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, 2005

[   ]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:    None
                                                               -----------------
                                                                (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: $0

As of December 31, 2005, 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, 2005 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                                                                      5
     Item 3.      Legal Proceedings                                                                            5
     Item 4.      Submission of Matters to a Vote of Security Holders                                          5

PART II
     Item 5.      Market for Common Equity and Related Stockholder Matters                                     5
     Item 6.      Management's Discussion and Analysis or Plan of Operation                                    7
     Item 7.      Financial Statements                                                                        13
     Item 8.      Changes in and Disagreements With Accountants on
                    Accounting and Financial Disclosure                                                       14

PART III
     Item 9.      Directors, Executive Officers, Promoters and Control Persons;
                    Compliance with Section 16(A) of the Exchange Act                                         14
     Item 10.     Executive Compensation                                                                      16
     Item 11.     Security Ownership of Certain Beneficial Owners
                    and Management                                                                            20
     Item 12.     Certain Relationships and Related Transactions                                              21

PART IV
     Item 13.     Exhibits and Reports on Form 8-K                                                            21
     Item 14.     Controls and Procedures                                                                     22

SIGNATURES                                                                                                    22
</TABLE>
















Glas-Aire Industries Group Ltd.       -ii-       Form 10-KSB @ December 31, 2005

<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

Glas-Aire Industries Group Ltd.       -1-       Form 10-KSB @ December 31, 2005
<PAGE>

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
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.  In 2004 the Company
ceased  all  operations  and its main  Canadian  operating  subsidiary  declared
bankruptcy.  The  Company  was  eventually  liquidated  by its  court  appointed
receiver and left with no significant  assets and  approximately  CND $70,000 in
outstanding  indebtedness  to HSBC Bank.  The  Company  has no current  business
operations.  The Company is in the process of seeking to acquire another private
operating  company  so that it can  resume  business  and  confer  value  on its
shareholders.  There is no  assurance  that the Company will be able to find and
acquire another business operation,  or that such business, if acquired, will be
profitable or successful.

Glas-Aire Industries Group Ltd.       -2-       Form 10-KSB @ December 31, 2005
<PAGE>
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.

         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 be able to acquire  another  viable  operating  business and resume
operations as a "going concern."  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.

Glas-Aire Industries Group Ltd.       -3-       Form 10-KSB @ December 31, 2005
<PAGE>
         NO ASSURANCE THAT COMPANY WILL BE ABLE TO ACQUIRE ANOTHER BUSINESS.  We
are  currently  a shell  corporation  with no  significant  assets  and  certain
liabilities.  There  is no  assurance  that we will be able to  acquire  another
business  operation or that if acquired,  it will be profitable or  commercially
successful.  Any  business  acquisition  that we may  acquire  could  result  in
operating losses and a further decline in our stock price. Furthermore, existing
shareholders  of  the  Company  should  expect  significant  dilution  of  their
ownership  in the  Company  and a  reverse  stock  split in  connection  with an
acquisition  of a new business.  Until the Company  acquires a new business,  it
does not  expect to earn any  revenue  or be able to pay its debt,  nor will its
stock price appreciate or even remain stable.

         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 contained 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 in  violation of
these 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.  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  Company  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).

         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;

         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.

Glas-Aire Industries Group Ltd.       -4-       Form 10-KSB @ December 31, 2005
<PAGE>

ITEM 2. DESCRIPTION OF PROPERTY

         We have no real property or leases on real property.

ITEM 3. LEGAL PROCEEDINGS

         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.

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

         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

Glas-Aire Industries Group Ltd.       -5-       Form 10-KSB @ December 31, 2005
<PAGE>

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, 2005                               HIGH                 LOW

                  January 1, 2005 through March 31, 2005                      $0.05                $0.05
                  April 1, 2005 through June 30, 2005                         $0.05                $0.03
                  July 1, 2005 through September 30, 2005                     $0.03                $0.03
                  October 1, 2005 through December 31, 2005                   $0.02                $0.02

                  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
</TABLE>

         The closing  price of the common  stock on March 27, 2006 was $0.01 per
share.  As of March 27, 2006, 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:
<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
------------------------------ -------------------------- ----------------------- ---------------------------------
Total                                  400,000                    $2.26                       320,000
------------------------------ -------------------------- ----------------------- ---------------------------------
</TABLE>

(1)      Includes  85,000  shares  vested  on April  12,  2002  pursuant  to Mr.
         Grossman's  employment  agreement which were 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.

Glas-Aire Industries Group Ltd.       -6-       Form 10-KSB @ December 31, 2005
<PAGE>

         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  have  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.

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.

Glas-Aire Industries Group Ltd.       -7-       Form 10-KSB @ December 31, 2005
<PAGE>
BALANCE SHEET DATA.
<TABLE>
<CAPTION>
                                                                   Period From
------------------------------------------- ----------------------------------------------------------
                                                 December 31, 2005             December 31, 2004
------------------------------------------- ----------------------------- ----------------------------
<S>                                                <C>                          <C>
Working Capital (Deficiency)                       $ (416,399)                  $ (105,958)
------------------------------------------- ----------------------------- ----------------------------
Total Current Assets                               $    1,832                   $   34,550
------------------------------------------- ----------------------------- ----------------------------
Total Current Liabilities                          $  418,231                   $  140,508
------------------------------------------- ----------------------------- ----------------------------
Total Assets                                       $    1,832                   $   34,550
------------------------------------------- ----------------------------- ----------------------------
Total Long Term Debt                               $        -                   $        -
------------------------------------------- ----------------------------- ----------------------------
Capital Lease Obligations                          $        -                   $        -
------------------------------------------- ----------------------------- ----------------------------
Deferred Income Taxes                              $        -                   $        -
------------------------------------------- ----------------------------- ----------------------------
Stockholders' Equity                               $ (416,399)                  $ (105,958)
------------------------------------------- ----------------------------- ----------------------------
</TABLE>











Glas-Aire Industries Group Ltd.       -8-       Form 10-KSB @ December 31, 2005

<PAGE>

INCOME STATEMENT DATA.
<TABLE>
<CAPTION>

                                                                             Period From
  ---------------------------------------------- ----------------------------------------------------------
                                                             Year Ended         Year Ended December 31,
                                                            December 31,                  2004
                                                                2005
  ---------------------------------------------- ------- -------------------- -----------------------------
<S>                                                        <C>                           <C>
  Sales                                                    $          -                  $ 1,637,755
  ---------------------------------------------- ------- -------------------- -----------------------------
  Cost of Sales                                                       -                    1,553,037
  ---------------------------------------------- ------- -------------------- -----------------------------
  Gross Profit                                                                                84,718
  ---------------------------------------------- ------- -------------------- -----------------------------
  Research and Development                                            -                       71,857
  ---------------------------------------------- ------- -------------------- -----------------------------
  Selling and Distribution                                            -                       61,473
  ---------------------------------------------- ------- -------------------- -----------------------------
  General and Admin.                                            226,874                      398,747
  ---------------------------------------------- ------- -------------------- -----------------------------
  (Loss) Income From Operations                                (226,874)                    (447,359)
  ---------------------------------------------- ------- -------------------- -----------------------------
  Loss From Continuing Operations                              (310,441)                    (477,955)
  ---------------------------------------------- ------- -------------------- -----------------------------
  Income From Discontinued Operations
  ---------------------------------------------- ------- -------------------- -----------------------------
  Gain On Disposition of Operations                                  -                       662,792
  ---------------------------------------------- ------- -------------------- -----------------------------
  Income Taxes                                                       -                        37,860
  ---------------------------------------------- ------- -------------------- -----------------------------
  Net (Loss) Income From the Period                           (310,441)                      146,977
  ---------------------------------------------- ------- -------------------- -----------------------------
  (Loss) Earnings Per Share
  - Basic and Diluted - Continuing Operations                    (0.11)
  Not (Loss) Income Per Share                                                                   0.05
                                                                 (0.11)
                                                                                                0.05

  ---------------------------------------------- ------- -------------------- -----------------------------
  Weighted Average Number of Shares Outstanding              2,711,213                     2,711,213
  ---------------------------------------------- ------- -------------------- -----------------------------
</TABLE>
















Glas-Aire Industries Group Ltd.       -9-       Form 10-KSB @ December 31, 2005
<PAGE>

         RESULTS OF OPERATIONS.

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

------------------------------------- ------------------------------------------
                                                     Period From
------------------------------------- -------------------- ---------------------
                                       Year Ended December  Year Ended December
                                             31, 2005             31, 2004
------------------------------------- -------------------- ---------------------
Net Sales                                       0%                    100%
------------------------------------- -------------------- ---------------------
Cost of Sales                                   0%                   94.8%
------------------------------------- -------------------- ---------------------
Gross Profit                                    0%                    5.2%
------------------------------------- -------------------- ---------------------
Research and Development                        0%                    4.4%
------------------------------------- -------------------- ---------------------
Selling and Distribution                        0%                    3.8%
------------------------------------- -------------------- ---------------------
General and Administrative                      0%                   24.3%
------------------------------------- -------------------- ---------------------
Income (Loss) From Operations                   0%                  (29.2%)
------------------------------------- -------------------- ---------------------


         YEAR ENDED DECEMBER 31, 2005 COMPARED TO YEAR ENDED DECEMBER 31, 2004

         SALES.  Sales  decreased from $1,637,755 for the period ended March 24,
2004 to $0 for the year ended December 31, 2005. The sales decrease was the main
result of the Canadian  operation's  filing for bankruptcy on March 24, 2004 and
ceasing its operation after date.

         GROSS  PROFIT.  Gross  profit  margins  decreased  from $84,718 for the
period ended March 24,  2004.to $0 for the year ended  December  31, 2005.  This
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 $71,857 for
the period  ended March 24,  2004.  to $0 for the year ended  December 31, 2005.
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  $61,473  for the  period  ended  March 23,  2004 to $0 for the year  ended
December 31, 2005.  This decrease was due primarily 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 $398,747 for the year ended December 31, 2004 to $226,874 for the
year ended December 31, 2005. This was a result of (i) the Canadian  operation's
filing for bankruptcy on March 24, 2004,  (ii) an increase in legal fees related
to loan  guarantee  from  Glas-Aire  Industries  Group  Ltd with  HSBC,  (iii) a

Glas-Aire Industries Group Ltd.       -10-       Form 10-KSB @ December 31, 2005
<PAGE>
decrease in accounting  fees related to the  preparation of quarterly and annual
reports,  and consulting fees related to public  relations,  (iv) an increase in
Management fees accrued for two officers to maintain the company.

         INTEREST EXPENSE.  Interest expense increased from $83,661 for the year
ended  December  31, 2005  compared to $31,451 for the year ended  December  31,
2004. This was the result of (i) the Canadian  operation's filing for bankruptcy
on March 24, 2004,  (ii) a settlement  of US$82,000  plus  extension fee for the
release of loan guarantee from HSBC effective July 1, 2005.

         LOSS  FROM  OPERATIONS.   Our  loss  from  operations   increased  from
$(310,441)  for the year ended  December  31, 2005 to a gain of $184,837 for the
year ended December 31, 2004. This decrease in loss was primarily due to (i) the
Canadian  operation's  filing for  bankruptcy  on March 24,  2004 (ii) a gain of
$662,792 on disposal of fixed assets and liabilities in 2004.

         CAPITAL RESOURCES AND LIQUIDITY.

         Cash provided by operating  activities  for the year ended December 31,
2004 was $2,050,510  compared to $(32,718) for the year ended December 31, 2005.
This decrease can be primarily attributed to (i) the Canadian operation's filing
for  bankruptcy  on March 24,  2004,  (ii) an  increase  of  $277,723 of accrued
liabilities,  (iii) a decrease  of  $662,792  due to the  disposal of assets and
liabilities of the Canadian  operation,  (iv) a unrealized foreign exchange loss
on translation of inter-company accounts of $224,056, and (v) the written off of
all assets and liabilities in 2004.

         Cash used in financing  activities for the year ended December 31, 2005
was $0 compared to cash used in financing  activities  of  $(2,018,171)  for the
year ended December 31, 2004. Cash used in financing activities can be primarily
attributed to (i) the Canadian  operation's  filing for  bankruptcy on March 24,
2004,  (ii) the  repayment of long-term  debt,  and (iii) the written off of all
bank indebtedness, capital lease obligation and long-term debt

         On December 16, 2003 HSBC (the lender) called the loan into default. 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 Company 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

Glas-Aire Industries Group Ltd.       -11-       Form 10-KSB @ December 31, 2005
<PAGE>

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, 2005          1.U.S.$: 1.1613 Cdn.$      1 U.S.$: 1.2113 Cdn.$
December 31, 2004          1.U.S.$: 1.2176 Cdn.$      1 U.S.$: 1.2988 Cdn.$

         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

Glas-Aire Industries Group Ltd.       -12-       Form 10-KSB @ December 31, 2005
<PAGE>
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.

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  include  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.

Glas-Aire Industries Group Ltd.       -13-       Form 10-KSB @ December 31, 2005
<PAGE>
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, and all the
lease obligations and capital lease manufacturing equipment have been cancelled.

         The  following  table  sets  forth  information  with  respect  to  our
contractual obligations and commercial commitments as of December 31, 2005.

                             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>                <C>
  Richmond Lease Payments (1)         $         -        $       -          $       -          $      -
  ----------------------------------- ------------------ ------------------ ----------------- ------------------
  Vancouver Lease Payments (2)                  -                -                  -                 -
  ----------------------------------- ------------------ ------------------ ----------------- ------------------
  Craig Grossman Employment                     -                -                  -                 -
  Contract (3)
  ----------------------------------- ------------------ ------------------ ----------------- ------------------
  Principal Payments on Debt to       $    69,250                -                  -                 -
  HSBC (4)
  ----------------------------------- ------------------ ------------------ ----------------- ------------------
  Capital Lease Manufacturing                   -                -                  -                 -
  Equipment (5)
  ----------------------------------- ------------------ ------------------ ----------------- ------------------
</TABLE>

(1)      We had a seven year lease agreement that began on October 1, 2002 for a
         facility located at 7791 Alderbridge Way, Richmond,  B.C. Canada.  This
         lease  was  cancelled  in  the  bankruptcy  of the  Company's  Canadian
         subsidiary.
(2)      The lease for the Vancouver facility located at 3137 Grandview Highway,
         Vancouver,  B.C.  Canada expires in September  2004. 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.       -14-       Form 10-KSB @ December 31, 2005
<PAGE>

                                                 GLAS-AIRE INDUSTRIES GROUP LTD.
                                               CONSOLIDATED FINANCIAL STATEMENTS
                                           FOR THE YEAR ENDED DECEMBER 31, 2005,
                                           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                                         2005               2004
--------------------------------------------------------------------------------

ASSETS
CURRENT
     Cash and equivalents                        $   1,832         $    34,550
                                               ---------------------------------
                                                     1,832              34,550

                                                                            -
                                               ---------------------------------
                                                 $    1,832        $    34,550
--------------------------------------------------------------------------------

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT

     Accrued Liabilities                            382,731            105,008
     Income tax payable                              35,500             35,500
                                               ---------------------------------
                                                     418,231            140,508

STOCKHOLDERS' EQUITY
     Common stock                                    27,112             27,112
     Additional paid in capital                   1,549,313          1,549,313
     Accumulated deficit                         (2,645,602)        (2,335,161)
     Deferred compensation                                -                  -
     Accumulated other comprehensive income
     - foreign currency translation adjustment      652,778            652,778
                                               ---------------------------------
                                                   (416,399)          (105,958)
                                               ---------------------------------
                                                 $     1,832       $     34,550
-------------------------------------------------------------------------------




                                      F-2
<PAGE>

                                                 GLAS-AIRE INDUSTRIES GROUP LTD.
                                          CONSOLIDATED STATEMENTS OF OPERATIONS
                                                        (STATED IN U.S. DOLLARS)

                                                  YEAR ENDED         YEAR ENDED
                                                 DECEMBER 31,       DECEMBER 31,
                                                    2005                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                       226,874           398,747
                                                --------------------------------
                                                      226,874           532,077
                                                --------------------------------
LOSS FROM OPERATIONS                                  226,874           447,359
                                                --------------------------------
OTHER INCOME (EXPENSE)
     Interest income                                       94               855
     Interest expense                                 (83,661)          (31,451)
                                                --------------------------------
                                                      (83,567)          (30,596)
                                                --------------------------------
LOSS FROM OPERATION                                   310,441           477,955
GAIN ON DISPOSITION OF OPERATIONS                           -           662,792
                                                --------------------------------
INCOME (LOSS) BEFORE INCOME TAXES                    (310,441)          184,837
                                                --------------------------------
INCOME TAXES (RECOVERY)
     Current                                                -                 -
     Deferred                                               -            37,860
                                                --------------------------------
                                                            -                 -
                                                --------------------------------
NET INCOME (LOSS)                                $   (310,441)    $     146,977
--------------------------------------------------------------------------------
INCOME (LOSS) EARNINGS PER SHARE -
 BASIC AND DILUTED                               $      (0.11)    $        0.05
--------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES OUTSTANDING                 2,711,213         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)
---------------------------- ------------- ----------- ------------- ------------- --------------- ----------------- ---------------
     Net income                         -           -             -            -       (310,441)               -          (310,441)
---------------------------- ------------- ----------- ------------- ------------- --------------- ----------------- ---------------
     Deferred compensation              -           -             -            -              -                -                 -
---------------------------- ------------- ----------- ------------- ------------- --------------- ----------------- ---------------
     Shares issued                      -           -             -            -              -                -                 -
---------------------------- ------------- ----------- ------------- ------------- --------------- ----------------- ---------------
     Foreign currency                   -           -             -            -              -                -                 -
      translation adjustment
---------------------------- ------------- ----------- ------------- ------------- --------------- ----------------- ---------------
     Balance -
        December 31, 2005       2,711,213  $   27,112  $  1,549,313  $         -   $(2,645,602)    $     652,778     $    (416,399)
---------------------------- ------------- ----------- ------------- ------------- --------------- ----------------- ---------------
</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        YEAR ENDED
                                                  DECEMBER 31,      DECEMBER 31,
                                                     2005               2004
                                                   -----------------------------
Net income (loss)                                  $(310,441)         $146,977
Foreign currency translation adjustment                    -           226,267
                                                   -----------------------------
Comprehensive Income (Loss)                        $(310,441)         $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)

<TABLE>
<CAPTION>
                                                                  YEAR ENDED        YEAR ENDED
                                                                  DECEMBER 31,      DECEMBER 31,
                                                                      2005             2004
                                                                 ------------------------------------
CASH FLOWS FROM:
OPERATING ACTIVITIES
<S>                                                              <C>              <C>
     Net (loss) for the period from continuing operations        $  (310,441)     $  (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                                         277,723         (726,194)
         Deferred income taxes                                             -         (158,151)
         Income taxes payable, net                                         -          104,043
                                                                 ------------------------------------
          Net cash (used in) provided by operating activities        (32,718)       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                   (32,718)          34,550
CASH AND EQUIVALENTS,
       beginning of period                                            34,550                -
                                                                 ------------------------------------
CASH AND EQUIVALENTS,  END OF PERIOD                             $     1,832      $    34,550
-----------------------------------------------------------------------------------------------------
</TABLE>

                 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)

<TABLE>
<CAPTION>
                                                                 YEAR ENDED        YEAR ENDED
                                                                  DECEMBER 31,      DECEMBER 31,
                                                                      2005             2004
                                                                 ------------------------------------

SUPPLEMENTAL INFORMATION:

<S>                                                             <C>               <C>
     Interest received                                          $         94      $       855

     Interest paid                                              $     83,661      $    31,451

     Income taxes paid                                          $          -      $         -



-----------------------------------------------------------------------------------------------------
</TABLE>

























                 See accompanying notes to financial statements

                                      F-7
<PAGE>


                                                 GLAS-AIRE INDUSTRIES GROUP LTD.
                                      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DECEMBER 31, 2005 AND 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, 2005 and 2004.


                                      F-8
<PAGE>






                                                 GLAS-AIRE INDUSTRIES GROUP LTD.
                                      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DECEMBER 31, 2005 AND 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, 2005,  stock options and warrants to
purchases 230,000  (2004-230,000)  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, 2005 AND 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.
<TABLE>
<CAPTION>
                                                                               YEAR ENDED           YEAR ENDED
                                                                               DECEMBER 31,         DECEMBER 31,
                                                                                  2005                 2004
                                                                           --------------------------------------
<S>                                                                        <C>                   <C>
         Net income (loss), as reported                                    $      (310,441)      $        146,977
         Add: stock-based compensation expense included
                  in reported net loss                                                   -                     -
         Deduct: total stock-based compensation expense determined
                  under fair-value based                                                                       -
                                                                           --------------------------------------
                                                                           $      (310,441)      $       146,977
                                                                           --------------------------------------

         Income (loss) per share
                  - basic and diluted - as reported                        $         (0.11)      $          0.05
                  - basic and diluted - pro forma                          $         (0.11)      $          0.05
</TABLE>

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, 2005 AND 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, 2005 AND 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:

                                                       2005             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, 2005 AND 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, 2005 AND 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

                                                      2005           2004
                                                --------------------------------
                  2,711,213 Common shares       $   27,112       $  27,112
                                                --------------------------------

         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, 2005 the  Company  had  230,000  (December  31, 2004 -
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, 2005 AND 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, 2005 and 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, 2005 is as follows:


                                      F-15
<PAGE>

                                                 GLAS-AIRE INDUSTRIES GROUP LTD.
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                        (STATED IN U.S. DOLLARS)
DECEMBER 31, 2005 AND 2004
--------------------------------------------------------------------------------

                                                          Number of    Exercise
                                                           Options      Price
                                                           ---------------------

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

         All 230,00 options are vested as of December 31, 2005 (2004 - 230,000).
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          Year ended
                                           December 31,         December 31,
                                               2005                 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, 2005 AND 2004
--------------------------------------------------------------------------------

         (b)  Sales  to  customers  who  each  accounted  for 10% or more of the
Company's sales are as follows:


                                                  Year ended        Year ended
                                                 December 31,       December 31,
                                                    2005               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        Year ended
                                                December 31,       December 31,
                                                    2005               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, 2005 AND 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  $2,645,602  during the period from  September 29, 1992  (inception)  through
December  31,  2005.  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, 2005 AND 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             43         President, Chief Executive Officer and
                                          Director

    Linda Kwan                 60         Chief Financial Officer


         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 the entire  firm's
accounting functions.  Mrs. Kwan graduated from Hong Kong Technical College with
a degree in commercial business and accounting.

         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

Glas-Aire Industries Group Ltd.       -15-       Form 10-KSB @ December 31, 2005
<PAGE>

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.

         BOARD COMMITTEES

         As of December 31, 2005, 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 2005
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 which
required 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  EXCEEDS $100,000 DURING THE YEAR
ENDED DECEMBER 31, 2005.
<TABLE>
<CAPTION>
  ------------------------- ---------------------------------------------------------------------------------------
                                                             Annual Compensation
  ------------------------- ----------------- --------------- -------------- --------------------- ----------------
                              Fiscal Year                                           Other            Securities
                             ended December       Annual                            Annual           Underlying
                                  31,             Salary          Bonus          Compensation         Warrants
  ------------------------- ----------------- --------------- -------------- --------------------- ----------------
<S>                              <C>          <C>             <C>            <C>                   <C>
  Craig Grossman,                2005         $          0            --     $          0                  --
  President and CEO
  ------------------------- ----------------- --------------- -------------- --------------------- ----------------
                                 2004         $     74,458             --    $      2,850                  --
  ------------------------- ----------------- --------------- -------------- --------------------- ----------------
                                 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>

Glas-Aire Industries Group Ltd.       -16-       Form 10-KSB @ December 31, 2005
<PAGE>

(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.

         No stock  options  were  granted by the Company  during its fiscal year
ended December 31, 2005.

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

         During the fiscal year ended  December 31, 2005,  there were no options
exercised by any of our officers,  directors or employees.  Further, on December
31,  2005,  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 2005
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

Glas-Aire Industries Group Ltd.       -17-       Form 10-KSB @ December 31, 2005
<PAGE>

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 is entitled to
no 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
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.

         We paid no  compensation  to our director  during the fiscal year ended
December 31, 2005.

         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.

Glas-Aire Industries Group Ltd.       -18-       Form 10-KSB @ December 31, 2005
<PAGE>
         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
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

Glas-Aire Industries Group Ltd.       -19-       Form 10-KSB @ December 31, 2005
<PAGE>

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
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, 2006,  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%
145 Tyee Drive
Number 1641
Point Roberts
Washington 98281

Craig Grossman                                203,485(2)(3)                        7.40%
145 Tyee Drive
Number 1641
Point Roberts
Washington 98281

Glas-Aire Industries Group Ltd.       -20-       Form 10-KSB @ December 31, 2005
<PAGE>

Linda Kwan                                     16,033                              0.63%
145 Tyee Drive
Number 1641
Point Roberts
Washington 98281

Directors and executive officers
as a group (2 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.
(2)      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.

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:

                  None.

Glas-Aire Industries Group Ltd.       -21-       Form 10-KSB @ December 31, 2005
<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:  August 11, 2006            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: August 11, 2006
    ---------------------------------------------------
      Craig Grossman, Chairman of the Board,
      Chief Executive Officer, President,
      and Secretary (Principal Executive Officer)



By:  \s\ Linda Kwan                                      Dated: August 11, 2006
    ---------------------------------------------------
      Linda Kwan, Chief Financial Officer
      (Principal Financial/Accounting Officer)




Glas-Aire Industries Group Ltd.       -22-       Form 10-KSB @ December 31, 2005