 2003 and are exercisable to March 31, 2008.

         On July 18,  2003,  the Company  issued  40,542  shares of common stock
(valued at $30,000  based upon the trading  price of the common stock around the
dates  of  the  respective   agreement)  to  the  directors  as  part  of  their
compensation for the fiscal year ended December 31, 2002.

         At December  31,  2004 the  Company had 230,000  options and 0 warrants
outstanding.  The options and warrants  were excluded  from the  calculation  of
earnings per share due to their anti-dilutive effect.


2. STOCK BASED COMPENSATION

         Stock options granted to non-employees  are accounted for in accordance
with the fair value method  prescribed  in SFAS No. 123 using the  Black-Scholes
option  pricing  model.  There were no stock  options  granted to  non-employees
during the period covered by these financial statements.

         The Company applies Accounting Principles Board ("APB') Opinion No. 25,
"Accounting  for Stock  issued to  Employees,"  and related  interpretations  in
accounting for stock option plans.  Under APB Opinion No. 25,  compensation cost
is  recognized  for stock  options  granted at prices  below market price of the
underlying  common  stock on date of grant.  Stock  options  granted  in tranche
(graded  vesting)  are  amortized  over the  respective  vesting  period of each
tranche.

                                      F-14
<PAGE>
                                                 Glas-Aire Industries Group Ltd.
                                      Notes to Consolidated Financial Statements
                                                        (Stated in U.S. Dollars)
December 31, 2004
--------------------------------------------------------------------------------
         The Company does not plan to adopt the fair value method of  accounting
for  stock-based  compensation  to employees.  Consequently,  related  pro-forma
information  as  required  under  SFAS  No.  123 has  been  disclosed  below  in
accordance with SFAS No. 148. To provide the require pro-forma information,  the
Company estimates the fair value of each warrant and option granted at the grant
date using the Black-Scholes option-pricing model.

         The  pro-forma  results  set  out  below  are  based  on the  following
assumptions for the warrants:  No dividends,  risk-free  interest rate of 3.47%,
volatility  factor of the expected market price of the Company's common stock of
137% and an  estimated  weighted  average  expected  life of the  warrants of 24
months.  The fair value of warrants  granted on April 12, 2002 to the  Company's
Chief Executive Officer and President was $0.33 per warrant.

The pro-forma  results set out below are based on the following  assumptions for
the options: No dividends,  risk-free interest rate of 1.65%,  volatility factor
of the  expected  market  price  of the  Company's  common  stock of 137% and an
estimated  weighted average expected life of the options of 24 months.  The fair
value of stock  options  granted on April 1, 2003 to the directors was $0.07 per
option.

3. STOCK OPTIONS

     INCENTIVE AND NON-QUALIFIED PLANS

     During the year ended January 31, 1997,  the  Company's  Board of Directors
approved an Incentive Stock Option Plan and a  Non-Qualified  Stock Option Plan.
Each plan provides for granting options to purchase not more than 160,000 shares
of the  Company's  common  stock.  The  Incentive  Stock  Option  Plan  is to be
available to management and employees of the Company.  The  Non-Qualified  Stock
Option  Plan  is  to  be  available  to  certain  key   employees,   independent
contractors,  technical advisors and directors of the Company.  Vesting for both
plans will be determined at the date of grant.  Upon granting,  the options will
have a five year life.

At December 31, 2004 no options had been granted under either plan.

     DIRECTOR COMPENSATION

     In  previous  periods  the Company  had  granted  options to  directors  in
accordance   with  the   director's   compensation   program   approved  by  the
stockholders. A summary of the status of the Company's stock options outstanding
as of December 31, 2004 is as follows:



                                      F-15
<PAGE>

                                                 Glas-Aire Industries Group Ltd.
                                      Notes to Consolidated Financial Statements
                                                        (Stated in U.S. Dollars)
December 31, 2004
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                      Number of    Exercise
                                                                      Options      Price

<S>                                                                    <C>      <C>
Granted - November 4, 1999; Expiring - November 3, 2004                60,000   $   4.50
Granted - November 4, 2000; Expiring - November 3, 2005                60,000   $   2.75
Granted - November 4, 2001; Expiring - November 3, 2006                60,000   $   1.00
Granted - April 1, 2003: Expiring - March 31, 2008                     50,000   $   0.75
                                                                    ---------------------
                                                                      230,000
</TABLE>

         All 230,000  options are vested as of December  31,  2004.  The options
granted on December 4, 2001 vested in May 2002.

No options were granted in WTI (or its  predecessor,  Orbital) prior to December
21, 2001.

SFAS No. 123 requires the Company to provide pro-forma information regarding net
loss as if the compensation costs for the Company's stock option grants had been
determined in accordance with the fair value based method prescribed in SFAS No.
123. To provide the required  pro-forma  information,  the Company estimates the
fair value of each stock option granted to directors at the grant date using the
Black-Scholes  option-pricing  model.  The pro-forma  results are set out in the
Summary of  Significant  Accounting  Policies,  base on the  following  weighted
average assumptions: no dividends,  risk-free interest rate of 3.03%, volatility
of the  trading  price of the  Company's  common  stock  of 100% and a  weighted
average  expected life of the stock  options  granted to directors of 24 months.
The fair value of stock  options  granted on December 4, 2001 to  directors  was
$0.53 per option.


4.   SEGMENTED INFORMATION

(a)      Sales  figures  include  sales  to  customers  who are  located  in the
         following countries:
                                                              Year ended
                                                             December 31,
                                                                2004
                                                       ------------------------

           United States                                    $ 1,577,918
           Canada                                                57,413
           Japan and other                                        2,424
                                                       ------------------------
                                                            $ 1,637,755
                                                       ========================

                                      F-16
<PAGE>

                                                 Glas-Aire Industries Group Ltd.
                                      Notes to Consolidated Financial Statements
                                                        (Stated in U.S. Dollars)
December 31, 2004
--------------------------------------------------------------------------------


(b)      Sales to customers who each  accounted for 10% or more of the Company's
         sales are as follows:
                                                             Year ended
                                                             December 31,
                                                                 2004
                                                        ------------------------
            Nissan North America, Inc.                         $     449,744
            Honda Access America, Inc.                               504,449
            Gulf State/Southeast Toyota Inc.                         217,336
                                                        ------------------------
                                                               $   1,171,529
                                                        ========================

(c)      Sales figures are comprised of sales in the following products lines:
                                                              Year ended
                                                              December 31,
                                                                 2004
                                                        ------------------------
            Sunroof                                            $   1,086,525
            Hood protectors                                          401,494
            Rear air deflectors                                       93,754
            Door Visors                                               55,983
                                                        ------------------------
                                                               $   1,637,755
                                                        ========================

5. COMMITMENTS

(a)      The Canadian  operation filed  Bankruptcy on March 24, 2004. There were
         no commitments for operating lease.

(b)      The Company is committed to minimum lease  payments  totaling  $176,636
         for the  next  two  year  with a five  year  renewal  option,  under an
         operating  lease for its former  premises.  As the Company is no longer
         using  these  premises,  the  remaining  future  commitment  was  fully
         expensed in 2002 in the amount of $253,696  which  includes an estimate
         of common area  expenses  and property  tax of $77,060.  The  Company's
         monthly  lease  payment  including  its share of common  area  costs is
         approximately  $12,000 per month until  expiry in  September  2004.  On
         October  6, 2003 the  Landlord  agreed to accept the  surrender  of the
         Lease  together  with  the  sum of  $125,000  in five  installments  as
         settlement for the release of the Company's  obligation  under the term
         of the Lease agreement.


                                      F-17
<PAGE>

                                                 Glas-Aire Industries Group Ltd.
                                      Notes to Consolidated Financial Statements
                                                         (Stated in U.S Dollars)
December 31, 2004

--------------------------------------------------------------------------------
(c)      The Company  entered into an operating  lease agreement for its current
         premises  commencing  May 1,  2002  for a term of  seven  years  with a
         five-year  renewal  option.  The  landlord has provided the first three
         months of the lease rent fee.  The Company is  committed to the minimum
         annual lease payments plus  proportionate  common area costs in respect
         of its new premises

(d)      The  Company  entered  into an  employment  agreement  with  its  Chief
         Executive  Officer  and  President  effective  January  1,  2002 and to
         terminate December 31, 2005 unless terminated earlier by the Company or
         the Chief Executive Officer and President.  The employment agreement is
         automatically  renewable  for three  years.  The  employment  agreement
         provides an annual  salary of $213,000  plus an annual  bonus of 10% of
         the increase in net shareholders'  equity from the previous fiscal year
         excluding any increase resulting from the issue of shares. If the Chief
         Executive  Office and President is terminated for other than just cause
         or is disabled  and unable to perform  has duties,  he is entitled to a
         severance payment up to 18 months of his compensation.

         On  September  3,  2003  ALC  Holdings,   LLC  acquired  53.8%  of  the
outstanding  shares of  Glas-Aire  Industries  Group  Ltd's  common  stock.  Mr.
Grossman's  employments  agreements with the company and his outstanding  85,000
shares  warrant  were  cancelled.  Mr.  Grossman  is one of  the  owners  of ALC
Holdings, LLC.

6. GOING CONCERN

         The accompanying  financial statements have been prepared assuming that
the Company will continue as a going concern.  The Company  generated net losses
of  $2,335,161  during the period from  September 29, 1992  (inception)  through
December  31,  2004.  Also,  on March  24,  2004 the  Canadian  Operation  filed
Bankruptcy  with  the  Supreme  Court of  British  Columbia.  On July  31,  2004
Glas-Aire  Industries,  Inc.'s warehouse operation was closed.  These conditions
raise  substantial  doubt  about the  Company's  ability to  continue as a going
concern.  The  Company's  continuation  as a going  concern is  dependent on its
ability  to meet its  obligations,  to  obtain  additional  financing  as may be
required and ultimately to attain profitability. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.

Management  plans to raise  additional  funds through debt or equity  offerings.
Management  has yet to decide what type of offering  the Company will use or how
much capital the Company will rise.  There is no guarantee that the Company will
be able to raise any capital through any type of offerings.



                                      F-18
<PAGE>


                                                 Glas-Aire Industries Group Ltd.
                                      Notes to Consolidated Financial Statements
                                                         (Stated in U.S Dollars)
December 31, 2004
--------------------------------------------------------------------------------

7. SUBSEQUENT EVENT

         The  Company's  directors  had held the  meeting on April 24,  2006 and
approved the following issuance of shares.

         The Company decided to issue 1,220,000  shares of the Company's  common
stock to Craig  Grossman  and1,220,000  shares of the Company's  common stock to
Linda Kwan in lieu of the  payment of their  services.  The  Company has accrued
compensation  to Craig  Grossman  and Linda Kwan in the amount of  approximately
$122,000 each.

         The Company  decided to issue  44,800  shares of the  Company's  common
stock to Craig  Grossman  and 191,972  shares of the  Company's  common stock to
Linda Kwan in connection with the payment of their personal funds paid for legal
fees is connection with the Bank Settlement.

         The Company decided to issue Schlueter & Associates,  P.C. (S&A) or its
assigns  400,000  shares of the  Company's  common  stock to settle the incurred
legal fees to S&A.

         The Company decided to issue Mark J. Richardson,  Esq. 93,750 shares of
the  Company's  common  stock to  consideration  for legal  and  other  services
rendered for the Company.


8. CONTROLS AND PROCEDURES

         An  evaluation  was  conducted  under  the  supervision  and  with  the
participation of the Company's management, including the Chief Executive Officer
(CEO) and Chief Financial  Officer (CFO), of the effectiveness of the design and
operation of the Company's  disclosure  controls and  procedures as of September
30, 2003. Based on that evaluation, the CEO and CFO concluded that the Company's
disclosure controls and procedures were effective as of such date to ensure that
information  required to be  disclosed  in the reports  that it files or submits
under the Securities Exchange Act of 1934, as amended,  is recorded,  processed,
summarized  and reported  within the time periods  specified in  Securities  and
Exchange  Commission rules and forms.  Such officers also confirm that there was
no change in the Company's internal control over financial  reporting during the
quarter ended September 30, 2003 that has materially affected,  or is reasonably
likely to materially  affect,  the  Company's  internal  control over  financial
reporting.

         On September 11, 2003,  The Company  issued a press release  announcing
that ALC Holdings, LLC ("ALC") purchased a majority of the outstanding shares of
common stock of Glas-Aire Industries Group, Ltd. from several shareholders.  ALC
is a newly  formed  company  controlled  by several  managers,  including  Craig
Grossman,  our Chief  Executive  Officer and President.  In connection  with the
acquisition  of the  Glas-Aire  shares,  five  directors of  Glas-Aire  resigned
effective September 3, 2003.




                                      F-19
<PAGE>


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

         Not Applicable.

                                    PART III

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

         The  directors,  executive  officers  and one of the key  employees  of
Glas-Aire Industries Group Ltd. are as follows:

       NAME                AGE                      POSITION

   Craig Grossman          42    President, Chief Executive Officer and Director

   Linda Kwan              59    Chief Financial Officer

   Doug Preston            54    General Manager

         CRAIG  GROSSMAN  has served as a director of the Company  since May 21,
1999. From September 12, 2001 until December 4, 2001, Mr. Grossman served as the
acting  President  of the Company.  On December 4, 2001,  the board of directors
appointed Mr. Grossman the Chief Executive Officer and President of the Company.
From  1999 to the  present  Mr.  Grossman  has  been  the  President  of  Allied
Conservancy  Group,  Inc., a private hedge fund.  Since 1999,  Mr.  Grossman has
served as the  managing  partner of Tallman  Gulch  Development  Group,  LLC, an
investment  group funding a 500-acre  residential  land  development  in Douglas
County,  Colorado.  From  1993 to  2001,  he  served  as the Vice  President  of
Saddleback  Mountain  Development,  an  investment  group  funding an  1800-acre
residential development in Evergreen,  Colorado. From 1998 to 1999, Mr. Grossman
served as the Chief Executive  Officer of On-line Mortgage  Service,  a licensed
retail  mortgage  broker  doing  business in 11 states.  From 1994 to 1995,  Mr.
Grossman also served as the President and a Director of Regency Affiliates, Inc.

         LINDA KWAN was appointed as the Chief Financial  Officer of the Company
in 2001.  In 1996 she assumed the position of  Controller.  From 1995 until 1996
she had served as the Accounting Manager. Mrs. Kwan is a member of the Certified
Management  Accountants  of Canada.  From 1992 to 1995,  Mrs. Kwan operated as a
private consultant, providing accounting consulting services to small businesses
and  individuals.   From  1983  to  1992,  Ms.  Kwan  worked  with  York-Hanover
Developments, Ltd., a large real estate developer located in Toronto. While with
York-Hanover,  Mrs.  Kwan held a number of  positions  eventually  rising to the
position  of  Corporate  Controller  with  responsibility  for all of the firm's
accounting functions.  Mrs. Kwan graduated from Hong Kong Technical College with
a degree in commercial business and accounting.

Glas-Aire Industries Group Ltd.     -32-         Form 10-KSB @ December 31, 2004
<PAGE>

         DOUG PRESTON has been the General Manager of the Company since July 15,
2002.  Prior to joining  the  Company,  Mr.  Preston  was  employed as the Plant
Manager of Madill Equipment Canada, a major international manufacturer of forest
industry machines. While at Madill, Mr. Preston was responsible for engineering,
purchasing  and  manufacturing  activities.  From 1973 to 1996,  Mr. Preston was
employed   by   Freightliner   of   Canada  (a  wholly   owned   subsidiary   of
DaimlerChrysler),  an  international  leader in the  manufacture  of heavy  duty
trucks. Mr. Preston holds a Business Management  Certificate from the University
of British  Columbia  and a Diploma in English  Bible from  Western  Pentecostal
Bible College.

         Pursuant to an  underwriting  agreement  between the Company and Global
Financial  Group,  Inc.  ("Global")  entered  into on May 1, 1996,  the  Company
granted Global the right to designate one person to either serve on the board of
directors  of the  Company  or to  attend  board  of  directors  meetings  as an
observer.  Global has never designated any such person, and no representative of
Global has attended any of the meetings of the board of directors since 1999.

         At the  present  time no family  relationship  exists  among any of the
named directors and executive officers.  No arrangement or understanding  exists
between any of our directors or officers and any other persons pursuant to which
any  director  or  executive  officer  was  elected as a director  or  executive
officer.  Our  directors are elected  annually and serve until their  successors
take office or until their death, resignation or removal. The executive officers
serve at the pleasure of the board of directors.

         Under Nevada General Corporation Law and our Articles of Incorporation,
our  directors  will have no personal  liability to us or our  stockholders  for
monetary  damages  incurred  as the result of the breach or alleged  breach by a
director of his "duty of care." This  provision does not apply to the directors'
(i) acts or  omissions  that  involve  intentional  misconduct  or a knowing and
culpable violation of law, (ii) acts or omissions that a director believes to be
contrary to the best interests of the  corporation or its  shareholders  or that
involve the absence of good faith on the part of the director, (iii) approval of
any transaction from which a director derives an improper personal benefit, (iv)
acts or omissions that show a reckless  disregard for the director's duty to the
corporation  or its  shareholders  in  circumstances  in which the  director was
aware,  or should  have been  aware,  in the  ordinary  course of  performing  a
director's  duties,  of a risk  of  serious  injury  to the  corporation  or its
shareholders,  (v) acts or omissions that  constituted  an unexcused  pattern of
inattention  that  amounts  to an  abdication  of  the  director's  duty  to the
corporation  or its  shareholders,  or (vi)  approval of an  unlawful  dividend,
distribution,  stock  repurchase or redemption.  This provision  would generally
absolve  directors of personal  liability for  negligence in the  performance of
duties, including gross negligence.

         The effect of this  provision  in our Articles of  Incorporation  is to
eliminate the rights of the Company and our stockholders (through  stockholder's
derivative suits on behalf of the Company) to recover monetary damages against a
director  for  breach of his  fiduciary  duty of care as a  director  (including
breaches  resulting from negligent or grossly negligent  behavior) except in the
situations  described in clauses (i) through (vi) above. This provision does not
limit  nor  eliminate  the  rights of the  Company  or any  stockholder  to seek
non-monetary relief such as an injunction or rescission in the event of a breach
of a director's duty of care. In addition, our Articles of Incorporation provide
that if Nevada law is amended to authorize the future  elimination or limitation
of the  liability of a director,  then the  liability of the  directors  will be
eliminated  or limited to the fullest  extent  permitted by the law, as amended.

Glas-Aire Industries Group Ltd.     -33-         Form 10-KSB @ December 31, 2004
<PAGE>

Nevada General  Corporation Law grants corporations the right to indemnify their
directors, officers, employees and agents in accordance with applicable law. Our
Bylaws provide for  indemnification of such persons to the full extent allowable
under  applicable  law.  These  provisions  will not alter the  liability of the
directors under federal securities laws.

         We intend to enter into  agreements  to  indemnify  our  directors  and
officers,  in addition to the indemnification  provided for in our Bylaws. These
agreements, among other things, indemnify our directors and officers for certain
expenses (including attorneys' fees),  judgments,  fines, and settlement amounts
incurred by any such person in any action or proceeding, including any action by
or in the right of the  Company,  arising  out of such  person's  services  as a
director or officer of the Company,  any  subsidiary of the Company or any other
company or  enterprise to which the person  provides  services at the request of
the Company.  We believe that these  provisions  and agreements are necessary to
attract and retain qualified directors and officers.

         Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors,  officers or persons  controlling the Company
pursuant to the foregoing provisions,  the Company has been informed that in the
opinion of the  Securities  and Exchange  Commission,  such  indemnification  is
against public policy as expressed in the Act and is therefore unenforceable.

         BOARD COMMITTEES

         As of December 31, 2004, the Company's Board of Directors had no Audit,
Compensation or other committees. Management is not certain when such committees
will be formed,  but the formation of an Audit  Committee in compliance with the
Sarbones  Oxley  Act of 2002 is a  prerequisite  to  being a  current  reporting
company with the Securities and Exchange  Commission and having our Common Stock
accepted for trading on the OTC Bulletin Board or NASDAQ Market.

         COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

         We believe with respect to each person that served  during  fiscal 2004
as an officer or member of the board of directors of the Company that there were
no  transactions  that occurred during our most recent fiscal year end requiring
the filing of a Form 5.

ITEM 10. EXECTIVE COMPENSATION

         The  following  table  summarizes  all  compensation  paid to the Chief
Executive Officer,  for services rendered during the last three fiscal years. No
additional  executive officers'  compensation  exceeded $100,000 during the year
ended December 31, 2004.

Glas-Aire Industries Group Ltd.     -34-         Form 10-KSB @ December 31, 2004
<PAGE>
<TABLE>
<CAPTION>
  ------------------------- ---------------------------------------------------------------------------------------
                                                             Annual Compensation
  ------------------------- ---------------------------------------------------------------------------------------
<S>                         <C>               <C>             <C>             <C>                  <C>
                              Fiscal Year                                            Other           Securities
                             ended December       Annual                            Annual           Underlying
                                  31,             Salary          Bonus          Compensation         Warrants
  ------------------------- ----------------- --------------- --------------- -------------------- ----------------
  Craig Grossman,                2004             $ 74,458             --           $2,850
  President and CEO
  ------------------------- ----------------- --------------- --------------- -------------------- ----------------
                                 2003             $213,000                        $ 11,400(2)
                                                                                     6,250(7)
  ------------------------- ----------------- --------------- --------------- -------------------- ----------------
                                 2002             $213,000                        $ 10,000(1)       255,000
                                                                                    11,400(2)
                                 2001                           $100,000(3)       $  6,000(4)        10,000(6)

  ------------------------- ----------------- --------------- --------------- -------------------- ----------------
                                 2000(5)          -----           -----           $ 11,000(4)        10,000(6)
  ------------------------- ----------------- --------------- --------------- -------------------- ----------------
</TABLE>

(1)      Represents  $5,000 paid to Mr.  Grossman  for services as a director in
         2002 and 1,996  shares of common  stock  having a value of $5,000 based
         upon the trading value as fees were paid in connection with services as
         a director of the Company in 2000.
(2)      Represents  vehicle  allowance  provided  pursuant  to  Mr.  Grossman's
         Employment Agreement.
(3)      Mr. Grossman was paid this bonus for management services he provided to
         the Company for the year ended December 31, 2001.
(4)      Represents  fees paid in connection  with services as a director of the
         Company.
(5)      The Company  changed its fiscal year end from January 31 to December 31
         effective  December  31,  2000,  so that the  information  presented is
         actually for the 11 months ended December 31, 2000.
(6)      Represents  10,000  options  granted to Mr.  Grossman for services as a
         director of the Company.
(7)      Represents  $1,250 paid to Mr.  Grossman  for services as a director in
         2003 and 8,108  shares of common  stock  having a value of $5,000 based
         upon the trading value as fees were paid in connection with services as
         a director of the Company in 2003

         OPTION GRANTS IN THE LAST FISCAL YEAR.

         The following table sets forth information  concerning  options granted
during fiscal year 2004 to the Named Executive Officers.
<TABLE>
<CAPTION>

---------------------------- ---------------------- -------------------- ------------------ -----------------------
                                                    % of Total Options
                             Number of Securities       Granted to
                              Underlying Options       Employees in
                                    Granted             Fiscal Year
           Name                                                          Exercise Price        Expiration Date
---------------------------- ---------------------- -------------------- ------------------ -----------------------
<S>                                 <C>                    <C>                  <C>                  <C>
Craig Grossman                      200,000                100%                 (1)                  (1)
---------------------------- ---------------------- -------------------- ------------------ -----------------------
</TABLE>

(1)  Pursuant to Mr. Grossman's  Employment  Agreement 85,000 warrants vested on
     April  12,  2002,  85,000  warrants  vested on April  12,  2003 and  85,000
     warrants vest on April 12, 2004. All the warrants  expire 10 years from the
     date of grant and are  exercisable at $0.01.  The trading price on the date
     of grant was $0.35.

Glas-Aire Industries Group Ltd.     -35-         Form 10-KSB @ December 31, 2004
<PAGE>

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

         During the fiscal year ended  December 31, 2004,  there were no options
exercised by any of our officers,  directors or employees.  Further, on December
31,  2004,  the exercise  prices of all  existing  options were in excess of the
market  value of those  options.  The  following  table sets  forth  information
concerning  the number of shares that may be acquired on the exercise of options
and exercisable and  unexercisable  stock options at the end of fiscal year 2004
for the Named Executive Officers and members of the board of directors.

------------------------------ -------------------------------------------------
                                     Number of Securities Underlying
NAME                                 Unexercised Options at Year End
------------------------------ -------------------------------------------------
                                    Exercisable               Unexercisable
------------------------------ --------------------- ---------------------------
Craig Grossman                       200,000 (1)                     0
------------------------------ --------------------- ---------------------------

(1)      Includes  30,000 options  granted to Mr. Grossman for his services as a
         member of the board of directors during 1999, 2000 and 2001.

         EMPLOYMENT AGREEMENTS.

         We have entered into two Employment Agreements with Mr. Craig Grossman,
our  Chief  Executive  Officer  and a  member  of the  board of  directors.  One
employment  agreement  is between  Mr.  Grossman  and the  Company and the other
agreement  is  between  Mr.  Grossman  and  the  Company's   Canadian  operating
subsidiary  Glas-Aire  Industries  Ltd. The  principal  terms of the  employment
agreements  are  summarized   below.   The  employment   agreements  are  to  be
retroactively  effective  as of January 1, 2002,  and  terminate on December 31,
2004, unless earlier  terminated by the Company or Mr. Grossman.  The Employment
Agreements are automatically renewable for three-year terms.

         The  Employment  Agreements  provide  for  aggregate  annual  salary of
$213,000,  a car  allowance of $11,400 per year,  medical  insurance in both the
United States and Canada for Mr.  Grossman and his family,  and an annual bonus.
The annual  bonus  shall be equal to 10% of the  increase  in net  shareholder's
equity over the net  shareholder's  equity for the previous fiscal year with any
incremental  increase in shareholder's equity resulting from the issuance of any
shares of  preferred  or common  stock for cash or other  property  excluded  in
calculating  the annual bonus.  If a change of control  occurs as defined in the
agreement,  Mr.  Grossman may at his option elect to treat the change of control
as termination for other than cause and be paid a severance  payment equal to 18
months of his  compensation.  If Mr.  Grossman  is  terminated  for  cause,  Mr.
Grossman is to be paid all salary and vacation-days accrued, but not entitled to
severance  compensation.  Copies of Mr.  Grossman's  Employment  Agreements were
filed in our 10-KSB for the year ended December 31, 2001.

         In  addition,  Mr.  Grossman  was granted  warrants to acquire  255,000
shares of the  Company's  common stock at an exercise  price of $0.01 per share,
which expire on April 12, 2012, and contain customary anti-dilution  provisions.
The warrants were granted on April 12, 2002, and vest as follows:  85,000 shares
of the Company's common stock vested  immediately upon signing of the agreement,
with  warrants  to  acquire an  additional  85,000  shares  vesting on the first
anniversary of the date of the agreement  provided that Mr. Grossman is employed
by the Company,  and warrants to acquire an additional  85,000 shares vesting on
the second  anniversary of the date of the agreement  provided that Mr. Grossman
is  employed by the  Company.  On April 12, 2003 and August 12, 2003 the Company

Glas-Aire Industries Group Ltd.     -36-         Form 10-KSB @ December 31, 2004
<PAGE>

issued 85,000 shares of common stock respectively from the exercise of warrants,
at a price of $0.01 each.

         On  September  3,  2003  ALC  Holdings,   LLC  acquired  53.8%  of  the
outstanding  shares of  Glas-Aire  Industries  Group  Ltd's  common  stock.  Mr.
Grossman's  employments  agreements with the company and his outstanding  85,000
shares  warrant  were  cancelled.  Mr.  Grossman  is one of  the  owners  of ALC
Holdings, LLC.

         DIRECTORS FEES.

         No amount was paid to the directors  during fiscal year ended  December
31, 2004

         At the Annual Meeting on November 4, 1999, the shareholders  approved a
directors' compensation plan that provides for the following:

         o        An annual retainer for directors of $10,000,  payable one-half
                  in cash and one-half in Glas-Aire common stock,  such stock to
                  be valued at the  average  bid price for the common  stock for
                  the 30 days preceding their election to the board.

         o        A cash  fee of $125 per hour  for  each  board,  committee  or
                  shareholders   meeting   attended;   provided  that  multi-day
                  meetings and specific consultations with Glas-Aire's executive
                  management  lasting at least eight hours are  compensated on a
                  flat per diem rate of $1,000.

         o        An  annual  award of an option to  purchase  10,000  shares of
                  Glas-Aire's  common  stock,  at fair  market  value on date of
                  grant.  Options granted under this provision expire five years
                  from the date of grant,  are  exercisable  in cash and contain
                  anti-dilution provisions.

         PROFIT  SHARING  PROGRAM.  We  adopted a profit  sharing  program  that
provides that an amount equal to 10% of the Company's income before income taxes
(subject to some  adjustments)  may be  distributed to officers and employees of
the Company. There were no distributions pursuant to the plan for the year ended
December 31, 2003.

         EXECUTIVE   INCENTIVE   COMPENSATION  PLAN.  On  August  1,  2000,  the
Compensation  Committee of the Board of Directors  approved and  established  an
Executive Incentive  Compensation Plan (the "Executive  Compensation Plan"). The
purpose of the Executive  Compensation  Plan is to help us employ and retain key
executive officers. The Executive Compensation Plan has three components -- base
salary, cash incentive,  and an incentive stock option award. The cash incentive
portion is based upon achieving annual earnings goals  ("Incentive  Goal") based
upon earnings before income taxes  including only the earnings  derived from the
Company and its  consolidated  subsidiaries.  If 100% of the  Incentive  Goal is
achieved  then the eligible  executives  each will receive a cash bonus equal to
38.5% of their base salary.  If 125% of the Incentive Goal is achieved then each
will receive a cash bonus equal to 57.75% of their base  salary,  and if 150% of
the Incentive  Goal is achieved then each will receive a cash bonus equal to 77%
of their base salary.  Under no circumstances will actual bonuses for any fiscal
year exceed 25% of the Company's Net Income (after taxes) or Earnings Applicable
to Common Stock (as  appropriate).  The Incentive  Stock Option Award portion of

Glas-Aire Industries Group Ltd.     -37-         Form 10-KSB @ December 31, 2004

<PAGE>

the Executive  Compensation  Plan provides for the award of incentive options to
the eligible  executive  officers  based upon the Company  achieving 100% of the
Incentive  Goal.  If the  Incentive  Goal is  achieved,  then  the  Compensation
Committee  shall cause to be set aside  options  equal to 5% of our  outstanding
shares for awards to employees, with 70% of those options being available to the
eligible  executive  officers,  10% of the entire  option pool is available  for
issuance to the Chairman of the Board of  Directors,  provided that the Chairman
is not  compensated  by a salary.  Any  options  granted  will vest as  follows:
one-third (1/3) on the date of grant,  one-third (1/3) on the first  anniversary
of the date of grant, and one-third (1/3) on the second  anniversary of the date
of grant.

         OPTION PLANS. The board of directors  adopted an Incentive Stock Option
Plan (the "Qualified  Plan") which provides for the grant of options to purchase
an aggregate of not more than 160,000 shares of our common stock. The purpose of
the Qualified  Plan is to make options  available to management and employees in
order to provide  them with a more direct stake in the future of the Company and
to encourage  them to remain in the employ of the Company.  The  Qualified  Plan
provides for the  granting to  management  and  employees  of  "Incentive  Stock
Options" within the meaning of Section 422 of the Internal  Revenue Code of 1986
(the "Code").

         The board of directors  adopted a Non-Qualified  Stock Option Plan (the
"Non-Qualified  Plan")  which  provides  for the grant of options to purchase an
aggregate of not more than 160,000  shares of our common  stock.  The purpose of
the  Non-Qualified  Plan  is  to  provide  certain  key  employees,  independent
contractors,  technical  advisors and directors with options in order to provide
additional  rewards  and  incentives  for  contributing  to the  success  of the
Company.  These  options are not incentive  stock options  within the meaning of
Section 422 of the Code.

         The  Qualified  Plan and the  Non-Qualified  Plan  (the  "Stock  Option
Plans") will be administered by a committee (the  "Committee")  appointed by the
board of directors which  determines the persons to be granted options under the
Stock Option Plans and the number of shares  subject to each option.  No options
granted under the Stock Option Plans will be  transferable by the optionee other
than by will or the laws of descent  and  distribution  and each  option will be
exercisable,  during the lifetime of the optionee,  only by such  optionee.  Any
options  granted  to an  employee  will  terminate  upon  his  ceasing  to be an
employee, except in limited circumstances,  including death of the employee, and
where the  Committee  deems it to be in our best  interests not to terminate the
options.

         The exercise  price of all incentive  stock  options  granted under the
Qualified Plan must be equal to the fair market value of such shares on the date
of grant as determined by the  Committee,  based on guidelines  set forth in the
Qualified Plan. The exercise price may be paid in cash or (if the Qualified Plan
shall meet the  requirements of rules adopted under the Securities  Exchange Act
of 1934) in common stock or a combination of cash and common stock.  The term of
each option and the manner in which it may be exercised  will be  determined  by
the Committee, subject to the requirement that no option may be exercisable more
than 10 years after the date of grant. With respect to an incentive stock option
granted  to a  participant  who owns more than 10% of the  voting  rights of the
Company's  outstanding capital stock on the date of grant, the exercise price of
the option must be at least  equal to 110% of the fair market  value on the date
of grant and the option may not be  exercisable  more than five years  after the
date of  grant.  The  exercise  price of all  stock  options  granted  under the

Glas-Aire Industries Group Ltd.     -38-         Form 10-KSB @ December 31, 2004
<PAGE>

Non-Qualified  Plan  must be equal to at least 80% of the fair  market  value of
such  shares  on the date of  grant as  determined  by the  Committee,  based on
guidelines set forth in the Non-Qualified Plan.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The  following  table sets forth as of March 20, 2005,  the  beneficial
ownership of the  Company's  common stock by each person known to the Company to
own beneficially  more than 5% of the Company's common stock and by the officers
and  directors of the Company,  individually  and as a group.  Unless  otherwise
stated below, each such person has sole voting and investment power with respect
to all such shares of common stock.
<TABLE>
<CAPTION>
   Name and Address of                                                Amount and Nature of
    Beneficial Owner             Beneficial Ownership                  Percent of Class
-----------------------------    --------------------             -----------------------
<S>                                      <C>                                   <C>
ALC Holdings LLC                         1,457,328 (1)                         53.8%
7791 Alderbridge Way
Richmond, B.C.
Canada V6X2A4

Craig Grossman                             203,485(2)(3)                        7.40%
7791 Alderbridge Way
Richmond, B.C.
Canada V6X 2A4

Linda Kwan                                  16,033                              0.63%
7791 Alderbridge Way
Richmond, B.C.
Canada V6X 2A4

Doug Preston                                     0                              0%
7791 Alderbridge Way
Richmond, B.C.
Canada V6X 2A4

Directors and executive officers
as a group (3 persons)                   1,676,846                             61.8%
------------------------------
</TABLE>

(1)      This  limited  liability  company  is  owned  and  controlled  by Craig
         Grossman and Linda Kwan.

(2)      Includes  options to purchase  10,000  shares  granted to  directors on
         November 4, 1999,  10,000  shares  granted to  directors on December 4,
         2000 and 10,000 shares granted to directors on December 4, 2001.

(3)      Includes  85,000  shares  vested  on April  12,  2002  pursuant  to Mr.
         Grossman's  employment  agreement and an additional  85,000 shares that
         vested on April 12, 2003.

         CHANGES IN CONTROL.

         None.

Glas-Aire Industries Group Ltd.     -39-         Form 10-KSB @ December 31, 2004
<PAGE>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         None.

                                     PART IV

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

         Documents filed as part of this Form 10-KSB:

         (a)      List of Exhibits.

                  (i)      Financial Statements: The financial statements listed
                           by  the  Registrant  on  the  accompanying  Financial
                           Statements  (see pages F-1 through F-20) are filed as
                           part of this Annual Report on Form 10-KSB.

         (b)      Other Exhibits.

                  31.1     Craig Grossman Sarbanes Oxley 302 Certification.
                  31.2     Linda Kwan Sarbanes Oxley 302 Certification.
                  32.1     Certification  Pursuant to 18 U.S.C. 1350 as adopted
                           pursuant to Section 906 of the  Sarbanes-Oxley Act of
                           2002.

         (c)      Report on Form 8-K:

                  A Report on form 8-K was filed on March 29,  2004 to  disclose
                  the March 24, 2004 appointment of KPMG by the Supreme Court of
                  British  Columbia (Case No.  L040758) as receiver over all the
                  right,  title and interest of Glas-Aire  Industries  Ltd., the
                  wholly owned subsidiary of Glas-Aire  Industries  Group,  Ltd.
                  (the "Corporation"),  property,  assets and undertakings.  The
                  Corporation was in default of certain  financial ratios in its
                  banking  facilities  agreement  with HSBC and was  indebted to
                  HSBC Bank for approximately $2.7 million (Canadian).

         (d)      A  Report  on form 8K filed on June  17,  2004  disclosed  the
                  change in Registrant's Certifying Accountant:

                  (a)      Dismissal   of  Previous   Independent   Accountants.
                           Effective June 17, 2004,  Glas-Aire  Industries Group
                           Ltd  ("Company")  dismissed BDO Dunwoody LLP ("BDO"),
                           as its independent public accountants.  The Company's
                           sole Director approved this decision to dismiss BDO).

                  (b)      Engagement of New  Independent  Accountants.  On June
                           17,   2004  the   Company   engaged   Dale   Matheson
                           Carr-Hilton  LaBonte  Chartered  Accounts  as its new
                           independent accounts.

Glas-Aire Industries Group Ltd.     -40-         Form 10-KSB @ December 31, 2004
<PAGE>

Item 14. CONTROLS AND PROCEDURES

         Our Chief Executive  Officer and Chief Financial Officer have evaluated
the  effectiveness  of the  Company's  disclosure  controls and  procedures  (as
defined in Rules 13a-14 and 15d-14 of the  Securities  Exchange Act of 1934,  as
amended,  as of a date  within 90 days prior to the filing  date of this  Annual
Report (the "Evaluation  Date").  Based on this  evaluation,  such officers have
concluded  that,  as  of  the  Evaluation  Date,  our  disclosure  controls  and
procedures  are  effective  in  timely  alerting  them to  material  information
required  to be  included  in the  Company's  periodic  SEC  filings.  Since the
Evaluation  Date,  there have not been any  significant  changes in the internal
controls of the Company,  or in other  factors that could  significantly  affect
these controls subsequent to the Evaluation Date.

                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                  GLAS-AIRE INDUSTRIES GROUP LTD.


Date: March 30, 2005              By:/s/Craig Grossman
                                  --------------------------------------------
                                  Craig Grossman, Chief Executive Officer,
                                  President, Secretary and Chairman of the Board


         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
registrant and in the capacities and on the dates indicated.

By:  \s\ Craig Grossman                                    Dated: March 30, 2005
    ---------------------------------------------------
      Craig Grossman, Chairman of the Board,
      Chief Executive Officer, President,
      and Secretary (Principal Executive Officer)

By:  \s\ Linda Kwan                                        Dated: March 30, 2005
    ---------------------------------------------------
      Linda Kwan, Chief Financial Officer
      (Principal Financial/Accounting Officer)














Glas-Aire Industries Group Ltd.     -41-         Form 10-KSB @ December 31, 2004