China Automotive Systems Inc – ‘10KSB/A’ for 12/31/03

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Amendment to Annual Report — Small Business   —   Form 10-KSB
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10KSB/A     Amendment to Annual Report -- Small Business          70    360K 

Document Table of Contents

10KSB/A
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================================================================================
 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

 FORM 10-KSB/A
 Amendment No. 1

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

For the fiscal year ended December 31, 2003                                     
-----------------           
OR                                                                              

|_| TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES  EXCHANGE ACT
OF 1934.                                                                        

For the transition period from                to                                
              --------------    --------------

Commission file Number 000-33123
                       ---------

CHINA AUTOMOTIVE SYSTEMS, INC.

(Name of Small Business Issuer in Its Charter)

           Delaware                                   33-0885775
---------------------------------------------         --------------------------
   (State or other Jurisdiction                       (I.R.S. Employer
          of Incorporation)                            Identification No.)

No. 1 Henglong Road, Yu Qiao Development Zone                                   
Shashi District, Jing Zhou City                                   
Hubei Province                                  
----------------------------------------------        --------------------------
(Address of Principal Executive Offices)                   (Zip Code)     

 (86) 7168329196
(Issuer's Telephone Number, Including Area Code)

Securities registered under Section 12(b) of the Exchange Act:

                                                   Name of Each Exchange
    Title of Each Class                            on Which Registered
    -------------------                            -------------------

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

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

Securities registered under Section 12(g) of the Exchange Act:

Common Stock
--------------------------------------------------------------------------------
(Title of Class)

--------------------------------------------------------------------------------
(Title of Class)

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

Yes  X  No                                                                      
---   ---                                                               

         Check if there is no  disclosure  of  delinquent  filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be  contained  to the  best of  Company's  knowledge,  in  definitive  proxy  or
information  statements  incorporated  by  reference  in Part  III of this  Form
10-SKB. |X|                                                                     

         State the aggregate  market value of the voting and  non-voting  common
equity held by  no-affiliates  computed by  reference  to the price at which the
common equity as sold, or the average bid and asked price of such common equity,
as of a specified date within the past 60 days.  $20,078,904  based on a closing
bid price of $8.00 on April 12, 2004.                                           

APPLICABLE ONLY TO CORPORATE COMPANIES

         State the number of shares  outstanding of each of the issuer's classes
of common equity, as of the latest  practicable date. As of April 12, 2004 there
were 22,574,542 shares outstanding                                              

        Transitional Small Business Disclosure Format (check one): Yes    No X
                                                                       ---   ---

     State issuer's revenue for its most recent fiscal year $ 55,327,174
                                                             -----------

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China Automotive Systems, Inc.
 FORM 10-KSB
 INDEX

                                                                            Page
                                                                            ----
PART I
Item 1.    Description of Business............................................1 

Item 2.    Description of Property...........................................10 

Item 3.    Legal Proceedings.................................................11 

Item 4.    Submission of Matters of a Vote of Security Holders...............11 

 PART II

Item 5.    Market for Company's Common Equity, Related Stockholder              
          Matters and Small Business Issuer Purchases of Equity Securities..13

Item 6.    Management's Discussion and Analysis of Financial                    
          or Plan of Operation..............................................26

Item 7.    Financial Statements..............................................26 

Item 8.    Changes in and Disagreements with Accountants on                     
          Accounting and Financial Disclosure...............................27

Item 8A.   Controls and Procedures...........................................27 

PART III

Item 9.    Directors and Executive Officers of the Registrant................27 

Item 10.   Executive Compensation............................................31 

Item 11.   Security Ownership of Certain Beneficial Owners and Management       
          and Related Stockholder Matters...................................21

Item 12.   Certain Relationships and Related Transactions....................32 

Item 13.   Exhibits, List and Reports on Form 8-K............................32 

Item 14.   Principal Accountant Fees and Services............................33 

Signatures        ...........................................................34 

Financial Statements........................................................F-1 

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PART I

ITEM 1.  DESCRIPTION OF BUSINESS.                                               

         This Annual Report on Form 10-KSB contains  forward-looking  statements
within the meaning of Section 27A of the Securities Act of 1933, and Section 21E
of the Securities Exchange Act of 1934. These statements relate to future events
or the  Company's  future  financial  performance.  The Company has attempted to
identify  forward-looking  statements by  terminology  including  "anticipates,"
"believes,"  "expects,"  "can,"  "continue,"  "could,"  "estimates,"  "expects,"
"intends,"  "may," "plans,"  "potential,"  "predict,"  "should" or "will" or the
negative of these terms or other  comparable  terminology.  Although the Company
believes that the expectations  reflected in the forward-looking  statements are
reasonable,  the Company cannot  guarantee  future results,  levels of activity,
performance or  achievements.  The Company  expectations are as of the date this
Form  10-KSB is filed,  and the  Company  does not  intend to update  any of the
forward-looking  statements  after the date this Annual Report on Form 10-KSB is
filed to confirm these statements to actual results, unless required by law.    

BUSINESS

Company History                                                                 

         China Automotive  Systems,  Inc. ("China  Automotive" or the "Company")
was  incorporated  in the  State of  Delaware  on June 29,  1999  under the name
Visions-In-Glass, Inc. and was principally engaged in the business of designing,
marketing and selling  custom-designed stained glass, leaded glass artifacts and
leaded glass windows  through a Web site.  From August 23, 2002,  through March,
2003, we had no business operations.                                            

         Pursuant to a Share Exchange Agreement dated as of March 5, 2003, among
Yarek Bartosz,  Guofu Dong ("Dong"),  Liping Xie ("Xie"),  Qizhou Wu ("Wu"), Tse
Yiu Wong ("Wong"), Hanlin Chen ("Chen" together with Dong, Wong, Wu and Xie, the
"Sellers") and Great Genesis Holding Limited, a corporation  organized under the
laws of the Hong Kong  Special  Administrative  Region,  China  ("Genesis"),  we
acquired (the  "Acquisition") from the Sellers all of the issued and outstanding
equity interests of Genesis (the "Genesis  Shares").  As  consideration  for the
Genesis  Shares,  we issued  20,914,250  shares of common  stock to the Sellers.
After the Acquisition,  we continued the operations of Genesis. Genesis owns all
of the capital stock of Jilong  Enterprises  Investment  Corp. Ltd., a Hong Kong
Company  ("Jilong").  Jilong in turn owns interests in five Sino-joint  ventures
four of which  manufacture  power steering  systems and/or related  products for
different segments of the automobile  industry in China.  According to the China
National  Information  Center,  in 2003 the  combined  sales  of the  Sino-joint
ventures ranked second in their industry sector, with a market share of 18%.    

         Effective March 10, 2003,  Hanlin Chen, Guofu Dong,  Liping Xie, Qizhou
Wu,  and Tse Yiu Wong  began  serving  their  terms as  members  of our Board of
Directors.  The  newly  elected  directors  appointed  Hanlin  Chen as the Chief
Executive Officer and Chairman of the Board of Directors, Qizhou Wu as the Chief
Operating Officer and Daming Hu as Chief Financial Officer.                     

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         On May 19,  2003,  we changed our name from  Visions-In-Glass,  Inc. to
China Automotive Systems, Inc.                                                  

Business Overview                                                               

         Unless  the  context  indicates  otherwise,  we use the  terms the "the
Company",  "we,",  "our" and "us" to refer to both our predecessor,  Genesis and
China Automotive  collectively on a consolidated basis. The historical financial
statements  for the  periods  prior to the  Acquisition  and  summaries  thereof
appearing in this report are those of our predecessor  company and represent the
combined financial  statements of Genesis.  We are a holding company and have no
significant  business  operations  or assets other than our interest in Genesis.
Through Genesis, we manufacture power steering systems and other component parts
for automobiles.  All operations are conducted through five  Sino-foreign  joint
ventures in China. Set forth below is an organizational chart.                  

                                                        [Enlarge/Download Table]

                                                                                                                       
                                         ----------------------------                                                  
                                            China Automotive Systems                                                   
                                          ----------------------------                                                 
                                                        |                                                              
                                                        |                                                              
                                         ------------------------------                                                
                                                     (100%)                                                            
                                         Great Genesis Holdgins Limited                                                
                                         ------------------------------                                                
                                                        |                                                              
                                                        |                                                              
                                     -------------------------------------                                             
                                                     (100%)                                                            
                                     Ji Long Enterprise Investment Limited                                             
                                     -------------------------------------                                             
                                                        |                                                              
                                                        |                                                              
-----------------------------------------------------------------------------------------------------------------------
        |                       |                       |                         |                        |           
-----------------  ------------------------  ------------------------  ----------------------  ------------------------
      (42%)                    81%                     55%                      (51%)                    (51%)         
   Jin Henglong      Shashi Jiulong Power    Shenyang Jinbei Henglong  Zhejiang Henlong & VIE  Jingzhou Henglong Fulida
     Co. Ltd.      Steering Company Limited     Automotive Steering     Pump Company Limited       Textile Co., Ltd.   
 Automotive Parts          ("Jiulong")       Systems Company Limited        ("Zhejiang")              ("Jingzhou")     
   ("Henglong)                                     ("Shenyang")                                                        
-----------------  ------------------------  ------------------------  ----------------------  ------------------------

Source: Company data                        

         Henglong and Jiulong are mainly  engaged in the  production of rack and
pinion power  steering  gears and integral ball and nut power steering gears for
cars and light and heavy-duty  vehicles.  Shenyang and Zhejiang were established
in 2002 for the production of power  steering  parts and power  steering  pumps.
Jingzhou was formed in 2003 to produce  environment-  protection textile and raw
materials. At present, Henglong, Jiulong and Shenyang are the principal entities
generating  revenues  while  Zhejiang and Jingzhou are in the early  development
stage.                                                                          

         We have long-term contracts with more than forty vehicle  manufacturers
or VM's,  including two of the largest  automobile  manufacturers  in China with
$6.25 billion and $2 billion in annual sales in 2003, respectively. We also have
long-term  contracts  with the  largest  van  manufacturers  in China,  Shenyang
Brilliance  Jinbei  Co.,  Ltd.,  and  Fukang,  a  Citroen  invested   automobile
manufacturer.  We also have long-term contracts with SAIC Cherry Automobile Co.,
Ltd. and Geely Automobile Co., Ltd.                                             

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         We currently own two trademarks on automobile  parts and twelve Chinese
patents for power steering technology.  We are in the process of integrating new
advanced  technologies  such as electronic  chips in power steering systems into
our current product line and are pursuing aggressive strategies in technology to
maintain a competitive edge within the automobile industry.  In 2001,we signed a
Licensing  Agreement  with Bishop  Steering  Technology  Ltd, one of the leading
manufacturers  of power  steering  systems.  In  2003,  we  signed a  Technology
Transfer  Agreement with Namyang Ind. Co. Ltd., a leading steering column maker,
for the  technology  necessary for  electronic-controlled  power  steering (EPS)
systems.                                                                        

         Responding to the trends of environmental  protection,  safety,  energy
saving and  electronicalization,  in 2003,  we  established  a steering  systems
research  institute  with Tsinghua  University,  designed to develop the EPS and
Electronic Hydraulic Steering System(EHPS).                                     

Strategic Plan                                                                  

         Our short to mid-term  strategic  plan is to focus on both domestic and
international  market  expansion.  To achieve this goal,  we will focus on brand
recognition,  quality control,  decreasing  costs,  research and development and
strategic acquisitions. Set forth below are our goals:                          

                  o Brand Recognition.  Under the Henglong and Jiulong brands we
offer  four  separate  series  of power  steering  sets and 307  models of power
steering sets, steering columns steering oil pumps and steering hoses.          

                  o Quality  Control.  The  Henglong  and Jiulong  manufacturing
facilities  passed  the  ISO/TS  16949  System  Certification  process  that was
developed by TUVRheindland of Germany.                                          

                  o Decrease  Cost.  By  improving  our  production  ability and
enhancing equipment  management,  optimizing the process and products structure,
perfecting  the  supplier  system and cutting  production  cost,  our goal is to
achieve a more competitive profit margin.                                       

                  o Research and Development. By partnering with Bishop Steering
for the  development  of advanced  steering  systems,  our  objective is to gain
increased market share in China.                                                

                  o International  Expansion.  We have established contacts with
several  international  VM's  and  auto  parts  modules  suppliers  and  are  in
preliminary negotiations regarding future development projects.                 

                  o  Acquisitions.  We are  exploring  opportunities  to  create
long-term  growth through new ventures or  acquisitions  of other auto component
manufacturers.  We will seek  acquisition  targets  that  fulfill the  following
criteria:                                                                       

                           -        companies that can be easily integrated into
                                    product    manufacturing    and    corporate
   management;

                           -        companies  that  have  strong  joint-venture
                                    partners that would become major  customers;
and     

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                           -        companies   involved  with  power   steering
                                    systems, oil pump or engine-cooling systems.

Customers                                                                       

         Our ten largest  customers  represent  73.18% of our total  sales.  The
following table sets forth information regarding our ten largest customers.     

 List of Major Customers

                     Name of Customer                      Percentage of
                                                           Total Revenue

    Brilliance China Automotive Holdings Limited            25.02%

            Beiqi Foton Motor Co., Ltd.                     11.08%

           SAIC CHERY AUTOMOBILE CO., Ltd                   10.49%

          Great Wall Motor Company Limited                   6.56%

       Southeast Automotive Industry Co., Ltd                4.51%

            China FAW Group Corporation                      4.25%

        Hebei Zhongxing Automobile Co., Ltd.                 4.13%

          Zhejiang Geely Holding Co., Ltd                    3.69%

          Dongfeng Liuzhou Motor Co., Ltd                    2.15%

            Zhengzhou Yutong Bus Co.,Ltd                     1.30%

Sales and Marketing                                                             

         Our sales and  marketing  team of 59  salespersons  is divided into two
teams - the OEM team and the  aftermarket  team.  Our sales and  marketing  team
provide a constant interface with our key customers.  These teams are located in
all  major  vehicle  producing  regions  to  more  effectively  represent  their
respective  customers'  interests within our  organization,  to promote customer
programs  and to  coordinate  customer  strategies  with the  goal of  enhancing
overall customer service and satisfaction.  Our ability to support our customers
is  further   enhanced  by  our  broad  presence  in  terms  of  sales  offices,
manufacturing facilities, engineering/technical centers and joint ventures.     

         Our sales and marketing  organization  and  activities  are designed to
create  overall  awareness and  consideration  of, and to increase  sales of our
systems,  modules and components.  To further this objective,  we participate in
international  trade  shows  in  Paris,   Frankfurt  and  Detroit,  as  well  as
international aftermarket-focused events.                                       

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Distribution                                                                    

         The core of our  distribution  system is our ten district sales centers
located in the Northeastern,  Northern, Eastern,  Southeastern,  and the Central
Western parts of China. Each of the district sales centers covers  approximately
twelve sales locations in 31 provinces.  We guarantee  product delivery in eight
hours if the client is located within 200 km from the district sales office. The
guaranteed  delivery time is 24 hours for customers located over 200 km from the
sales  office.  Delivery  time is a very  important  competitive  factor,  after
quality,  pricing and  long-term  relationships,  in terms of customer  decision
making.                                                                         

Employees and Facilities                                                        

         We  currently  employ  approximately  2,159  persons in our  production
facilities  of the four joint  ventures  located at the  Jingzhou  City of Hubei
Province,  Shenyang City of Liaoning Province and Zhejiang Province. Jiulong and
Henglong in Jingzhou  together  employ 1,601 persons in facilities on 137,970.85
square meters of land.  Shenyang has 200  employees,  in  production  facilities
covering an area of 35,000 square meters. Zhejiang has 208 employees covering an
area of 33,000  square  meters.  Jingzhou has 150  employee  covering an area of
46,305 square meters.                                                           

         Hubei Province which is home to Dongfeng, one of the largest auto maker
in  China  provides  an  ample  supply  of  inexpensive  but  skilled  labor  to
automotive-related  industries. The annual production of Henglong and Jiulong in
2002 was  230,000  sets and  approximately  15,000  sets in 2003.  Although  the
production  process  continues to rely heavily on manual labor, we have invested
substantially  in  high-level  production  machinery  to  improve  capacity  and
production quality. A total of approximately $10 million has been spent over the
last two  years on  professional-grade  equipment  --  approximately  80% of the
machines   are  already  in  place  and  ready  for   implementation   into  the
manufacturing process.                                                          

Raw Material                                                                    

         We purchase various  manufactured  components and raw materials for use
in our manufacturing  processes.  The principal  components and raw materials we
purchase include  castings,  electronic  parts,  molded plastic parts,  finished
sub-components,  fabricated  metal,  aluminum and steel.  The most important raw
material is steel. We enter into purchase  agreements with local suppliers.  The
annual  purchase plans are  predetermined  at the beginning of the calendar year
but are subject to revision every three months as a result of customers' orders.
A purchase order is made according to monthly production plans. This protects us
from building up inventory when the orders from customers change.               

         Our  three  largest   suppliers  are  Shanghai   Lemforder   Automotive
Components Co. Ltd., Shaoxing Sonic Automotive Components Co., Ltd. and Zhejiang
Yingfeng  Cast Co.  Ltd.  which  in the  aggregate  account  for  17.18%  of all
components and raw materials we purchase.                                       

         All components  and raw materials are available from numerous  sources.
We  have  not,  in  recent  years,  experienced  any  significant  shortages  of
manufactured  components or raw materials and normally do not carry  inventories
of these items in excess of what is reasonably  required to meet our  production
and shipping schedules.                                                         

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Research and Development                                                        

         We have a  10-year  consulting  and  licensing  agreement  with  Bishop
Steering  Technology  Ltd,  one of the leading  design  firms in power  steering
systems.  Bishop's  technology in power  steering  systems is currently  used by
carmakers  such as BMW and Mercedes  Benz.  Pursuant to the  agreement,  we have
implemented  the Bishop  steering valve  technology  into the Henglong brand R&P
power steering gear product.                                                    

         Henglong  owns a Hubei  Provincial-Level  Technical  Center,  which  is
approved  by the  Hubei  Economic  Commission.  The  center  has a staff  of 101
including 20 senior engineers,  three foreign experts and 63 engineers primarily
focused on Steering System R&D, experiment, process improvement and new material
and process application.                                                        

         We have  established an R&D  center-Changchun  Hualong Auto  Technology
Co., Ltd. - with 40 employees which is composed of eight senior engineers, three
foreign   experts  and  22  engineers  all  focused  on  Steering   System  R&D,
experiments, and new material applications.                                     

         In addition,  we have partnered with Tsinghua University to establish a
steering system research center,  called Qtsinghua Henglong  Automobile Steering
Research   Institute   for  the   purpose   of  R&D  and   experimentation   for
Electronic-controlled Power Steering (EPS).                                     

         We  estimate  that  approximately  three  to  five  percent  of our net
earnings are allocated to research and  development  each year. We currently own
twelve  Chinese  patents on power  steering  technology  and four  international
patents. Sales of new products developed in 2003 account for approximately 25 to
30 percent of total sales.                                                      

Competition                                                                     

         The automotive components industry is extremely  competitive.  Criteria
for our  customers  include  quality,  price/cost  competitiveness,  system  and
product  performance,  reliability  and timeliness of delivery,  new product and
technology  development  capability,  excellence and  flexibility in operations,
degree of global and local  presence,  effectiveness  of  customer  service  and
overall management capability. The power steering system market is fragmented in
China,  and we have  seven  major  competitors.  Of these  competitors,  two are
Sino-foreign  joint  ventures  while the other five are  state-owned.  The total
output of the eight top-tier suppliers  amounted to approximately  1.875 million
sets with China  Automotive  Systems  providing  approximately  450,000 of these
sets. Like many competitive  industries,  there is downward  pressure on selling
prices.  In 2003, the selling price of our products was reduced by an average of
6% by the end of the fourth quarter.                                            

         Our  major   competitors   are   component   suppliers  of   automobile
manufacturers  (i.e. the component suppliers that exclusively produce and supply
specific automobile manufacturers) including Shanghai ZF and FKS. Shanghai ZF is
the joint  venture of Shanghai  Automobile  Company  and  Germany  ZF.  Shanghai
Automobile  Company has 28% of the market share and is an exclusive  supplier to
GM and  Volkswagen in China.  First Auto, FKS is the third largest in the market
with approximately a 12% market share and is a joint venture of First Auto Group
and Japan's Koyo Company.                                                       

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         While  the  Chinese   government   limits  foreign  ownership  of  auto
assemblers to 50% there is no analogous limitation in the automotive  components
industry.  Thus  opportunities  exist for foreign component  suppliers to set up
factories in China.  These overseas  competitors  employ  technology that may be
more advanced and may have already maintained a long-term  relationship with the
global automobile  assemblers,  but they are generally not yet as competitive as
we are in China in terms of production  cost and  flexibility  in meeting client
requirements.                                                                   

The Chinese Automobile Industry                                                 

         According  to the  Analysis  Report on Vitality of China's  Industries,
which is jointly  issued by National  Planning  Economy  Research  Institute and
Beijing  Xinhua-on-ine,  there is estimated  to be a 30% increase of  automobile
sales in China in 2004. Management believes that the automotive market expansion
will bolster the development of automobile component parts.                     

         A key factor in the projected  increase of automobile  manufacturing is
that Chinese retail banks now offer loans for automobile purchase. Consumers can
obtain financing from banks for up to 70% of the purchase value for a maximum of
six  years.   Recently,   the  Chinese  government  also  adopted   long-awaited
regulations  necessary  to allow  car firms to  finance  the  purchase  of their
vehicles,  a step to further  accelerate the already  rapidly  growing market in
China.  These new regulations  allow non-bank  institutions and car companies to
set up car financing firms. Currently,  less than 20% of new car buyers in China
use credit  financing,  as compared to 70% worldwide.  Management  believes that
this change in banking regulations should encourage more individuals in China to
buy cars.                                                                       

China's Economy                                                                 

         Management believes that the most important factor to understanding the
Chinese  automobile  industry is the country's rapid economic growth. The strong
demand in the auto sector has been, and will continue to be,  underpinned by the
desire of  residents  to  improve  their  living  standards,  given  significant
increase in income levels.  GDP growth  averaged 9.8% between 1982 and 2002. Per
capita  GDP  increased  from  $276 in 1982 to $392 in 1992 and $967 in 2002.  At
present, China ranks as the world's sixth-largest economy, behind the US, Japan,
Germany,  the United Kingdom and France.  Despite the Asian financial  crisis in
1998-1999,  China's economy has been fairly insulated from the fallout. Based on
an accommodative  fiscal policy that bolstered  domestic demand and consumption,
GDP  growth  averaged  7.6%  between  1998 and  2002.  In  addition,  China  has
successfully maintained a low rate of inflation.                                

         Looking forward, the Chinese government and the International  Monetary
Fund  forecast  GDP  growth in the region of 8% in 2004.  Over the longer  term,
China's  accession  to  the  World  Trade  Organization  (WTO)  is  expected  to
accelerate the capital flow to China from other developed countries.            

Highway Development                                                             

         Management  believes  that the  continuing  development  of the highway
system will have a significant  positive  impact on the  manufacture and sale of
private  automobiles.  In this regard,  by the end of 2002,  China's total roads
measured  1.758 million  kilometers  (1.055  million miles) making it the fourth
longest system in the world (see Figure 1).                                     

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Figure 1: China Trunk & National Highway Network

 [GRAPHIC OMITTED]

Source: worldhighways.com                                     

         National  expressways  run more than 30,000  kilometers , up from 6,200
kilometers  as recently  as four years ago.  According  to the Chinese  National
Bureau of Statistics,  of a total of 78.7% or 1.336 million  kilometers are of a
high  standard  with 13.4% or 227,000  kilometers  being  first or second  grade
roads. For every 100 square  kilometers,  there are now 17.7 kilometers of road.
With roads spread throughout all counties,  99.3% of towns and 91.8% of villages
in China are connected.                                                         

         According  to a report by  Peopledaily.com,  the  Chinese  government's
annual  expenditure on road construction had been approximately US $24.2 billion
for three  successive years up through 2000 and escalated to be US $31.1 billion
in 2001 and US$26.6  billion  budgeted  (at the time of the  report))  for 2002.
Construction  of  expressways  is  expected to  continue  through  2008 when the
Olympic Games are scheduled to be held in Beijing.  A national  mainline network
composed of five vertical and seven  horizontal  throughways is being developed,
and new roads are also being built to improve links with neighboring  countries.
It was estimated - in the same report - that 40,000  kilometers  (24,855  miles)
were to be constructed during 2002 of which 62% were to be in the west of China.
The Ministry of  Communications  indicates  that the  government  is expected to
invest some US $84-$100 billion on construction of 300,000  kilometers  (217,480
miles) in  western  regions in the next ten years.  China has 12  provinces  and
autonomous  regions in its western area  covering  nearly 71.7% of the country's
total landmass, but the roads are generally at a poor low level with few asphalt
roads.                                                                          

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Doing Business in China                                                         

The Chinese Legal System                                      

         The practical effect of the People's  Republic of China legal system on
our business operations in China can be viewed from two separate but intertwined
considerations.  First,  as a matter of  substantive  law, the Foreign  Invested
Enterprise laws provide significant protection from government interference.  In
addition,  these laws  guarantee the full enjoyment of the benefits of corporate
Articles and contracts to Foreign Invested Enterprise participants.  These laws,
however,  do impose  standards  concerning  corporate  formation and governance,
which are not qualitatively  different from the general  corporation laws of the
several  states.  Similarly,  the  People's  Republic of China  accounting  laws
mandate  accounting  practices,  which  are not  consistent  with  US  Generally
Accepted Accounting Principles. The China accounting laws require that an annual
"statutory  audit" be performed in accordance  with  People's  Republic of China
accounting  standards  and  that  the  books  of  account  of  Foreign  Invested
Enterprises are maintained in accordance with Chinese  accounting laws.  Article
14 of the  People's  Republic  of  China  Wholly  Foreign-Owned  Enterprise  Law
requires a Wholly  Foreign-Owned  Enterprise to submit certain  periodic  fiscal
reports and statements to designate  financial and tax authorities,  at the risk
of business license revocation.                                                 

         Second,  while the  enforcement of  substantive  rights may appear less
clear than United States procedures, the Foreign Invested Enterprises and Wholly
Foreign- Owned Enterprises are Chinese registered companies which enjoy the same
status as other Chinese  registered  companies in  business-to-business  dispute
resolution.  Because the terms of the respective Articles of Association provide
that all business disputes pertaining to Foreign Invested  Enterprises are to be
resolved by the  Arbitration  Institute of the Stockholm  Chamber of Commerce in
Stockholm, Sweden applying Chinese substantive law, the Chinese minority partner
in our joint venture companies will not assume a privileged  position  regarding
such  disputes.  Any award  rendered  by this  arbitration  tribunal  is, by the
express  terms  of  the  respective  Articles  of  Association,  enforceable  in
accordance  with  the  "United   Nations   Convention  on  the  Recognition  and
Enforcement  of Foreign  Arbitral  Awards  (1958)."  Therefore,  as a  practical
matter,  although no assurances can be given, the Chinese legal  infrastructure,
while  different in operation  from its United  States  counterpart,  should not
present  any  significant  impediment  to  the  operation  of  Foreign  Invested
Enterprises.                                                                    

Economic Reform Issues                                        

         Although the Chinese  government owns the majority of productive assets
in China,  in the past several years the  government  has  implemented  economic
reform measures that emphasize  decentralization  and encourage private economic
activity.  Because  these  economic  reform  measures  may  be  inconsistent  or
ineffectual, there are no assurances that:                                      

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o        We will be able to capitalize on economic reforms;   
         o        The Chinese  government  will continue its pursuit of economic
reform policies;                            
      o        The economic policies, even if pursued, will be successful;
         o        Economic policies will not be significantly  altered from time
to time; and                                
         o        Business  operations  in China will not become  subject to the
risk of nationalization.                    

         Negative impact upon economic reform policies or nationalization  could
result in a total investment loss in our common stock.                          

         Since 1979, the Chinese  government has reformed its economic  systems.
Because many reforms are unprecedented or experimental,  they are expected to be
refined and improved.  Other  political,  economic and social  factors,  such as
political  changes,  changes in the rates of economic  growth,  unemployment  or
inflation,  or in the  disparities in per capita wealth  between  regions within
China, could lead to further readjustment of the reform measures.  This refining
and readjustment process may negatively affect our operations.                  

         Over the last few years,  China's  economy has registered a high growth
rate.  Recently,  there  have been  indications  that  rates of  inflation  have
increased.  In response,  the Chinese government  recently has taken measures to
curb  this  excessively   expansive   economy.   These  measures  have  included
devaluations  of  the  Chinese  currency,  the  renminbi,  restrictions  on  the
availability of domestic credit,  reducing the purchasing  capability of certain
of its  customers,  and limited  re-centralization  of the approval  process for
purchases of some  foreign  products.  These  austerity  measures  alone may not
succeed in slowing down the economy's  excessive expansion or control inflation,
and may  result in severe  dislocations  in the  Chinese  economy.  The  Chinese
government may adopt additional measures to further combat inflation,  including
the establishment of freezes or restraints on certain projects or markets.      

         To date reforms to China's economic system have not adversely  impacted
our  operations  and are not  expected to  adversely  impact  operations  in the
foreseeable  future;  however,  there can be no  assurance  that the  reforms to
China's economic system will continue or that we will not be adversely  affected
by changes in China's political,  economic, and social conditions and by changes
in policies of the Chinese government,  such as changes in laws and regulations,
measures  which may be introduced to control  inflation,  changes in the rate or
method of taxation, imposition of additional restrictions on currency conversion
and  remittance  abroad,  and  reduction in tariff  protection  and other import
restrictions.                                                                   

ITEM 2.  DESCRIPTION OF PROPERTY.                                               

         Our   headquarters  are  located  at  No.  1  Henglong  Road,  Yu  Qiao
Development Zone Shashi District, Jing Zhou City Hubei Province. Set forth below
are the manufacturing facilities operated by each of the joint ventures. We have
a long-term rights to use the land and we own all of the land improvements.     

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 -------------------------- --------------- ------------------
 Facility               Total Area         Product
                               M2           Manufactured
 -------------------------- --------------- ------------------
     Jingzhou Henglong        39,529.59     Automotive Parts
 -------------------------- --------------- ------------------
      Shashi Jiulong          98,441.26       Power Steering
 -------------------------- --------------- ------------------
  Shenyang Jinbei            35,354         Automotive
                                            Steering
 -------------------------- --------------- ------------------
Zhejiang Henlong            27,756          Pumps 
 -------------------------- --------------- ------------------
Jingzhou Henglong Fulida     46,305.97         Textile    
 -------------------------- --------------- ------------------

ITEM 3.  LEGAL PROCEEDINGS.                                                     

         We are not a party to any pending or to the best of our knowledge,  any
threatened legal proceedings.  No director, officer or affiliate of the Company,
or owner of  record  of more than five  percent  (5%) of the  securities  of the
Company, or any associate of any such director,  officer or security holder is a
party  adverse to us or has a material  interest  adverse to us in  reference to
pending litigation.                                                             

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

         During  the fourth  quarter  of the  fiscal  year there were no matters
submitted to the stockholders for approval.                                     

 PART II

ITEM 5.  MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.    

(a)      Market Prices of Common Stock                                          

         Our common stock is traded on the Over-The-Counter Bulletin Board under
the symbol "CAAS.OB" in March 2003. The high and low bid intra-day prices of the
common stock were  reported on the OTCBB for the time  periods  indicated on the
table below. Accordingly,  the table below contains the high and low bid closing
prices  of the  common  stock as  reported  on the  OTCBB  for the time  periods
indicated.                                                                      

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                                                         Price Range
                                                         -----------
                                                        High           Low
                                                        ----           ---

Fiscal Year Ended December 31, 2003                 
            First Quarter                                $.10          $0.01
            Second Quarter                               4.50           2.90
            Third Quarter                                4.85           3.82
            Fourth Quarter                               18.50          4.80

(b)      Stockholders                                                           

         Our common shares are issued in registered  form.  Securities  Transfer
Corporation in Frisco,  Texas is the registrar and transfer agent for our common
stock. As of March 15, 2004,  there were  22,574,542  shares of our common stock
outstanding and we had approximately 50 stockholders of record.                 

(c)      Dividends                                                              

         We have never  declared or paid any cash  dividends on our common stock
and we do not anticipate paying any cash dividends in the foreseeable future. We
currently  intend to retain future earnings,  if any, to finance  operations and
the expansion of our business.  Any future  determination  to pay cash dividends
will be at the  discretion  of the board of directors and will be based upon our
financial  condition,   operating  results,  capital  requirements,   plans  for
expansion,  restrictions  imposed by any  financing  arrangements  and any other
factors that the board of directors deems relevant.                             

(d)      Sales of Unregistered Securities                                       

         In  December  2003 we  issued  509,856  shares  to  investors  upon the
exercise of warrants that were issued in March. The warrants were exercised on a
cashless  basis.  The shares  were  issued  pursuant  to an  exemption  from the
registration  requirements  under Section 4(2) of the Securities Act of 1933, as
amended.                                                                        

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

The following is  management's  discussion  and analysis of certain  significant
factors which have affected our financial  position and operating results during
the periods included in the accompanying  consolidated financial statements,  as
well as information relating to the plans of our current management. This report
includes   forward-looking   statements.   Generally,   the  words   "believes,"
"anticipates,"   "may,"  "will,"  "should,"  "expect,"   "intend,"   "estimate,"
"continue,"  and  similar  expressions  or the  negative  thereof or  comparable
terminology are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties,  including the matters set forth
in this report or other  reports or  documents we file with the  Securities  and
Exchange  Commission  from time to time,  which  could cause  actual  results or
outcomes to differ materially from those projected. Undue reliance should not be
place  on  these  forward-looking  statements  which  speak  only as of the date
hereof. We undertake no obligation to update these forward-looking statements.  

The following  discussion and analysis  should be read in  conjunction  with our
consolidated  financial  statements  and the  related  notes  thereto  and other
financial information contained elsewhere in this Form 10-KSB.                  

General Overview:                                                               

Effective March 5, 2003, Visions-In-Glass,  Inc., a United States public company
incorporated in the State of Delaware ("Visions"), entered into a Share Exchange
Agreement to acquire 100% of the  shareholder  interest in Great Genesis Holding
Limited, a company incorporated on January 3, 2003 under The Companies Ordinance
in Hong Kong as a limited  liability company ("Great  Genesis"),  as a result of
which Great Genesis became a wholly-owned subsidiary of Visions. At the closing,
the old  directors  and  officers of Visions  resigned,  and new  directors  and
officers  were  appointed.  Visions  subsequently  changed  its  name  to  China
Automotive Systems, Inc.                                                        

China Automotive Systems,  Inc.,  including,  when the context so requires,  its
subsidiaries and the subsidiaries'  interests in the Sino-foreign joint ventures
described  below, is referred to herein as the "Company".  The Company,  through
its Sino-foreign  joint ventures  described  below, is primarily  engaged in the
manufacture  and sale of  automotive  systems  and  components  in the  People's
Republic of China (the "PRC" or "China") as described below.                    

Ji Long Enterprise  Investment Limited was incorporated on October 8, 1992 under
the Companies Ordinance in Hong Kong as a limited liability company ("Ji Long").
Ji Long is an investment  holding  company.  Effective March 4, 2003, all of the
shareholders  of Ji Long exchanged  their 100%  shareholder  interest for a 100%
shareholder  interest  in Great  Genesis,  as a result of which Ji Long became a
wholly-owned subsidiary of Great Genesis.                                       

In exchange for the  acquisition  of 100% of the  shareholder  interest in Great
Genesis,  the  shareholders  of Great Genesis were issued  20,914,250  shares of
common stock of Visions.  In addition,  the  shareholders  of Great Genesis paid
$250,000 to the former officer,  director and controlling shareholder of Visions
for the cancellation of 17,424,750 shares of common stock and have agreed to pay
an additional $70,000, subject to certain conditions.                           

The  acquisition  of  Great  Genesis  by  the  Company  was  accounted  for as a
recapitalization  of Great Genesis,  pursuant to which the  accounting  basis of
Great  Genesis   continued   unchanged   subsequent  to  the  transaction  date.
Accordingly,  the pre-transaction  financial statements of Great Genesis are the
historical financial statements of the Company.                                 

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As of December 31, 2002 and 2003, Ji Long owned  aggregate net interests in five
Sino-foreign joint ventures organized in the PRC as shown below.                

                                                   Percentage Interest
                                                   -------------------
Name of Entity                                            2002       2003       
--------------                                            ----       ----       

Jingzhou Henglong Automotive Parts                                              
Co. Limited ("Henglong")                                42.0%      42.0%    

Shashi Jiulong Power Steering Co.                                               
Limited ("Jiulong")                                     81.0%      81.0%    

Shenyang Jinbei Henglong Automotive                                             
Steering System Co. Limited ("Shenyang")                37.6%      55.0%    

Zhejiang Henglong & Vie Pump-Manu Co.                                           
Limited ("Zhejiang")                                    51.0%      51.0%    

Jingzhou Henglong Fulida Textile Co., Ltd.                                      
("Jingzhou")                                              --       51.0%    

During December 2002, the Company entered into three  transactions with entities
controlled by its chairman and controlling  shareholder  involving the Company's
minority  interest  ownership in certain of its  Sino-foreign  joint ventures as
follows: (1) the Company acquired a 21% interest in Jiulong for $6,320,241;  (2)
the  Company  acquired a 7% interest in  Henglong  for  $3,310,602;  and (3) the
Company transferred a 7% interest in Henglong in exchange for an 11% interest in
Jiulong.  The  amounts  due  to  or  from  the  chairman  resulting  from  these
transactions  were accounted for as increases or decreases to the amounts due to
or from shareholders/directors and were recorded at fair value, as determined by
an independent  appraisal firm. The difference between fair value and book value
resulting  from the  disposition  of joint  venture  interests  was  credited to
additional paid-in capital. With respect to consideration paid by the Company in
excess of the chairman's  basis in his investment,  such excess has been charged
to additional  paid-in capital as a distribution  to the chairman,  resulting in
the acquired investment being recorded by the Company at the chairman's original
cost basis.                                                                     

Jingzhou was formed in February  2003 to produce  environmental  textile and raw
materials,  and is owned  51% by Ji Long and 49% by Cixi City  Fulida  Synthetic
Fibre  Co.,  Ltd.  Operations  to date  have  not been  material.  As an "Act in
Concert"  Agreement  has been executed for  Jingzhou,  the Company  consolidated
Jingzhou as of December 31, 2003, and for the year then ended.                  

Henglong  and Jiulong are mainly  engaged in the  production  of rack and pinion
power  steering  gears and integral ball and nut power  steering gears for cars,
light and heavy-duty  vehicles.  Shenyang and Zhejiang were  established in 2002
and are focused on power steering parts and power steering  pumps.  Jingzhou was
formed in 2003 to produce  environment-protection  textile and raw materials. At
present,   Henglong,  Jiulong  and  Shenyang  are  the  main  revenue-generating
entities,  while  Zhejiang and Jingzhou are in the early  development  stage and
generated  approximately  6% of  consolidated  revenues in 2003. The Company has
long-term contracts with more than forty vehicle manufacturers, including two of
the largest  automobile  manufacturers  in China,  First Auto Works,  with $6.25
billion in annual sales and Dongfeng Auto  Company,  with $2.0 billion in annual
sales.   The  Company  also  has  long-term   contracts  with  the  largest  van
manufacturer  in  China,   Shenyang  Brilliance  Jinbei  Co.,  Ltd.,  which  has
approximately  $1.6  billion in annual  sales,  and Fukang,  a  Citroen-invested
automobile  manufacturer which has approximately $1 billion in annual sales. The
Company also has long-term  contracts with two other smaller car  manufacturers,
SAIC Cherry Automobile Co., Ltd and Geely Automobile Co., Ltd.                  

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During early 2003, the Directors of the Company and the other joint venturers in
the Company's  Sino-foreign joint ventures executed "Act in Concert" agreements,
resulting  in the  Company  having  voting  control of such  Sino-foreign  joint
ventures.  The Company is in the process of making  application  to the relevant
PRC authorities  for their approval to effect this change through  amendments to
the respective  joint venture  agreements.  Consequently,  effective  January 1,
2003, the Company changed from equity accounting to consolidation accounting for
its investments in Sino-foreign joint ventures ended December 31, 2003.         

As a result of the board structures of the Company's joint ventures, each of the
minority partners of Zhejiang,  Jingzhou,  Henlong, Jiulong and Shenyang had the
right to approve major operating  decisions of their  respective  joint ventures
because the  Company's  representatives  on the Boards of Directors of the joint
ventures did not account for the  requisite  67% of voting  control  required to
approve  various  operating  matters,  which  allowed the  minority  partners to
participate  in  the  operations  of the  management  of  the  respective  joint
ventures.  As such,  the  Company  accounted  for its  interest  in these  joint
ventures under the equity method in 2002 pursuant to Emerging  Issues Task Force
Issue No. 96-16,  which states that if a minority joint venture  partner has the
right to  participate  in  management,  the majority  joint  venture  partner is
required  to account  for its  interest  in the joint  venture  under the equity
method of accounting.                                                           

In March 2003,  Henglong  outsourced  to Jiulong the  production  of an integral
power steering  system.  Jiulong sells the related finished product to Henglong,
which  then sells the  product  to third  parties.  All  intercompany  profit is
eliminated on consolidation.  The transferred profit due to this transaction has
been  recorded in the  interest  account of minority  shareholders  according to
their investment ratios.                                                        

Critical Accounting Policies:                                                   

The Company  prepares its consolidated  financial  statements in accordance with
accounting  principles  generally accepted in the United States of America.  The
preparation  of these  financial  statements  requires the use of estimates  and
assumptions  that affect the reported  amounts of assets and liabilities and the
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements and the reported amount of revenues and expenses during the reporting
period.  Management  periodically  evaluates the  estimates and judgments  made.
Management  bases its estimates and  judgments on historical  experience  and on
various  factors that are  believed to be  reasonable  under the  circumstances.
Actual  results  may  differ  from  these  estimates  as a result  of  different
assumptions or conditions.                                                      

Minority  shareholders'  interest refers to the percentage of the owner's equity
of a subsidiary owned by those investors other than the parent company. Minority
shareholders'  interest  in the  consolidated  financial  statements  means  the
percentage of the Company's  net assets owned by  shareholders  of the Company's
Sino-foreign  joint  ventures  other  than  the  Company,   according  to  their
respective investment ratios.                                                   

The following critical accounting policies affect the more significant judgments
and estimates used in the  preparation of the Company's  consolidated  financial
statements.                                                                     

Revenues:                                                                       

The  Company  recognizes  revenue  when the  significant  risks and  rewards  of
ownership have been transferred to the customer  pursuant to PRC law,  including
factors such as when persuasive evidence of an arrangement exists,  delivery has
occurred,  the sales price is fixed or  determinable,  sales and value added tax
laws have been  complied  with,  and  collectibility  is  probable.  The Company
recognizes  product  sales  generally  at  the  time  the  product  is  shipped.
Concurrent  with the  recognition of revenue,  the Company  reduces  revenue for
estimated  product returns.  Shipping and handling costs are included in cost of
goods sold. Revenue is presented net of any sales tax and value added tax.      

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Accounts Receivable:                                                            

In order to  determine  the  value of the  Company's  accounts  receivable,  the
Company  records a provision  for doubtful  accounts to cover  estimated  credit
losses.  Management  reviews and adjusts this  allowance  periodically  based on
historical  experience and its evaluation of the  collectibility  of outstanding
accounts  receivable.  The Company  evaluates  the credit risk of its  customers
utilizing historical data and estimates of future performance.                  

Inventories:                                                                    

Inventories  are stated at the lower of cost or net  realizable  value.  Cost is
calculated  on the  moving-average  basis and  includes all costs to acquire and
other costs  incurred in bring the  inventories  to their  present  location and
condition.  The Company evaluates the net realizable value of its inventories on
a  regular  basis and  records  a  provision  for loss to  reduce  the  computed
moving-average cost if it exceeds the net realizable value.                     

Income Taxes:                                                                   

The  Company  records a tax  provision  to reflect the  expected  tax payable on
taxable income for the period, using tax rates enacted or substantially  enacted
at the  balance  sheet  date,  and any  adjustment  to tax payable in respect of
previous periods.                                                               

Impairment of Long-Lived Assets:                                                

The Company's  long-lived  assets  consist of property and equipment and certain
intangible  assets.  In assessing  the  impairment  of such assets,  the Company
periodically  makes  assumptions  regarding the estimated  future cash flows and
other factors to determine  the fair value of the  respective  assets.  If these
estimates or the related  assumptions  indicate that the carrying amount may not
be recoverable,  the Company records impairment charges for these assets at such
time.                                                                           

Results of Operations:                                                          

The Company's  Sino-foreign joint ventures are presented on a consolidated basis
for the year ended  December  31,  2003,  as  compared  to the equity  method of
accounting  for  the  year  December  31,  2002.  Accordingly,  the  results  of
operations  for the year ended  December 31, 2003 are not comparable to the year
ended  December 31, 2002.  The equity method of accounting  does not reflect the
overall  financial  condition of the whole equity group,  including the scale of
assets and liabilities,  asset structure,  revenue and  profitability,  and cash
flows. In 2003, the directors of the minority  shareholders  approved an "Act in
Concert" agreement with the directors of the Company's wholly-owned  subsidiary,
Great Genesis.  Accordingly, as of and for the year ended December 31, 2003, the
financial  statements  are presented on a consolidated  basis,  to present Great
Genesis and its  Sino-foreign  joint ventures as one accounting body in order to
comprehensively   reflect  the  overall  results  of  operations  and  financial
condition of the Company.                                                       

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                                                        [Enlarge/Download Table]


For the years ended  December 31, 2003 and 2002,  the  condensed  statements  of                                                 
operations of the Company's Sino-foreign joint ventures are presented below.                                                     

The condensed  statements of  operations  of the  Company's  Sino-foreign  joint                                                 
ventures for the year ended  December 31, 2003  excludes  corporate  general and                                                 
administrative  expense of $1,109,000,  stock-based  compensation of $1,300,000,                                                 
and non-operating income of $106,000.                                                                                            

                              Henglong                     Jiulong                     Shenyang                  zhejiang        
                       ----------    ----------    ----------    ----------    ----------    ----------  ----------    ----------
                          2003          2002          2003          2002          2003          2002        2003          2002   
                       ----------    ----------    ----------    ----------    ----------    ----------  ----------    ----------
                                                                                                                                 
Proportionate                                                                                                                    
ownership interest                                                                                                               
at end of year                42%           42%           81%           81%           55%        37.60%         51%           51%
                       ----------    ----------    ----------    ----------    ----------    ----------  ----------    ----------
Net sales              33,929,946    26,007,000    18,660,367    10,789,000    13,173,434     4,022,000   1,678,018        66,000
                       ----------    ----------    ----------    ----------    ----------    ----------  ----------    ----------
Cost of goods sold     21,242,707    14,841,000     9,695,034     5,881,000     9,964,598     3,814,000   1,215,407        69,000
                       ----------    ----------    ----------    ----------    ----------    ----------  ----------    ----------
Gross profit           12,687,239    11,166,000     8,965,333     4,908,000     3,208,836       208,000     462,611        -3,000
                       ----------    ----------    ----------    ----------    ----------    ----------  ----------    ----------
Selling expenses        1,434,715       632,000     1,078,316     1,900,000        85,499        28,000     121,046        18,000
                       ----------    ----------    ----------    ----------    ----------    ----------  ----------    ----------
General and                                                                                                                      
administrative                                                                                                                   
expenses                2,724,473     2,109,176     2,764,807     2,242,409       646,879       346,906     359,116       113,343
                       ----------    ----------    ----------    ----------    ----------    ----------  ----------    ----------
Research &                                                                                                                       
Development expenses      809,914        59,753       201,627       164,881          --            --         5,490         1,257
                       ----------    ----------    ----------    ----------    ----------    ----------  ----------    ----------
Depreciation and                                                                                                                 
amortization              757,219       167,071       263,925        99,710       139,168        20,094     161,290         4,400
                       ----------    ----------    ----------    ----------    ----------    ----------  ----------    ----------
Stock-based                                                                                                                      
compensation                                                                                                                     
                       ----------    ----------    ----------    ----------    ----------    ----------  ----------    ----------
Income (loss) from                                                                                                               
operations              6,960,918     8,198,000     4,656,658       501,000     2,337,290      -187,000    -184,331      -140,000
                       ----------    ----------    ----------    ----------    ----------    ----------  ----------    ----------
Finance costs             209,146       145,000       126,025        17,000        -1,667        -2,000       1,081        -6,000
                       ----------    ----------    ----------    ----------    ----------    ----------  ----------    ----------
Other income                                                                                                                     
(expense), net            228,587       451,000       139,989       216,000         9,553         9,000      49,303          --  
                       ----------    ----------    ----------    ----------    ----------    ----------  ----------    ----------
Income (loss)                                                                                                                    
before income taxes     6,980,359     8,504,000     4,670,622       700,000     2,348,510      -176,000    -136,109      -134,000
                       ----------    ----------    ----------    ----------    ----------    ----------  ----------    ----------
Income taxes              777,485     1,303,000       973,455       302,000          --            --          --            --  
                       ----------    ----------    ----------    ----------    ----------    ----------  ----------    ----------
Net income (loss)       6,202,874     7,201,000     3,697,167       398,000     2,348,510      -176,000    -136,109      -134,000
                       ----------    ----------    ----------    ----------    ----------    ----------  ----------    ----------
Equity in income                                                                                                                 
(loss) of joint                                                                                                                  
ventures                2,605,207     3,989,000     2,691,050       311,000     1,409,106       -65,000     -69,416       -75,000
                       ----------    ----------    ----------    ----------    ----------    ----------  ----------    ----------

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                               Jingzhou                  Elimination                     Total                                   
                       ----------    ----------    -----------   ----------    ----------    ----------                          
                          2003          2002          2003          2002          2003          2002                             
                       ----------    ----------    -----------   ----------    ----------    ----------                          
Proportionate                                                                                                                    
ownership interest                                                                                                               
at end of year                51%                                                                                                
                       ----------    ----------    -----------   ----------    ----------    ----------                          
Net sales               1,702,306          --      -13,816,897   -7,084,000    55,327,174    33,800,000                          
                       ----------    ----------    -----------   ----------    ----------    ----------                          
Cost of goods sold      1,764,293          --      -13,481,838   -7,084,000    30,400,201    17,521,000                          
                       ----------    ----------    -----------   ----------    ----------    ----------                          
Gross profit              -61,987             0    -335,059               0    24,926,973    16,279,000                          
                       ----------    ----------    -----------   ----------    ----------    ----------                          
Selling expenses           13,849          --             --           --       2,733,425     2,578,000                          
                       ----------    ----------    -----------   ----------    ----------    ----------                          
General and                                                                                                                      
administrative                                                                                                                   
expenses                  118,749          --             --           --       6,614,024     4,811,834                          
                       ----------    ----------    -----------   ----------    ----------    ----------                          
Research &                                                                                                                       
Development expenses         --            --             --           --       1,017,031       225,891                          
                       ----------    ----------    -----------   ----------    ----------    ----------                          
Depreciation and                                                                                                                 
amortization               45,569          --             --           --       1,367,171       291,275                          
                       ----------    ----------    -----------   ----------    ----------    ----------                          
Stock-based                                                                                                                      
compensation                                                                                                                     
                       ----------    ----------    -----------   ----------    ----------    ----------                          
Income (loss) from                                                                                                               
operations               -240,154             0       -335,059            0    13,195,322     8,372,000                          
                       ----------    ----------    -----------   ----------    ----------    ----------                          
Finance costs              11,387          --           -1,249         --         344,723       154,000                          
                       ----------    ----------    -----------   ----------    ----------    ----------                          
Other income                                                                                                                     
(expense), net              1,464          --             --           --         428,896       676,000                          
                       ----------    ----------    -----------   ----------    ----------    ----------                          
Income (loss)                                                                                                                    
before income taxes      -250,077             0       -333,810            0    13,279,495     8,894,000                          
                       ----------    ----------    -----------   ----------    ----------    ----------                          
Income taxes                 --            --             --           --       1,750,940     1,605,000                          
                       ----------    ----------    -----------   ----------    ----------    ----------                          
Net income (loss)        -250,077             0       -333,810            0    11,528,555     7,289,000                          
                       ----------    ----------    -----------   ----------    ----------    ----------                          
Equity in income                                                                                                                 
(loss) of joint                                                                                                                  
ventures                 -127,539          --         -333,810         --       6,174,598     4,160,000                          
                       ----------    ----------    -----------   ----------    ----------    ----------                          

17

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Years Ended December 31, 2003 and 2002:                                                                 

Net  Sales.  The  increase  in net  sales of the  Company's  Sino-foreign  joint                        
ventures  for the year ended  December  31,  2003 as  compared to the year ended                        
December 31, 2002 is summarized as follows:                                                             

--------------------------------------------------------------------------------------------------------
                                                                                            Contribution
                                                                                            tototal     
                       2002                      2003                    Increase           sales (%)   
--------------------------------------------------------------------------------------------------------
Item           Quantity    Amount ($)    Quantity    Amount ($)    Quantity    Amount ($)               
--------------------------------------------------------------------------------------------------------
                                                                                                        
Steering                                                                                                
gear             236,000   28,980,000      417,000   44,557,000      181,000   15,577,000            46%
--------------------------------------------------------------------------------------------------------
Steering                                                                                                
pump               1,326       66,000       34,172    1,678,000       32,846    1,612,000             5%
--------------------------------------------------------------------------------------------------------
Terylene                                                                                                
material            --           --      1,420,000    1,702,000        1,420    1,702,000             5%
--------------------------------------------------------------------------------------------------------
Steering                                                                                                
accessories         --      4,754,000         --      7,390,000         --      2,636,000             8%
--------------------------------------------------------------------------------------------------------
Total               --     33,800,000         --     55,327,000         --     21,527,000            64%
--------------------------------------------------------------------------------------------------------

For the year ended December 31, 2003, net sales were $55,327,000, as compared to
$33,800,000  for the year ended December 31, 2002, an increase of $21,527,000 or
64%.  The  increase  in net  sales in 2003 as  compared  to 2002 was a result of
several factors.                                                                

1.  The  sales of  steering  gears,  one of the  Company's  principal  products,
increased  substantially  as a result of increased  marketing  activities by the
Company.  Sales of steering gears increased to 417,000 sets in 2003 from 236,000
sets,  reflecting  sales in 2003 of  $44,557,000,  as compared to $28,980,000 in
2002, an increase of $15,577,000 or 54%.  Steering gear sales represented 46% of
consolidated sales.                                                             

2. Production at Zhejiang and Jingzhou  commenced in the fourth quarter of 2003.
Zhejiang  was formed in 2002 and is mainly  engaged in the  production  of power
steering  pumps.  In  2002,  Zhejiang  was in  the  initial  development  stage,
generating  $66,000 of net sales.  During the three  months  ended  December 31,
2003,  Zhejiang  commenced  production and sales,  generating  $1,678,000 of net
sales.  Jingzhou was formed in February 2003 to produce  environmental  textiles
and raw  materials of terylene,  such as POY  (pre-oriented  yarn) and DTY (draw
texturing yarn). During 2003, Jingzhou generated net sales of $1,702,000. During
2003,  Jingzhou and Zhejiang  contributed  in the aggregate 10% of the Company's
consolidated net sales.                                                         

3. Increase in sales of other  products.  As a result of increased  sales of the
Company's main product, sales of accessories also increased.  In 2003, net sales
of accessories were $7,390,000,  as compared to $4,754,000 for 2002, an increase
of $2,636,000 or 55%. During 2003,  accessories  contributed in the aggregate 8%
of the Company's consolidated net sales.                                        

Net sales were  $55,327,000 for the year ended December 31, 2003.  Sales for the
nine months ended  September 30, 2003 were  $36,776,000 and for the three months
ended December 31, 2003 sales were  $18,551,000,  reflecting strong sales growth
in the Company's  product lines.  Sales growth in the fourth quarter of 2003 was
substantially  in excess of sales growth in the prior three quarter of 2003 as a
result of several factors.                                                      

In the first half of 2003,  the SARS virus spread  through most of China,  which
had a  substantial  negative  impact on consumer  spending  and, in  particular,
automobile  sales in China during the nine months ended September 30, 2003. As a
parts  supplier  to the  automobile  industry,  the  Company's  sales  were also
affected.  As a result, during the first three quarter of 2003, the sales of the
Company's  Henlong,  Jiulong and Jinbei  Sino-foreign  joint ventures were below
budgeted sales levels.                                                          

In the fourth  quarter of 2003, the SARS virus was  controlled,  and the pent-up
demand for automobiles was released.  Furthermore, as there is typically a surge
in retail sales  during the Chinese New Year (which  occurs  during  January and
February),  vehicle  manufacturers  increased their parts inventories during the
fourth  quarter of 2003 in  anticipation  of this  increase in consumer  demand.
These factors  contributed  to a sales increase in the fourth quarter of 2003 at
Henglong, Jiulong and Jinbei in excess of budgeted levels.                      

During the nine months  ended  September  30, 2003,  Zhejiang and Jingzhou  were
Sino-foreign joint ventures in the initial development stage, and were primarily
engaged in  preparations  to begin  production.  During the three  months  ended
December 31, 2003, production and sales commenced.                              

The  Company's  ten  largest  customers  accounted  for 73.18% of the  Company's
consolidated  sales,  with three  customers  accounting  for in excess of 10% of
consolidated sales, with 25.02%,  11.08% and 10.49% of consolidated sales, or an
aggregate of 46.59% of consolidated sales.                                      

Gross Profit. The change in gross profit for the year ended December 31, 2003 as
compared to the year ended December 31, 2002 is summarized as follows:          

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-----------------------------------------------------------------------------------------------------------
                                                           2002                                            
-----------------------------------------------------------------------------------------------------------
       Item        Quantity      Price    Sales amount   Unit cost   Total cost   Gross profit        %    
-----------------------------------------------------------------------------------------------------------
                                                                                                           
Power steering                                                                                             
gear                 236,000     122.80     28,980,000       63.51   14,988,000     13,992,000          48%
-----------------------------------------------------------------------------------------------------------
Power steering                                                                                             
pump                   1,326      49.77         66,000       51.92       69,000         -3,000          -5%
-----------------------------------------------------------------------------------------------------------
Terylene material       --         --             --          --           --             --           --  
-----------------------------------------------------------------------------------------------------------
Accessories             --         --        4,754,000        --      2,464,000      2,290,000          48%
-----------------------------------------------------------------------------------------------------------
Total                   --         --       33,800,000        --     17,521,000     16.279.000          48%
-----------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------
                                                           2003                                            
-----------------------------------------------------------------------------------------------------------
       Item        Quantity      Price    Sales amount   Unit cost   Total cost   Gross profit        %    
-----------------------------------------------------------------------------------------------------------
Power steering                                                                                             
gear                 417,000     106.85     44,557,000       59.07   24,632,000     19,925,000          45%
-----------------------------------------------------------------------------------------------------------
Power steering                                                                                             
pump                  34,172      49.10      1,678,000       31.43    1,074,000        604,000          36%
-----------------------------------------------------------------------------------------------------------
Terylene material      1,420   1,198.59      1,702,000    1,242.25    1,764,000        -62,000          -4%
-----------------------------------------------------------------------------------------------------------
Accessories             --         --        7,390,000        --      2,930,000      4,460,000          60%
-----------------------------------------------------------------------------------------------------------
Total                   --         --       55,327,000        --     30,400,000     24,927,000          45%
-----------------------------------------------------------------------------------------------------------

                          Analysis
--------------------------------------------------------------------------------
                  Increased              Effected by   Effected by   Effected by
    Item           profit        %        quantity       price       unit cost
--------------------------------------------------------------------------------
Power steering                                                                  
gear               5,933,000       42%    10,731,490    -6,650,600     1,852,110
--------------------------------------------------------------------------------
Power steering                                                                  
pump                 607,000      --         -70,619    -22,740          700,359
--------------------------------------------------------------------------------
Terylene material    -62,000      --         -62,000          --            --  
--------------------------------------------------------------------------------
Accessories        2,170,000       95%     1,269,760          --         900,240
--------------------------------------------------------------------------------
Total              8,648,000       53%    11,818,631    -6,673,340     3,452,709
--------------------------------------------------------------------------------

The gross profit in 2003 was $24,927,000, as compared to $16,279,000 in 2002, an
increase of $8,648,000 or 53%, as a result of following factors:                

1. The Company  increased  its  marketing  activities  in 2003,  resulting in an
increase in sales,  including a 77% increase in sales of the Company's principal
product. Gross profit increased by $11,868,631 in 2003 due to increased sales.  

2. In 2003, the Company reduced its sales prices to maintain and increase market
share in a highly competitive environment, including a 13% decrease in the sales
price of its main product.  Gross profit  decreased by $6,673,340 in 2003 due to
reduced sales prices.                                                           

3. The Company  increased  its  investment in advanced  production  equipment to
improve  manufacturing  efficiency,  while  at  the  same  time  improving  cost
controls.  As a result,  the production cost of the Company's  principal product
decreased  by 7%.  Gross  profit  increased  by  $3,452,709  in 2003  due to the
implementation of cost reduction measures.                                      

As reflected in the table,  the decrease in sales price exceeded the decrease in
costs,  resulting in a decreased gross margin of 45% in 2003, as compared to 48%
in 2002.                                                                        

During  September 2003, the SARS virus was controlled and the pent-up demand for
automobiles  was rapidly  released.  Increases in real estate  construction  and
increased  production  by  numerous  automobile  manufacturers  at the same time
resulted in a shortage of steel. Accordingly,  during the first quarter of 2004,
as steel demand was in excess of steel supply,  steel prices increased by 10% to
20%.                                                                            

Gross profit was  $24,927,000  or 45.1% of net sales for the year ended December
31, 2003, which is consistent with budgeted levels.                             

The Company expects that gross margins will decrease to approximately 35% during
2004 as a result of increased raw material costs.                               

In response, the Company intends to attempt to reduce costs and at the same time
continue to improve the quality of its products.                                

Since the  increase in raw material  costs will have an adverse  effect on gross
margin in 2004, the Company plans to take the following measures to reduce costs
to meet the target of 35%:                                                      

1. Reduce the labor force; and                                                  

2. Decrease the use of raw materials.                                           

The Company expects to accomplish this in two ways:                             

1. Equip a digital  control system on the common  machine and purchase  advanced
production equipment to improve  manufacturing  efficiency;  to check and modify
standard  working time based on actual work time,  and reduce  standard  working
time per piece.                                                                 

2. Optimize product design and reduce the weight of the parts, thus reducing the
usage of raw materials. To enhance the production organization,  build a special
team to control costs in advance and/or during the manufacturing process.       

18

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In order to improve its manufacturing efficiency, the Company plans to purchase                              
advanced production equipment as shown in the table below, while at the same                                 
time reducing labor costs.                                                                                   

--------------------- --------- ------------- ----------- --------- ------------------ ---------- -----------
Name                  Model     Former        Newly man   Quality   Made by            Made in    Price (US$)
                                man hour         hour        of                                              
                                (min/piece)   (Min/piece) product                                            
--------------------- --------- ------------- ----------- --------- ------------------ ---------- -----------
                                                                                                             
CNC Fast Cut          FC-                                           CHIEN YIH                                
Lathe                 SD39      4.2           2.2         Advanced  MACHINERY CO.,     China         89,675  
                                                                    LTD.               Tai Wan               
--------------------- --------- ------------- ----------- --------- ------------------ ---------- -----------
Steering Rack         MEP-      4.9           1.6         Advanced  MAGERLE AG         Swiss        649,398  
Grinding Machine      125-35                                        MASCHINENFABRIK                          
--------------------- --------- ------------- ----------- --------- ------------------ ---------- -----------
Drilling and          TC-       7             4           Advanced  DAWAN MACHINERY    China         82,988  
Cutting Machine       600S                                          CO., LTD.          Tai Wan               
--------------------- --------- ------------- ----------- --------- ------------------ ---------- -----------
Horizontal Cutting    MK603H    16.5          8.5         Advanced  QUASER MACHINE     China        139,494  
Central Machine                                                     TOOLS, INC.        Tai Wan               
--------------------- --------- ------------- ----------- --------- ------------------ ---------- -----------
                                                                    BUDERUS                                  
Internal Thread       CNC335IG  12            3.2         Advanced  SCHLEIFTECHNIK     Germany      558,683  
Grinding Machine                                                    GMBH                                     
--------------------- --------- ------------- ----------- --------- ------------------ ---------- -----------
                                                                    BUDERUS                                  
External Thread       CNC635GA  3.5           3.5         Advanced  SCHLEIFTECHNIK     Germany      525,654  
Grinding Machine                                                    GMBH                                     
--------------------- --------- ------------- ----------- --------- ------------------ ---------- -----------
Kirby Worm Shaft                                                                                             
and Valve Sleeve      SSM       6             0.6         Advanced  KIRBY              Australia    516,867  
Slotting Machine                                                    ENGINEERING                              
--------------------- --------- ------------- ----------- --------- ------------------ ---------- -----------
Kirby Valve Balance   VBM       7             1.8         Advanced  KIRBY              Australia    404,096  
and Test Machine                                                    ENGINEERING                              
--------------------- --------- ------------- ----------- --------- ------------------ ---------- -----------
Automatic Assembly    ZDZPX     20            5           Advanced  DALIAN MACHINERY   P.R.C.       587,952  
Lines                                                               CO., LTD.                                
--------------------- --------- ------------- ----------- --------- ------------------ ---------- -----------

Once the foregoing  equipment has been installed and is  operational,  under the
assumptions  that the Company will produce  420,000 - 600,000  steering sets per
year and will have a  standard  unit man hour cost of $3 per hour,  the  Company
expects a reduction in man hours from 354,900 to 507,000,  thus  reducing  labor
costs by $1,064,700 -$1,521,000.                                                

During the year ended December 31, 2003, labor costs accounted for approximately
10% of net  sales.  Through  expanded  use of  numerical  control  machines  and
automatic assembly lines, the Company  anticipates  reducing labor costs to less
than 8% of net sales by the end of 2004.                                        

The  Company  also  intends  to  optimize  product  design  and  its  production
organization to reduce the  consumption of raw materials.  During the year ended
December 31, 2003, raw material  costs  accounted for  approximately  40% of net
sales.  During the first quarter of 2004, the price of the Company's primary raw
material,  steel,  rose 20% in China. It is estimated the average price increase
during 2004 will be 15%. The Company anticipates that it will attempt to enhance
the processes that control  production and optimize the structural design of its
products  with the  objective  being to decrease  the use of raw  materials  and
direct material costs up to 3% of net sales.  Combined with the  above-mentioned
two factors, the Company expects that direct material costs will increase to 52%
of net sales in 2004.                                                           

Selling  Expenses.  For the years  ended  December  31,  2002 and 2003,  selling
expenses are summarized as follows:                                             

                                                        [Enlarge/Download Table]


----------------------------------------------------------------------------------------
              Salaries                                                  Sales           
              and wages    Supplies      Travel    Transportation     service     Rent  
----------------------------------------------------------------------------------------
                                                                                        
   2002       1,300,000       86,000     253,000          546,000      211,000    45,000
----------------------------------------------------------------------------------------
   2003       1,302,000      142,000     233,000          764,000       69,000    69,000
----------------------------------------------------------------------------------------
Increased                                                                               
(decreased)       2,000       56,000     -20,000          218,000     -142,000    24,000
amount                                                                                  
----------------------------------------------------------------------------------------
Increased           0.2%          65%        -8%               40%        -67%       53%
(decreased)                                                                             
percentage                                                                              
----------------------------------------------------------------------------------------

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               Office    Advertising   Entertainment   Insurance    Other       Total 
--------------------------------------------------------------------------------------
                                                                                      
  2002          53,000        17,000          14,000      23,000    30,000   2,578,000
--------------------------------------------------------------------------------------
  2003          64,000        34,000          28,000      15,000    13,000   2,733,000
--------------------------------------------------------------------------------------
Increased                                                                             
(decreased)     11,000        17,000          14,000      -8,000   -17,000     155,000
amount                                                                                
--------------------------------------------------------------------------------------
Increased                                                                             
(decreased)        21%          100%            100%        -36%      -58%          6%
percentage                                                                            
--------------------------------------------------------------------------------------

Selling  expenses were  $2,733,000 for 2003, as compared to $2,578,000 for 2002,
an increase of $155,000 or 6%, principally as a result of increases in supplies,
transportation,  rent, advertising and entertainment.  The increase in supplies,
transportation and rent was due to the increased level of business. The increase
in advertising and  entertainment  was due to market  development  activities as
described above. The decrease in seller's  expenses was caused by a reduction in
sales service costs,  as a result of the Company  hiring outside  contractors to
perform  this  function  in 2002,  while the  Company  performed  this  function
in-house in 2003.                                                               

General and Administrative  Expenses.  For the years ended December 31, 2002 and
2003, general and administrative expenses are summarized as follows:            

                                                        [Enlarge/Download Table]

---------------------------------------------------------------------------------------------------------------------------
               Reverse                                                                                                     
                merger    Salaries and                                                              Enter-      Securities 
                costs        wages        Travel       Office    Supplies     Repairs      Rent    tainment   and insurance
---------------------------------------------------------------------------------------------------------------------------
                                                                                                                           
   2002               0        680,000     100,000     172,000    384,000       41,000   179,000     12,000         580,000
---------------------------------------------------------------------------------------------------------------------------
   2003       1,109,000      1,430,000     193,000     173,000    568,000      198,000   103,000     36,000         863,000
---------------------------------------------------------------------------------------------------------------------------
Increased                                                                                                                  
(decreased)   1,109,000        750,000      93,000       1,000    184,000      157,000   -76,000     24,000         283,000
amount                                                                                                                     
---------------------------------------------------------------------------------------------------------------------------
Increased                                                                                                                  
(decreased)        --             110%         93%        --          48%         383%      -42%       196%             49%
percentage                                                                                                                 
---------------------------------------------------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

---------------------------------------------------------------------------------------------------------------------
                                                Impairment                                                           
                                    Provision      of         Impairment                                             
             Adminis-                for bad    long-term         of                                                 
  Item       trative       Tax        debts     investment   inventories   Training   Warranty     Other      Total  
---------------------------------------------------------------------------------------------------------------------
                                                                                                                     
   2002       159,000     165,000   1,363,000      214,000          --       47,000       --      716,000   4,812,000
---------------------------------------------------------------------------------------------------------------------
   2003       153,000     159,000   1,549,000         --         277,000     56,000    157,000    699,000   7,723,000
---------------------------------------------------------------------------------------------------------------------
Increased                                                                                                            
(decreased)    -6,000      -6,000     186,000     -214,000       277,000      9,000    157,000    -17,000   2,911,000
amount                                                                                                               
---------------------------------------------------------------------------------------------------------------------
Increased                                                                                                            
(decreased)       -4%         -4%         14%        -100%          --          21%       --           2%         60%
percentage                                                                                                           
---------------------------------------------------------------------------------------------------------------------

General and administrative  expenses were $7,723,000 for the year ended December
31, 2003,  consisting of $1,109,000  from the parent company and $6,614,000 from
the Sino-foreign joint ventures.                                                

Significant  expense items that increased more than $100,000 in 2003 as compared
to 2002 were  reverse  merger  costs,  salaries  and wages,  supplier and costs,
insurance,  bad debts,  impairment of inventories and warranty expense.  Reverse
merger costs consisted of the acquisition of a controlling  interest in a public
company.  The Company also incurred  increased costs in 2003 associated with the
legal, accounting and auditing costs of operating a public company.             

The reason for increased  salaries and wages and insurance was  attributable  to
increased  management  costs as a result of  increased  production  at Henglong,
Jiulong and Shenyang, and sustained production from Jingzhou and Zhejiang.      

The reason for the  increase in supplier and repair costs was due to an increase
in production,  which in turn caused an increase in materials used and repaired.
In addition,  Jingzhou also incurred inspection and repair expenses during 2003,
its first year of operation.                                                    

Allowance for doubtful accounts,  impairment of inventories and warranty reserve
are based on historical experience.  For 2003, the Company recorded an allowance
for  doubtful  accounts  of  $771,841  based  on an  analysis  of  the  accounts
receivable aging. The Company recorded an allowance for doubtful accounts of 25%
for accounts  outstanding from 180-365 days; 50% for accounts outstanding from 1
- 2 years;  and 100% for  accounts  outstanding  over two years.  For 2002,  the
Company recorded an allowance for doubtful accounts based on 4% of net sales.   

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Impairment  of  inventories  is  recorded  based  on the  lower  of  cost or net
realizable  value.  In 2002, the inventory cost was  approximately  equal to net
realizable value.                                                               

Warranty  reserve  represents  an  obligation  to  repair or  replace  defective
products  under  certain  conditions.  The estimate of the  warranty  reserve is
calculated  based on  historical  experience.  In 2003,  the  warranty  rate was
determined to be 0.3% of net sales.                                             

The expense items that decreased more than $100,000 were impairment of long-term
investment.  Since the cost of the long-term  investment was approximately equal
to its net realizable value, an impairment reserve was no longer required.      

Research and  Development  Expenses.  Research  and  development  expenses  were
$1,017,000 for the year ended December 31, 2003, as compared to $226,000 for the
year ended December 31, 2002, an increase of $791,000 or 350%, consisting of new
projects as follows:  electronic  power  steering  units - $350,000;  absorbable
steering  columns - $100,000;  steering pumps for passenger  vehicles - $80,000;
tie rods - $140,000; and new techniques for rack production - $120,000.         

Depreciation and  Amortization  Expense.  Depreciation and amortization  expense
included in costs and expenses, excluding amounts included in cost of sales, was
$1,367,170 for the year ended December 31, 2003, as compared to $291,000 for the
year ended  December 31, 2002, an increase of $1,076,000 or 369%, as a result of
increased  production  and the increase in  depreciation  charges for  machinery
equipment of 6 years and electronic equipment of 4 years based on a reduction in
the  estimated  useful lives of the  respective  assets.  For 2002,  the Company
determined  that the useful  life of  machinery  equipment  ranged from 10 to 13
years,  and  electronic  equipment  ranged from 6 to 10 years.  The  increase in
depreciation  expense of $944,000  resulting  from the  reduction  in  estimated
useful lives of the respective  assets was recorded as a charge to operations in
2003.                                                                           

Stock Compensation.  During March 2003, in conjunction with the transaction with
Great Genesis described above, the Company issued common stock purchase warrants
to three  consultants to acquire an aggregate of 550,375 shares of common stock,
exercisable  for a period of one year at $1.20 per  share.  The  aggregate  fair
value of these warrants, calculated pursuant to the Black-Scholes option-pricing
model,  was estimated to be $1,300,000,  which was charged to operations  during
the year ended December 31, 2003.                                               

Income From  Operations.  Income from  operations was  $10,786,842  for the year
ended December 31, 2003.                                                        

Equity Income (Loss) of Joint  Ventures.  The Company  recorded equity income of
joint  ventures  aggregating  $4,160,000  for the year ended  December 31, 2002,
reflecting the Company's  aggregate  proportionate  share of the earnings of its
Sino-foreign joint ventures based on the equity method of accounting.           

Other  Non-Operating  Income.  For the years ended  December  31, 2002 and 2003,
other non-operating income is summarized as follows:                            

------------------------------------------------------------------------        
                                     Share
   Material   Subsidy   Equipment   exchange
              sold     income    disposal     income     Total
------------------------------------------------------------------------        
2002               267,000   392,000      17,000       --     676,000     
------------------------------------------------------------------------        
2003               281,000   132,000      14,000    107,000   534,000     
------------------------------------------------------------------------        
Increased                                                                       
(decreased)            14,000               -260,000    -3,000   107,000        
amount                                                                          
------------------------------------------------------------------------        
Increased                                                                       
(decreased)                5%      -66%        -18%       --        -21%        
percentage                                                                      
------------------------------------------------------------------------        

For the year ended  December 31, 2003,  non-operating  income was  $534,000,  as
compared  to  $676,000  for the year ended  December  31,  2002,  a decrease  of
$142,000 or 21%,  primarily because of a reduction in subsidies from the Chinese
government.  The Company purchased less domestic  equipment in 2003 than in 2002
and thus  obtained  less  subsidy  income.  In  addition,  in 2002,  the Company
transferred  a 7%  interest  in  Henglong  in  exchange  for an 11%  interest of
Jiulong.  As a part of terms of the transaction,  the joint venture partner paid
the Company $107,000 in 2003, which was recorded as non-operating income.       

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Financial Expenses. Financial expenses were $344,723 for the year ended December
31, 2003.                                                                       

Income Before Income Taxes.  Income before income taxes was  $10,976,166 for the
year ended  December  31,  2003,  as compared to  $4,159,000  for the year ended
December 31, 2002.                                                              

Income Taxes.  Income tax expense was $1,750,940 for the year ended December 31,
2003.  During the year ended December 31, 2003,  Henglong,  one of the Company's
Sino-foreign  joint ventures,  received an income tax refund of $521,000,  which
has been  reflected  as a reduction  to income tax  expense in the  consolidated
statements of operations for the year ended December 31, 2003.                  

Income Before Minority Interest.  Income before minority interest was $9,225,226
for the year ended  December 31, 2003,  as compared to  $4,159,000  for the year
ended December 31, 2002.                                                        

Minority Interest.  The Company recorded the minority interests' aggregate share
in each Sino-foreign  joint venture's  earnings  aggregating  $5,353,957 for the
year ended December 31, 2003.                                                   

Net Income.  Net income was  $3,871,269 for the year ended December 31, 2003, as
compared to $4,159,000 for the year ended December 31, 2002.                    

Financial Condition - December 31, 2003:                                        

Liquidity and Capital Resources:                                                

The Company has relied primarily on advances and investments from its           
shareholders for its capital requirements since inception.                      

Operating.  The Company's  operations  provided cash of $3,925,587  for the year
ended December 31, 2003. At December 31, 2003,  cash and cash  equivalents  were
$10,730,882.  Working capital was $19,944,120 at December 31, 2003, reflecting a
current ratio of 1.39:1.                                                        

The Company  anticipates that its working capital resources are adequate to fund
anticipated costs and expenses for the year ending December 31, 2004.           

Investing.  During  the year ended  December  31,  2003,  the  Company  utilized
$9,197,806  in investing  activities,  consisting  of payments of  $8,843,129 to
acquire fixed assets,  $328,228 to acquire  intangible assets and an increase in
other receivables of $1,215,606,  less $1,189,157 generated from the liquidation
of long-term  investments.  During the year ended December 31, 2002, the Company
utilized  $51,000 in investing  activities,  consisting  of an increase in other
receivables.                                                                    

Financing.  During the year ended  December  31,  2003,  the  Company  generated
$10,384,665 from financing  activities,  consisting of bank loans of $6,101,410,
advances from  shareholders/directors  of  $6,770,887  and the proceeds from the
sale of common stock of $159,000, less dividends paid of $2,646,632.  During the
year ended  December  31, 2002,  the Company  generated  $52,000 from  financing
activities, consisting of an increase in amounts due to shareholders/directors. 

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During the year ended  December 31, 2002,  the  shareholders/directors  advanced
$3,040,000 to fund the Company's  investments in joint ventures and.  During the
year ended December 31, 2003,  the  shareholders/directors  cancelled  dividends
previously  declared  of  $17,167,000,  which was treated as a  contribution  to
capital.                                                                        

Disclosures about Contractual Obligations and Commercial Commitments:           

During October 2003, Henglong, one of the Company's Sino-foreign joint ventures,
signed an agreement with the  management  council of Wuhu Science and Technology
Zone to invest  $10,000,000  to develop an  industrial  enterprise  to carry out
automobile  component projects related to power steering systems.  The agreement
does not specify a time limit. The Company plans to invest in phases over a five
year period.  The Company  plans to invest  approximately  $870,000 in the first
phase to acquire land rights,  which will be completed  during 2004. The Company
advanced  approximately $435,000 during 2003 pursuant to the agreement under the
first phase. This new plant is expected to service a large vehicle  manufacturer
in Wuhu at reduced transportation and storage costs.                            

During March 2003,  Henglong signed a purchase and  construction  agreement with
Wuhan  Huazhong  Shuguang  Software Park Co., Ltd. for  $4,820,000 to design and
construct a software  research and  development  facility.  This  facility  will
design  software  and  other  products  for the  automobile.  The  Company  paid
$2,421,300  during  2003.  According to the  agreement,  the Company will pay an
additional  $952,900 during 2004 and pay off the remaining  $1,445,800  after it
receives  a  license  for the  right  to use the land  and a  building  property
certificate. This new software research and development facility will be located
in an area of Hubei  Province that contains ten  well-known  universities  and a
large vehicle manufacturer.                                                     

On October 29, 2001,  Henglong  entered into a ten year license  agreement  with
Bishop Steering Technology Limited ("Bishop"),  an Australian company engaged in
the design of power steering  systems.  Pursuant to the  agreement,  Henglong is
obligated  to pay Bishop an annual  technical  assistance  fee of  approximately
$200,000 per year during the first two years of the  agreement  and $110,000 per
year  during the  remaining  eight years of the  agreement,  and a royalty to be
determined.                                                                     

On July 21,  2003,  Henglong  entered  into a five year  license  and  technical
assistance  agreement  with Namyang  Industrial Co. Ltd.  ("Namyang"),  a Korean
company  engaged in the  manufacture  of steering  columns and  universal  joint
assemblies for automobiles.  Pursuant to the agreement, Henglong paid Namyang an
initial  payment of $100,000 and is further  obligated to pay a royalty of 3% of
the sales price of products sold that include the licensed technology.          

On October 20, 2003, Henglong, one of the Company's Sino-foreign joint ventures,
entered into a contract to purchase a land use right  relating to parcel of land
for  $3,680,000  and paid a $361,000  deposit.  This  transaction is expected to
close in 2004.                                                                  

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Inflation and Currency Matters:                                                 

In the most recent decade, the Chinese economy has experienced  periods of rapid
economic growth as well as relatively high rates of inflation, which in turn has
resulted  in  the  periodic  adoption  by  the  Chinese  government  of  various
corrective  measures  designed to regulate  growth and  contain  inflation.  The
success of the Company depends in substantial  part on the continued  growth and
development of the Chinese economy.                                             

Foreign operations are subject to certain risks inherent in conducting  business
abroad,  including price and currency exchange controls, and fluctuations in the
relative value of currencies. The Company conducts virtually all of its business
in China and, accordingly, the sale of its products is settled primarily in RMB.
As a result,  devaluation  or  currency  fluctuation  of the RMB against the USD
would adversely affect the Company's financial performance when measured in USD.
Although prior to 1994 the RMB experienced  significant  devaluation against the
USD, the RMB has remained fairly stable since then. In addition,  the RMB is not
freely convertible into foreign  currencies,  and the ability to convert the RMB
is subject to the  availability  of foreign  currencies.  Effective  December 1,
1998,  all  foreign  exchange  transactions  involving  the RMB must take  place
through  authorized  banks or financial  institutions in China at the prevailing
exchange rates quoted by the People's Bank of China.                            

As China has recently been admitted as a member of the World Trade Organization,
the central government of China is expected to adopt a more rigorous approach to
partially  deregulate  currency  conversion  restrictions,  which  may  in  turn
increase the exchange  rate  fluctuation  of the RMB.  Should there be any major
change in the central  government's  currency  policies,  the  Company  does not
believe that such an action  would have a  detrimental  effect on the  Company's
operations,  since the Company conducts  virtually all of its business in China,
and the sale of its products is settled in RMB.                                 

Although prior to 1994 the RMB experienced  significant  devaluation against the
USD,  the RMB has remained  fairly  stable  since then.  The  exchange  rate was
approximately US$1.00 to RMB 8.30 at December 31, 2002 and 2003.                

Quantitative and Qualitative Disclosures about Market Risk:                     

The  Company  does not have any  market  risk with  respect  to such  factors as
commodity  prices,  equity  prices,  and other market changes that affect market
risk  sensitive  investments.  A 10 point basis change in the Company's  average
debt interest rate would not have a material effect on the Company's  results of
operations.                                                                     

With respect to foreign  currency  exchange rates,  the Company does not believe
that a  devaluation  or  fluctuation  of the RMB  against  the USD would  have a
detrimental  effect on the  Company's  operations,  since the  Company  conducts
virtually  all of its  business in China,  and the sale of its  products and the
purchase of raw  materials  and  services  are  settled in RMB.  The effect of a
devaluation or fluctuation of the RMB against the USD would affect the Company's
results of operations,  financial position and cash flows, when presented in USD
(based on a current exchange rate) as compared to RMB.                          

As the Company's debt obligations are primarily short-term in nature, with fixed
interest  rates,  the Company  does not have any risk from an increase in market
interest rates.  However, to the extent that the Company arranges new borrowings
in the future,  an increase in market  interest rates would cause a commensurate
increase in the interest expense related to such borrowings.                    

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Recent Accounting Pronouncements                                                

In August 2001, the FASB issued SFAS No. 143,  "Accounting for Asset  Retirement
Obligations".  SFAS No. 143  addresses  the  diverse  accounting  practices  for
obligations associated with the retirement of tangible long-lived assets and the
associated  asset  retirement  costs. The Company adopted SFAS No. 143 effective
January 1, 2003. The adoption of SFAS No. 143 did not have a significant  effect
on the Company's financial statement presentation or disclosures.               

In April 2002, the FASB issued SFAS No. 145,  "Rescission of FASB Statements No.
4, 44, and 64,  Amendment of FASB Statement No. 13, and Technical  Corrections".
SFAS No. 145 rescinds the  provisions of SFAS No. 4 that  requires  companies to
classify  certain gains and losses from debt  extinguishments  as  extraordinary
items,  eliminates  the  provisions  of SFAS No. 44 regarding  transition to the
Motor  Carrier Act of 1980 and amends the  provisions  of SFAS No. 13 to require
that certain lease modifications be treated as sale leaseback transactions.  The
provisions of SFAS No. 145 related to classification of debt extinguishments are
effective for fiscal years  beginning  after May 15, 2002.  The adoption of SFAS
No. 145 did not have a significant effect on the Company's  financial  statement
presentation or disclosures.                                                    

In June 2002,  the FASB issued SFAS No. 146,  "Accounting  for Costs  Associated
with Exit or Disposal  Activities,"  which requires companies to recognize costs
associated  with exit or disposal  activities when they are incurred rather than
at the date of a commitment to an exit or disposal  plan.  Such costs covered by
SFAS No. 146 include  lease  termination  costs and certain  employee  severance
costs that are associated with a restructuring,  discontinued  operation,  plant
closing, or other exit or disposal activity.  SFAS No. 146 replaces the previous
accounting  guidance provided by the EITF No. 94-3,  "Liability  Recognition for
Certain  Employee  Termination  Benefits  and  Other  Costs to Exit an  Activity
(including  Certain Costs Incurred in a  Restructuring)."  SFAS No. 146 is to be
applied  prospectively to exit or disposal  activities  initiated after December
31, 2002. The adoption of SFAS No. 146 did not have a significant  effect on the
Company's financial statement presentation or disclosures.                      

In December  2002,  the FASB issued SFAS No. 148,  "Accounting  for  Stock-Based
Compensation  - Transition  and  Disclosure".  SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock-Based  Compensation",  to provide  alternative  methods of
transition  for a voluntary  change to the fair value based method of accounting
for  stock-based  employee  compensation.  In addition,  SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in both
annual and  interim  financial  statements  about the method of  accounting  for
stock-based employee  compensation and the effect of the method used on reported
results. SFAS No. 148 is effective for fiscal years beginning after December 15,
2002.  The interim  disclosure  provisions  are effective for financial  reports
containing financial statements for interim periods beginning after December 15,
2002.  The  adoption  of SFAS No. 148 did not have a  significant  effect on the
Company's financial statement presentation or disclosures.                      

In April 2003,  the FASB issued SFAS No. 149,  "Amendment  of  Statement  133 on
Derivative  Instruments  and  Hedging  Activities".  SFAS  No.  149  amends  and
clarifies under what circumstances a contract with initial investments meets the
characteristics  of a  derivative  and when a  derivative  contains a  financing

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component.  SFAS No. 149 is  effective  for  contracts  entered into or modified
after June 30,  2003.  The  adoption of SFAS No. 149 did not have a  significant
effect on the Company's financial statement presentation or disclosures.        

In May 2003,  the FASB issued SFAS No. 150,  "Accounting  for Certain  Financial
Instruments with  Characteristics of both Liabilities and Equity".  SFAS No. 150
establishes standards for how an issuer classifies and measures in its statement
of financial position certain financial instruments with characteristics of both
liabilities  and  equity.  SFAS No.  150  requires  that an  issuer  classify  a
financial  instrument  that is within its scope as a  liability  (or an asset in
some circumstances)  because that financial instrument embodies an obligation of
the issuer. SFAS No. 150 is effective for financial  instruments entered into or
modified  after May 31, 2003 and  otherwise is effective at the beginning of the
first  interim  period  beginning  after  June 15,  2003.  SFAS No. 150 is to be
implemented  by  reporting  the  cumulative  effect  of a change  in  accounting
principle for financial instruments created before the issuance date of SFAS No.
150 and still  existing  at the  beginning  of the interim  period of  adoption.
Restatement  is not  permitted.  The  adoption  of SFAS  No.  150 did not have a
significant  effect  on  the  Company's  financial  statement   presentation  or
disclosures.                                                                    

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure  Requirements for Guarantees,  Including  Indirect  Guarantees of
Indebtedness of Others" ("FIN 45"). FIN 45 elaborates on the existing disclosure
requirements  for most  guarantees,  including loan  guarantees  such as standby
letters  of  credit.  It also  clarifies  that at the  time a  company  issues a
guarantee,  the company must recognize an initial  liability for the fair market
value of the  obligations it assumes under that guarantee and must disclose that
information  in  its  interim  and  annual  financial  statements.  The  initial
recognition and measurement provisions of FIN 45 apply on a prospective basis to
guarantees  issued or modified after December 31, 2002. The Company  implemented
the  disclosure  provisions  of FIN 45 in its  December  31,  2002  consolidated
financial statements, and the measurement and recording provisions of FIN No. 45
effective January 1, 2003.                                                      

In January  2003,  the FASB  issued  Interpretation  No. 46,  "Consolidation  of
Variable Interest  Entities (and  Interpretation of ARB No. 51)" ("FIN 46"). FIN
46  requires  that  the  primary  beneficiary  in  a  variable  interest  entity
consolidate the entity even if the primary  beneficiary does not have a majority
voting  interest.  The  consolidation  requirements of FIN 46 are required to be
implemented  for any variable  interest  entity  created on or after January 31,
2003.  In  addition,   FIN  46  requires  disclosure  of  information  regarding
guarantees  or  exposures  to loss  relating  to any  variable  interest  entity
existing prior to January 31, 2003 in financial  statements issued after January
31, 2003. The  implementation  of the provisions of FIN 46 effective January 31,
2003 did not have a significant effect on the Company's  consolidated  financial
statement presentation or disclosures.                                          

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ITEM 7.  FINANCIAL STATEMENTS.                                                  

(a)      Financial Statements                                                   

The following financial statements are included elsewhere in this document.     

1.       Report of Independent Auditors                       

         2.       Consolidated  Balance  Sheets  as of  December  31,  2003  and
December 31, 2002.                          

         3.       Consolidated  Statements  of  Operations  for the years  ended
December 31, 2003 and December 31, 2002.    

         4.       Consolidated Statements of Changes in Stockholders' Equity for
the years ended December 31, 2002 and 2001. 

         5.       Consolidated  Statements  of Cash  Flows for the  years  ended
December 31, 2003 and December 31, 2002.    

6.       Notes to Consolidated Financial Statements.          

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

         Effective May 6, 2003, we dismissed  Armando C. Ibarra  ("Ibarra"),  as
China  Automotives'  independent  accountant.  Effective May 6, 2003, we engaged
Schwartz Levitsky Feldman LLP ("SLF") as our new independent accountants.  China
Automotive's  Board of  Directors  approved  the  dismissal  of  Ibarra  and the
engagement of SLF.                                                              

         Prior  to  SLF  becoming  our  independent  accountants,  SLF  was  not
consulted  by us or anyone on our behalf  regarding  either the  application  of
accounting principles to a specific or contemplated transaction,  or the type of
audit opinion that might be rendered on our financial statements;  or any matter
that  was the  subject  of a  disagreement  or  event  as  defined  at Item  304
(a)(1)(iv) of Regulation S-B.                                                   

         Ibarra  audited our  financial  statements  for the fiscal  years ended
December 31, 2001 and 2002.  Ibarra's  reports for these periods did not contain
an adverse  opinion or a disclaimer  of opinion,  nor were they  qualified as to
audit scope or accounting  principles,  except that reports  indicated  that our
losses from operations raised  substantial doubt about its ability to operate as
a going concern.                                                                

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         During  the  fiscal  years  ended  December  31,  2001 and 2002 and the
interim  period  from  January  1,  2003  through  May 6,  2003,  there  were no
disagreements  with Ibarra on any matter of accounting  principles or practices,
financial  statement   disclosure,   or  auditing  scope  or  procedure,   which
disagreements,  if not resolved to the satisfaction of Ibarra, would have caused
such  firm to make  reference  to the  subject  matter of the  disagreements  in
connection with its report on our financial statements.  In addition, there were
no such events as described under Item 304(a)(1)(IV)(B) of Regulation S-B during
the fiscal years ended  December  31, 2002 and 2001 and the interim  period from
January 1, 2003 through May 6, 2003.                                            

ITEM 8A. CONTROLS AND PROCEDURES                                                

         (a) Evaluation of disclosure  controls and  procedures:  As of December
31, 2003,  the end of the period  covered by this report,  the  Company's  chief
executive  officer and its chief  financial  officer  reviewed and evaluated the
effectiveness of the Company's disclosure controls and procedures (as defined in
Exchange Act Rule  13a-15(e) and  15d-15(e)),  which are designed to ensure that
material  information the Company must disclose in its report filed or submitted
under the Securities  Exchange Act of 1934, as amended (the  "Exchange  Act") is
recorded,  processed,  summarized,  and  reported  on a timely  basis,  and have
concluded,  based  on  that  evaluation,  that as of such  date,  the  Company's
disclosure  controls and procedures  were  effective to ensure that  information
required  to be  disclosed  by the  Company in reports  that it files or submits
under the Exchange Act is accumulated  and  communicated  to the Company's chief
executive  officer and chief  financial  officer as  appropriate to allow timely
decisions regarding required disclosure.                                        

         (b) Changes in internal  controls  over  financial  reporting:  For the
fiscal year ended  December 31, 2003,  there has been no change in the Company's
internal control over financial  reporting that has materially  affected,  or is
reasonably  likely to materially  affect,  its internal  control over  financial
reporting.                                                                      

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS OF THE REGISTRANT MANAGEMENT              

         The  following  table  and text set  forth  the  names  and ages of all
directors  and  executive  officers of the Company as of December 31, 2003.  The
Board of Directors is comprised  of only one class.  All of the  directors  will
serve until the next annual meeting of stockholders  and until their  successors
are elected and qualified, or until their earlier death, retirement, resignation
or  removal.  Also  provided  herein  are  brief  descriptions  of the  business
experience of each director and executive officer during the past five years and
an indication of directorships  held by each director in other companies subject
to the reporting requirements under the Federal securities laws.                

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Name                    Age         Position(s)                 

        Hanlin Chen             46          Chief Executive Officer and Chairman
                    of the Board
        Qizhou Wu               39          Chief Operating Officer and Director
Guofu Dong              38          Vice President and Director 
Daming Hu               45          Chief Financial Officer     
Li Ping Xie             43          Director                    
Tse Yiu Wong Andy       33          Sr. VP, Director            
Robert Tung             47          Director                    
Dr. Haimian Cai         40          Director                    
William E. Thomson      62          Director                    

Biographies of Directors and Executive Officers:                                

         Hanlin  Chen has served as a chairman  of the board and CEO since March
2003. Mr. Chen is a standing board member of Political  Consulting  Committee of
Jingzhou  city and vice  president  of Foreign  Investors  Association  of Hubei
Province.  He was the general manager of Jiulong from 1993 to 1997.  Since 1997,
he has been the  Chairman  of the Board of  Henglong.  Mr. Chen  graduated  from
Barrington University with an MBA degree.                                       

       Qizhou Wu has served as the Chief Operating Officer since March 2003.
He was the Managing Vice General Manager of Jiulong from 1993 to 1999 and GM of 
Henglong from 1999 to 2002.Mr. Wu graduated from Tsinghua University in Beijing 
with a Masters degree in Automobile Engineering.                                

         Guofu Dong has served the Vice  President  of the Company and  oversees
general  management,  international  business and investor relations since March
2003.  Mr.  Dong has over ten  years  experience  in  corporate  management  and
strategic  development.  Mr. Dong graduated from Fujian Normal University with a
Bachelor of Arts degree. He also completed his law degree in Fudan University.  

         Daming Hu has served as Chief  Financial  Officer of the Company  since
March 2003.  He is in charge of corporate  account  planning,  reporting and tax
planning.  Mr. Hu was the  Finance  Manager  of  Jiulong  since 1996 to 1999 and
Finance Manager of HengLong from 1999 to 2002.                                  

         Li Ping Xie has served as a director of the  Company  since March 2003.
She is the Vice GM of  Xiamen  Joylon  Co.,Ltd.  She was the  Vice GM at  Xiamen
Jiayum Auto-parts  Repairing Company from 1990-1999.  Ms. Xie is the wife of our
Chief Executive Officer, Mr. Hanlin Chen.                                       

         Tse Yiu Wong Andy,  has  served as Sr. VP of the  Company  since  March
2003.  He has also served as the  general  manager of the  Henglong  and Jiulong
joint  ventures and the Chairman of the Board of Shenyang since 2003. He was the
vice GM of Jiulong  from 1993 to 1997 and the vice GM of  henglong.  Mr. Tse has
over 10 years of experience in automotive parts sales and strategic development.
Mr. Tse has an MBA from the China People University.                            

         Robert Tung has been a Director of the Company since September 2003 and
a member of the Company's Audit Committee, Compensation Committee and Nominating
Committee.  Mr. Tung is currently the President of  Multi-Media  Communications,
Inc. and Executive Vice  President of Super  Microbial  Sciences  International,
LLC.  Mr. Tung holds an M.S.  in Chemical  Engineering  from the  University  of
Virginia and B.S. degrees in Computer Science and Chemical  Engineering from the
University of Maryland and National Taiwan University, respectively.            

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         Dr. Haimian Cai has been a Director  since  September 2003 and a member
of  the  Company's  Audit  Committee,   Compensation  Committee  and  Nominating
Committee.  Mr. Cai is a technical specialist in the automotive industry.  Prior
to that, Dr. Cai was a staff  engineer in ITT  Automotive  Inc. Dr. Cai has more
than fifteen  technical  papers and  co-authored a technical  book regarding the
powder of metallurgy industry for automotive application.  Dr. Cai has more than
ten patents including pending patents. Dr. Cai holds a B.S. Degree in Automotive
Engineering  from  Tsing-Hua  University  and a M.S.  and Ph.D in  manufacturing
engineering from Worcester Polytechnic Institute.                               

         William  E.  Thomson,  CA has  been a  Director  of the  Company  since
September  2003  and  is a  member  of the  Company's  Audit,  Compensation  and
Nominating Committees. Mr. Thomson has been the president of Thomson Associates,
Inc., a merchant banking company,  since 1978. Mr. Thomson's current  additional
directorships include:  Nasdaq - Med-Emerg International Inc. chm. (Healthcare),
Acto Digital Video (USA) Inc.  (Consumer  Electronics),  Maxus  Technology  Inc.
(Technology Waste Recycling); TSX - Asia Media Group Ltd. Chm. (Media), Imperial
Plastech Inc. (Plastics); Crown Corp. - Aurora Fund (Venture Capital); Private -
Delfour Corporation (Software), Electrical Contracts Ltd. (Electrical Contacts),
Redpearl Funding Corporation (IT Financing),  Wright Environment Management Inc.
(Waste Management  Solutions);  Charitable - Opera Mississauga,  World Education
Services.                                                                       

(a)      Compensation and Other Matters                                         

         In 2003, directors received $5,000 per quarter for serving on the Board
of Directors.  In addition they were reimbursed for any out-of-pocket  expenses,
if any, incurred in attending board meetings.                                   

(b)      Audit Committee and Independent Directors                              

         The Audit Committee consists of the following individuals,  all of whom
the Company considers to be independent:  Robert Tung,  Haimian Cai, and William
Thomson.                                                                        

(c)      Compensation Committee                                                 

         The Compensation Committeee is responsible for determining compensation
for our  executive  officers.  Our three  independent  directors,  Robert  Tung,
Haimian Cai and William Thomson serve on the Compensation Committee.            

(d)      Nominating Committee                                                   

         Director  candidates  are nominated by the  Nominating  Committee.  The
Nominating  Committee  will consider  candidates  based upon their  business and
financial experience, personal characteristics,  expertise that is complementary
to the background  and experience of other Board members,  willingness to devote
the required  amount of time to carrying out the duties and  responsibilties  of
Board membership,  willingness to objectively  appriase management  performance,
and any such other  qualifications  the Nomianting  Committee deems necessary to
ascertain the candidates ability to serve on the Board. The Nominating Committee
will not consider nominee  recommendations from security holders, other than the
recommendations  received  from a security  holder or group of security  holders
that beneficially owned more than five (5) percent of the Company's  outstanding
common  stock for at least one year as of the date the  recommendation  is made.
Our independent  directors,  Robert Tung, Haimian Cai and William Thomson, serve
on the Nominating Committee.                                                    

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(e)      Stockholder Communications                                             

         Stockholders  interested  in  communicating  directly with the Board of
Directors, or specified individual directors, may email our independent director
William  Thomson at  Bill.Thomson@chl.com.cn.  Mr.  Thomson will review all such
correspondence  and will  regularly  forward  to the  Board  copies  of all such
correspondence  that deals with the functions of the Board or committees thereof
or that he otherwise  determines requires their attention.  Directors may at any
time review all of the  correspondence  received that is addressed to members of
the Board of  Directors  and  request  copies of such  correspondence.  Concerns
relating to accounting,  internal  controls or auditing matters will immediately
be brought to the  attention of the Audit  Committee  and handled in  accordance
with procedures established by the Audit Committee with respect to such matters.

(f)      Family Relationships                                                   

Mr. Chen and Ms. Xie are husband and wife.                    

(g)      Involvement in Legal Proceedings                                       

         To the best of the  Company's  knowledge,  during the past five  years,
none of the following  occurred with respect to a present or former  director or
executive  officer  of the  Company:  (1) any  bankruptcy  petition  filed by or
against any  business of which such  person was a general  partner or  executive
officer  either at the time of the  bankruptcy or within two years prior to that
time; (2) any conviction in a criminal  proceeding or being subject to a pending
criminal proceeding (excluding traffic violations and other minor offenses); (3)
being  subject to any order,  judgment  or decree,  not  subsequently  reversed,
suspended or vacated, of any court of any competent jurisdiction, permanently or
temporarily enjoining, barring, suspending or otherwise limiting his involvement
in any type of business,  securities or banking activities;  and (4) being found
by a  court  of  competent  jurisdiction  (in a  civil  action),  the SEC or the
Commodities  Futures  Trading  Commission  to have  violated  a federal or state
securities or commodities law, and the judgment has not been reversed, suspended
or vacated.                                                                     

(e)      Code of Ethics and Conduct                                             

       The Board of Directors has adopted a Code of Ethics and Conduct which
is applicable to all officers directors and employees. The Code of Ethics and   
Conduct is attached to this Form 10-K as an Exhibit.                            

(F)      Section 16(a) Beneficial Ownership Compliance                          

         Section  16(a) of the  Securities  Exchange  Act of 1934,  as  amended,
requires our executive  officers and directors and persons who own more than 10%
of a registered  class of our equity  securities to file with the Securities and
Exchange  Commission  initial  statements  of beneficial  ownership,  reports of
changes in ownership and annual  reports  concerning  their  ownership of common
stock  and other of our  equity  securities,  on Forms 3, 4 and 5  respectively.
Executive officers,  directors and greater than 10% stockholders are required by
Commission  regulations  to furnish the Company with copies of all Section 16(a)
reports they file. To the best of our  knowledge  (based solely upon a review of
the Form 3, 4 and 5 filed), no officer,  director or 10% beneficial  shareholder
failed to file on a timely  basis any reports  required by Section  16(a) of the
Securities Exchange Act of 1934, as amended.                                    

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ITEM 10.  EXECUTIVE COMPENSATION                                                                                       

         The following  Summary  Compensation  Table sets forth the compensation                                       
earned by the Company's Chief Executive Officer.  No other executive  officer(s)                                       
received compensation for the fiscal year 2003 in excess of $100,000.                                                  

                           SUMMARY COMPENSATION TABLE                                                                  

                                         Annual Compensation                        Long-Term Compensation             
                                 ------------------------------------    ----------------------------------------------
                                                                                  Awards                  Payouts      
                                                                         ------------------------   -------------------
                                                                                       Securities                      
                                                                Other                     Under-       All             
                                                               Annual     Restricted      lying       Other            
                                                               Compen-       Stock       Options/     LTIP      Compen-
    Name and                       Salary         Bonus        sation      Award(s)        SARs      Payouts    sation 
Principal Position     Year          ($)           ($)          ($)          ($)          (#)         ($)         ($)  
       (a)              (b)          (c)           (d)          (e)          (f)          (g)         (h)         (i)  
------------------    ------     -----------    --------      -------    ----------   ----------    -------     -------
                                                                                                                       
Hanlin Chen            2003       49,885.00        -0-          0             0            0           0           0   

Hanlin Chen            2002       15,883.00       1,237         0             0            0           0           0   

Hanlin Chen            2001        5,564.00       1,087         0             0            0           0           0   

         There are no employment  agreements with any of our executive  officers
and there are no stock option grants.                                           

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

         As used in this section,  the term beneficial ownership with respect to
a security is defined by Rule 13d-3 under the  Securities  Exchange Act of 1934,
as amended, as consisting of sole or shared voting power (including the power to
vote or direct the vote) and/or sole or shared  investment  power (including the
power to dispose of or direct the  disposition  of) with respect to the security
through any contract,  arrangement,  understanding,  relationship  or otherwise,
subject to community property laws where applicable. The percentage ownership is
based on 22,064, 686 shares outstanding at December 31, 2003.                   

                                              Total Number            Percentage
           Name/Title                          of Shares               Ownership

Hanlin Chen, CEO, Chairman and President      13,280,547                 60.2%  
Qizhou Wu, COO, Director                       2,195,996                  9.9%  
Guofu Dong,  Vice President, Director            627,429                  2.8%  
Daming Hu, CFO                                     --                     --    
Liping Xie, Director                           2,091,425                  9.4%  
Tse Yiu Wong Andy, Sr.VP, Director             1,359,426                  6.1%  
Robert Tung, Director                              --                     --    
Dr. Haimian Cai, Director                          --                     --    
William E. Thomson, Director                       --                     --    
All Directors and Executive Officers          19,554,823                 88.6%  
(9 persons)                                                                     

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     At December 31, 2003 we did not have any equity compensation plans.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.                       

         Effective August 2, 2003, the Company entered into a five-year  License
and Technical  Assistance  Agreement (the "Agreement") with Sino-American,  Inc.
("Sino-American"),  a United States company controlled by the Company's Chairman
and  controlling  shareholder.  The  Agreement  provided  for total  payments of
$6,000,000  to  enable   Sino-American  to  purchase  technical  assistance  and
equipment for use in the Company's business operations in China. During November
2003,  $2,000,000  was paid by the  Company  to  Sino-American,  which  has been
classified as advance payments in the consolidated balance sheet at December 31,
2003, net of amounts expended through such date.                                

ITEM 13. EXHIBITS AND REPORTS ON 8K.                                            

(a)      Exhibits                                                               

         The following is a list of exhibits filed as part of this Annual Report
on Form 10-KSB.  Where so indicated by footnote,  exhibits that were  previously
filed are incorporated by reference.                                            

Exhibit Number                                   Description                    

      3.1         Certificate of Incorporation, Incorporated herein by reference
                  from  the  filing  on  Form  filing  on  Form  10SB  File  No.
000-33123.                                  

      3.2         Certificate of Amendment to the Certificate of  Incorporation,
                  incorporated  herein by reference  from the Filing on Schedule
     14C, filed with the Commission on April 21, 2004.

      4.1         Share Exchange  Agreement,  dated March 5, 2003,  incorporated
                  herein by reference from the Filing on Form 8-K filed with the
Commission on March 5, 2003.                

10.1        Purchase Contract for Futian Automobile Parts*          

10.2        Purchase Contract for Chery Automobile Parts*           

  10.3        Purchase Contract for Shenyang Brillance Hance Automotive*

      10.4        License and  Technical  Assistant  Agreement  Between  Namyang
                  Industrial Co., Ltd. and Jingzhou Heng Long  Automotive  Parts
Co., Ltd.*                                  

      10.5        License Agreement between Bishop Steering  Technology  Limited
and Jingzhon Henglong Automotive Parts.*    

23.1        Subsidiaries of the Company*                            

      31.1        Certification  under Section 302 of the  Sarbanes-Oxley Act of
2002*                                       

      31.2        Certification  under Section 302 of the  Sarbanes-Oxley Act of
2002*                                       

      32.1        Certification  under Section 906 of the  Sarbanes-Oxley Act of
2002*                                       

      32.2        Certification  under Section 906 of the  Sarbanes-Oxley Act of
2002*                                       

99.1        Code of Conduct and Ethics*                             

99.2        Audit Committee Charter*                                

---------------------------                                                     
*Filed herewith                                                                 

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(b) Reports on Form 8-K.                                                        

None.                                                         

ITEM 14.   PRINCIPAL ACCOUNTANT FEES AND SERVICES                               

         The  following  table sets forth the  aggregate  fees for  professional
audit services  rendered by Schwartz  Levitsky Feldman LLP ("SLF") for the audit
of the Company's financial  statements for the years ended December 31, 2003 and
2002,  and fees  billed for other  services  provided by SLF for the years ended
December 31, 2003 and 2002. Certain amounts for the year ended December 31, 2002
have been reclassified to conform to the new presentation requirements.         

                          Years Ended December 31,
                          ------------------------
                          2003          2002
                          ----------    ----------

 Audit Fees               $  140,000    $   78,763
Audit-Related Fees (1)       21,000          -- 
Tax Fees (2)                   --            -- 
All Other Fees                5,750          -- 
                          ----------    ----------
 Total Fees Paid          $  166,750    $   78,763
                          ==========    ==========

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

(1)  Includes accounting and reporting consultations related to acquisitions and
internal control procedures.                                          

(2)  Includes fees for service related to tax compliance  services,  preparation
and filing of tax returns and tax consulting services.                

Audit Committee's Pre-Approval Policy                         

         During the year ended  December  31, 2003,  the Audit  Committee of the
Board of Directors  adopted  policies and procedures for the pre-approval of all
audit and non-audit  services to be provided by our independent  auditor and for
the  prohibition  of certain  services  from being  provided by the  independent
auditor.  We may not  engage  our  independent  auditor  to render  any audit or
non-audit  service  unless  the  service  is  approved  in  advance by the Audit
Committee or the  engagement  to render the service is entered into  pursuant to
the Audit Committee's pre-approval policies and procedures.  On an annual basis,
the Audit Committee may pre-approve services that are expected to be provided to
the Company by the independent  auditor during the fiscal year. At the time such
pre-approval is granted, the Audit Committee specifies the pre-approved services
and  establishes a monetary limit with respect to each  particular  pre-approved
service,  which limit may not be exceeded without obtaining further pre-approval
under the policy.  For any pre-approval,  the Audit Committee  considers whether
such  services  are  consistent  with the rules of the  Securities  and Exchange
Commission on auditor independence.                                             

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SIGNATURES

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

                                      CHINA AUTOMOTIVE SYSTEMS, INC.

Dated: October 20, 2004                     /s/ Hanlin Chen                     
                                            ------------------------------------
                          Name:  Hanlin Chen
                                            Title:   Chairman, CEO and President

         In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the  following  persons on behalf of the Company and in the
capacities and on the dates indicated.                                          

Dated:  October20, 2004                     /s/ Hanlin Chen                     
                                            ------------------------------------
                          Name:  Hanlin Chen
                                            Title:   Chairman, CEO and President

Dated:  October20, 2004                     /s/ Daming Hu                       
                                            ------------------------------------
                         Name:  Damming Hu
                     Title:    CFO

Dated:  October 20, 2004                    /s/ Qizhou Wu                       
                                            ------------------------------------
                        Name:  Qizhou Wu
                               Title:    COO, Director

Dated:  October 20, 2004                    /s/ Guofu Dong                      
                                            ------------------------------------
                         Name:  Guofu Dong
                                         Title:  Vice President,  Director

Dated:  October 20, 2004                    /s/ Liping Xie                      
                                            ------------------------------------
                         Name:  Liping Xie
                          Title:    Director

Dated:  October 20, 2004                    /s/ Tse Yiu Wong Andy               
                                            ------------------------------------
                                Name:  Tse Yiu Wong Andy
                                 Title:    ST.VP, Director

Dated:  October 20, 2004                    /s/ Robert Tung                     
                                            ------------------------------------
                         Name: Robert Tung
                        Title:  Director

Dated:  October 20, 2004                    /s/ Dr. Haimian Cai                 
                                            ------------------------------------
                             Name: Dr. Haimian Cai
                        Title:  Director

Dated:  October 20, 2004                    /s/ William E. Thomson              
                                            ------------------------------------
                                 Name:  William E. Thomson
                        Title:  Director

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 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of                                   
China Automotive Systems, Inc.                                                  
(Formerly Visions-In-Glass, Inc.)                                               
(Successor to Ji Long Enterprise Investment Limited)                            

We have audited the accompanying  revised  consolidated  balance sheets of China
Automotive Systems, Inc.  (incorporated in Delaware) as at December 31, 2003 and
2002 and the revised related consolidated  statements of operations,  cash flows
and stockholders' equity for each of the years ended December 31, 2003 and 2002.
Our  responsibility  is to express an  opinion on these  consolidated  financial
statements based on our audits.                                                 

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

In our opinion, the revised consolidated  financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
China Automotive Systems,  Inc. as at December 31, 2003 and 2002 and the results
of its  operations  and its cash flows for each of the years ended  December 31,
2003 and 2002 in conformity  with United States  generally  accepted  accounting
principles.                                                                     

As discussed in note 2 to the consolidated  financial  statements,  the basis of
presentation  has changed from the equity method of accounting for the Company's
investments in 2002, to the consolidation method of accounting in 2003.         

Toronto, Ontario, Canada                                                        
February 14, 2004 except for note 18,            "Schwartz Levitsky Feldman llp"
   as to which the date is April 1, 2004 and               Chartered Accountants
note 22, as to which the date is October 26, 2004                               

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 China Automotive Systems, Inc. and Subsidiaries
 Consolidated Balance Sheets
December 31, 2003 and 2002

                                                  2003            2002
                                                  ------------    ------------
                                                                   (Restated -
                                                                  Note 21)

ASSETS                                                                          

Current assets:                                                                 
Cash and cash equivalents                        $ 10,730,882    $       -- 
Pledged cash deposits                               1,272,067            -- 
Accounts and notes receivable,                                              
including $1,248,328 from                                               
related parties, net of an                                              
allowance for doubtful                                                  
 accounts of $2,757,374                           38,680,011            --
Advance payments, including                                                 
$1,513,973 to related                                                   
parties, net of an                                                      
allowance for doubtful                                                  
 accounts of $191,364                              9,980,367            --
Inventories                                        10,229,422            -- 
                                                  ------------    ------------
Total current assets                                 70,892,749            --   
                                                  ------------    ------------

Property, plant and equipment                        28,050,079         316,000 
Less:  Accumulated depreciation                      (5,700,023)        (32,000)
                                                  ------------    ------------
                                                    22,350,056         284,000
                                                  ------------    ------------

Equity investments in joint ventures                       --        19,078,000 
Intangible assets, net                                  218,639            --   
Other receivables, including                                                    
$1,472,758 to related parties,                                              
net of an allowance for doubtful                                            
 accounts of $1,053,047 in 2003                      2,313,017          65,000
Long-term investments                                    72,289            --   
                                                  ------------    ------------
Total assets                                       $ 95,846,750    $ 19,427,000 
                                                  ============    ============

 (continued)

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 China Automotive Systems, Inc. and Subsidiaries
 Consolidated Balance Sheets (continued)
December 31, 2003 and 2002

                                                  2003            2002
                                                  ------------    ------------
                                                                   (Restated -
                                                                    Note 21)

LIABILITIES AND STOCKHOLDERS' EQUITY                                            

Current liabilities:                                                            
Bank loans                                       $  9,638,554    $       -- 
Accounts and notes payable,                                                 
including $1,175,006 to                                                 
 related parties                                  23,017,221            --
Customer deposits                                     907,519            -- 
Accrued payroll and related costs                   1,173,576            -- 
Accrued expenses and other payables                 1,992,207            -- 
Accrued pension costs                               1,516,649            -- 
Liability related to acquisition of                                         
joint venture assets                              1,204,819             
Taxes payable                                       6,268,803            -- 
Amounts due to                                                              
   shareholders/directors                            5,229,281      13,330,000
                                                  ------------    ------------
Total current liabilities                            50,948,629      13,330,000 
                                                  ------------    ------------

Long-term liabilities                                   196,547            --   

Minority interest                                    18,686,712            --   

Stockholders' equity:                                                           
Preferred stock, $0.0001 par value -                                            
Authorized - 20,000,000 shares                                              
Issued and outstanding - None                            --              -- 
Common stock, $0.0001 par value -                                               
Authorized - 80,000,000 shares                                              
Issued and Outstanding -                                                    
22,574,542 shares and 20,914,250                                            
shares at December 31, 2003 and                                         
   2002, respectively                                    2,257           2,091
Additional paid-in capital                           18,779,880         433,909 
Retained earnings -                                                             
 Appropriated                                        3,775,254       3,186,000
 Unappropriated                                      3,461,621       2,475,000
Foreign currency translation loss                        (4,150)           --   
                                                  ------------    ------------
Total stockholders' equity                           26,014,862       6,097,000 
                                                  ------------    ------------
Total liabilities and stockholders'                                             
 equity                                           $ 95,846,750    $ 19,427,000
                                                  ============    ============

See accompanying notes to consolidated financial statements.

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 China Automotive Systems, Inc. and Subsidiaries
 Consolidated Statements of Operations
Years Ended December 31, 2003 and 2002

                                                   2003           2002
                                                   ------------   ------------
                                                                   (Restated -
                                                                    Note 21)

Net sales, including $3,268,978                                                 
sold to related parties                           $ 55,327,174   $       -- 

Cost of sales, including $2,106,814                                             
purchased from related parties                      30,400,201           -- 
                                                   ------------   ------------
Gross profit                                        24,926,973           -- 
                                                   ------------   ------------

Costs and expenses:                                                             
Selling                                              2,733,425           -- 
 General and administrative                           7,722,505          1,000
Research and development                             1,017,031           -- 
Depreciation and amortization                        1,367,170           -- 
Stock-based compensation                             1,300,000           -- 
                                                   ------------   ------------
 Total costs and expenses                            14,140,131          1,000
                                                   ------------   ------------
Income (loss) from operations                         10,786,842         (1,000)
                                                   ------------   ------------

Other income (expense):                                                         
 Equity income of joint ventures                           --        4,160,000
Other non-operating income                             534,047           -- 
Financial expenses                                     344,723           -- 
                                                   ------------   ------------
 Other income, net                                      189,324      4,160,000
                                                   ------------   ------------
Income before income taxes                            10,976,166      4,159,000 

Income taxes                                           1,750,940           --   
                                                   ------------   ------------
Income before minority interest                        9,225,226      4,159,000 

Minority interest                                      5,353,957           --   
                                                   ------------   ------------
Net income                                          $  3,871,269   $  4,159,000 
                                                   ============   ============

Net income per common share -                                                   
 Basic and diluted                                 $       0.18   $       0.20
                                                   ============   ============

Weighted average common                                                         
shares outstanding -                                                        
 Basic and diluted                                   21,846,034     20,914,250
                                                   ============   ============

See accompanying notes to consolidated financial statements.

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 China Automotive Systems, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
Years Ended December 31, 2003 and 2002

                                                     2003           2002
                                                      -----------    -----------
                                                                     (Restated -
                                                                      Note 21)

Net income                                            $ 3,871,269    $ 4,159,000

Other comprehensive loss:                                                       
Foreign currency translation loss                        (4,150)          --
                                                      -----------    -----------
Comprehensive income                                  $ 3,867,119    $ 4,159,000
                                                      ===========    ===========

See accompanying notes to consolidated financial statements.

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                 China Automotive Systems, Inc. and Subsidiaries                                                  
                 Consolidated Statements of Stockholders' Equity                                                  
                     Years Ended December 31, 2002 and 2003                                                       

                                        Common Stock                    Preferred Stock              Additional   
                               -------------------------------   -------------------------------      Paid-in     
                                   Shares          Par Value         Shares          Par Value        Capital     
                               --------------   --------------   --------------   --------------   -------------- 
                                                                                                                  
Balance, January 1, 2002           20,914,250   $        2,091             --     $          --    $    7,174,909 
Net income for the year                                                                                           
  ended December 31, 2002                --               --               --                --              --   
Dividends declared                       --               --               --                --              --   
Deemed distribution to                                                                                            
  shareholder                            --               --               --                --        (6,741,000)
Appropriation of retained                                                                                         
  earnings                               --               --               --                --              --   
                               --------------   --------------   --------------   --------------   -------------- 
Balance, December 31, 2002         20,914,250            2,091             --                --           433,909 
Adjustment as a result of                                                                                         
  recapitalization of                                                                                             
  company in conjunction                                                                                          
  with reverse merger                    --               --               --                --          (279,863)
Dividends declared                       --               --               --                --              --   
 Cancellation of dividends                                                                                        
  previously declared                    --               --               --                --        17,167,000 
Shares of common stock                                                                                            
  retained by public                                                                                              
  shareholders in March                                                                                           
  2003 reverse merger                                                                                             
  transaction                       1,100,750              110             --                --              (110)
Issuance of warrants for                                                                                          
  consulting services                    --               --               --                --         1,300,000 
Sale of common stock for                                                                                          
  cash                                 49,686                5             --                --           158,995 
Exercise of warrants on a                                                                                         
  cashless basis                      509,856               51             --                --               (51)
Foreign currency translation                                                                                      
  loss                                   --               --               --                --              --   
Net income for the year                                                                                           
  ended December 31, 2003                --               --               --                --              --   
Appropriation of retained                                                                                         
  earnings                               --               --               --                --              --   
                               --------------   --------------   --------------   --------------   -------------- 
Balance, December 31, 2003         22,574,542   $        2,257             --     $          --    $   18,779,880 
                               ==============   ==============   ==============   ==============   ============== 

                                   (continued)                                                                    

                                       F-6                                                                        

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                 China Automotive Systems, Inc. and Subsidiaries                                                  
           Consolidated Statements of Stockholders' Equity (continued)                                            
                     Years Ended December 31, 2002 and 2003                                                       

                                                                     Foreign                                      
                                    Retained  Earnings               Currency                                     
                               -------------------------------      Translation                                   
                                Appropriated    Unappropriated      Gain (Loss)        Total                      
                               --------------   --------------    --------------    ------------                  

Balance, January 1, 2002       $    2,881,000   $    2,230,000    $         --      $ 12,288,000                  
Net income for the year                                                                                           
  ended December 31, 2002                --          4,159,000              --         4,159,000                  
Dividends declared                       --         (3,609,000)             --        (3,609,000)                 
Deemed distribution to                                                                                            
  shareholder                            --               --                --        (6,741,000)                 
Appropriation of retained                                                                                         
  earnings                            305,000         (305,000)             --              --                    
                               --------------   --------------    --------------    ------------                  
Balance, December 31, 2002          3,186,000        2,475,000              --         6,097,000                  
Adjustment as a result of                                                                                         
  recapitalization of                                                                                             
  company in conjunction                                                                                          
  with reverse merger                    --               --                --          (279,863)                 
Dividends declared                       --         (2,295,394)             --        (2,295,394)                 
 Cancellation of dividends                                                                                        
  previously declared                    --               --                --        17,167,000                  
Shares of common stock                                                                                            
  retained by public                                                                                              
  shareholders in March                                                                                           
  2003 reverse merger                                                                                             
  transaction                            --               --                --              --                    
Issuance of warrants for                                                                                          
  consulting services                    --               --                --         1,300,000                  
Sale of common stock for                                                                                          
  cash                                   --               --                --           159,000                  
Exercise of warrants on a                                                                                         
  cashless basis                         --               --                --              --                    
Foreign currency translation                                                                                      
  loss                                   --               --              (4,150)         (4,150)                 
Net income for the year                                                                                           
  ended December 31, 2003                --          3,871,269              --         3,871,269                  
Appropriation of retained                                                                                         
  earnings                            589,254         (589,254)             --              --                    
                               --------------   --------------    --------------    ------------                  
Balance, December 31, 2003     $    3,775,254   $    3,461,621    $       (4,150)   $ 26,014,862                  
                               ==============   ==============    ==============    ============                  

See accompanying notes to consolidated financial statements.

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 China Automotive Systems, Inc. and Subsidiaries
 Consolidated Statements of Cash Flows
Years Ended December 31, 2003 and 2002

                                                   2003           2002
                                                    -----------    -----------
                                                                   (Restated -
                                                                    Note 21)

Cash flows from operating activities:                                           
Net income                                           $ 3,871,269    $ 4,159,000 
Adjustments to reconcile net income                                             
to net cash provided by operating                                           
activities:                                                                 
    Equity income of joint ventures                         --       (4,160,000)
 Minority shareholders' interests                   5,353,957           --
 Issuance of warrants to consultants                1,300,000           --
 Depreciation and amortization                      2,465,853           --
 Provision for doubtful accounts                      777,841           --
 Other operating adjustments                          (34,492)          --
Changes in operating assets and                                         
liabilities:                                                        
(Increase) decrease in:                                             
     Pledged deposits                               1,272,067           --
     Accounts receivable                           (8,458,197)          --
     Inventories                                   (1,028,046)          --
Increase (decrease) in:                                             
Accounts payable, accrued                                       
expenses, customer deposits                                 
       and other payables                          (7,359,943)          --
     Accrued pension costs                            755,692           --
Liability related to acquisition                                
       of joint venture assets                      1,204,819           --
     Taxes payable                                  3,608,220           --
     Long-term liabilities                            196,547           --
                                                    -----------    -----------
Net cash provided by (used in)                                                  
  operating activities                                 3,925,587         (1,000)
                                                    -----------    -----------

Cash flows from investing activities:                                           
  Increase in other receivables                       (1,215,606)       (51,000)
Cash paid to acquire fixed assets                   (8,843,129)          -- 
Cash paid to acquire intangible assets                (328,228)          -- 
Decrease in long-term investments                    1,189,157           -- 
                                                    -----------    -----------
Net cash used in investing activities                 (9,197,806)       (51,000)
                                                    -----------    -----------

 (continued)

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 China Automotive Systems, Inc. and Subsidiaries
 Consolidated Statements of Cash Flows (continued)
Years Ended December 31, 2003 and 2002

                                                  2003            2002
                                                  ------------    ------------
                                                                   (Restated -
                                                                    Note 21)

Cash Flows from financing activities:                                           
Proceeds from bank loans, net                    $  6,101,410    $       -- 
Dividends paid                                     (2,646,632)           -- 
Increase in amounts due to                                                  
   shareholders/directors                            6,770,887          52,000
Proceeds from sale of common stock                    159,000            -- 
                                                  ------------    ------------
Net cash provided by financing activities            10,384,665          52,000 
                                                  ------------    ------------

Cash and cash equivalents:                                                      
Net increase                                        5,112,446            -- 
At beginning of year                                     --              -- 
Adjustment as a result of change                                            
to consolidation accounting                                             
from equity accounting                                                  
 effective January 1, 2003                         5,618,436            --
                                                  ------------    ------------
At end of year                                     $ 10,730,882    $       --   
                                                  ============    ============

 (continued)

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 China Automotive Systems, Inc. and Subsidiaries
 Consolidated Statements of Cash Flows (continued)
Years Ended December 31, 2003 and 2002

                                                  2003            2002
                                                  ------------    ------------
                                                                   (Restated -
                                                                    Note 21)

SUPPLEMENTAL DISCLOSURE OF                                                      
CASH FLOW INFORMATION:                                                      

Cash paid for interest                             $    399,610    $       --   
                                                  ============    ============

Cash paid for income taxes                         $  3,591,925    $       --   
                                                  ============    ============

SUPPLEMENTAL DISCLOSURE OF                                                      
NON-CASH INVESTING AND                                                      
FINANCING ACTIVITIES:                                                       

Acquisition of interest in                                                      
joint venture from                                                          
 controlling shareholder                          $       --      $  9,631,000

Advances from shareholder to                                                    
fund investments in joint                                                   
 ventures                                                 --         3,040,000

Cancellation of dividends                                                       
previously declared                                17,167,000            -- 

Shares of common stock                                                          
retained by public                                                          
shareholders in March                                                       
2003 recapitalization                                     110            -- 

Exercise of warrants on                                                         
a cashless basis                                           51            -- 

Dividends declared                                   (2,295,394)     (3,609,000)

Advances from shareholders in                                                   
connection with dividends                                                   
 declared                                            2,295,394       3,609,000

Deemed distribution to shareholders                    (279,863)      6,741,000 

Issuance of warrants to consultants                   1,300,000            --   

See accompanying notes to consolidated financial statements.

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 China Automotive Systems, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Years Ended December 31, 2003 and 2002

1.   Organization and Business                                                  

Effective March 5, 2003, Visions-In-Glass,  Inc., a United States public company
incorporated in the State of Delaware ("Visions"), entered into a Share Exchange
Agreement to acquire 100% of the  shareholder  interest in Great Genesis Holding
Limited, a company incorporated on January 3, 2003 under The Companies Ordinance
in Hong Kong as a limited  liability company ("Great  Genesis"),  as a result of
which Great Genesis became a wholly-owned subsidiary of Visions. At the closing,
the old  directors  and  officers of Visions  resigned,  and new  directors  and
officers  were  appointed.  Visions  subsequently  changed  its  name  to  China
Automotive Systems, Inc.                                                        

China Automotive Systems,  Inc.,  including,  when the context so requires,  its
subsidiaries and the subsidiaries'  interests in the Sino-foreign joint ventures
described  below, is referred to herein as the "Company".  The Company,  through
its Sino-foreign  joint ventures  described  below, is primarily  engaged in the
manufacture  and sale of  automotive  systems  and  components  in the  People's
Republic of China (the "PRC" or "China") as described below.                    

Ji Long Enterprise  Investment Limited was incorporated on October 8, 1992 under
the Companies Ordinance in Hong Kong as a limited liability company ("Ji Long").
Ji Long is an investment  holding  company.  Effective March 4, 2003, all of the
shareholders  of Ji Long exchanged  their 100%  shareholder  interest for a 100%
shareholder  interest  in Great  Genesis,  as a result of which Ji Long became a
wholly-owned subsidiary of Great Genesis.                                       

In exchange for the  acquisition  of 100% of the  shareholder  interest in Great
Genesis,  the  shareholders  of Great Genesis were issued  20,914,250  shares of
common stock of Visions.  In addition,  the  shareholders  of Great Genesis paid
$250,000 to the former officer,  director and controlling shareholder of Visions
for the  cancellation  of  17,424,750  shares of common stock (see Note 13), and
have agreed to pay an additional $70,000, subject to certain conditions.        

The  acquisition  of  Great  Genesis  by  the  Company  was  accounted  for as a
recapitalization  of Great Genesis,  pursuant to which the  accounting  basis of
Great  Genesis   continued   unchanged   subsequent  to  the  transaction  date.
Accordingly,  the pre-transaction  financial statements of Great Genesis are the
historical financial statements of the Company.                                 

As of December 31, 2002 and 2003, Ji Long owned  aggregate net interests in five
Sino-foreign  joint  ventures  organized in the PRC as shown below.  The Company
accounted  for its  interests  in  these  joint  ventures  in 2002  and  2003 as
described at Note 2.                                                            

                                                   Percentage Interest
                                                   -------------------
Name of Entity                                            2002       2003       
--------------                                            ----       ----       

Jingzhou Henglong Automotive Parts                                              
Co. Limited ("Henglong")                                42.0%      42.0%    

Shashi Jiulong Power Steering Co.                                               
Limited ("Jiulong")                                     81.0%      81.0%    

Shenyang Jinbei Henglong Automotive                                             
Steering System Co. Limited ("Shenyang")                37.6%      55.0%    

Zhejiang Henglong & Vie Pump-Manu Co.                                           
Limited ("Zhejiang")                                    51.0%      51.0%    

Jingzhou Henglong Fulida Textile Co., Ltd.                                      
("Jingzhou")                                              --       51.0%    

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Henglong  and Jiulong are mainly  engaged in the  production  of rack and pinion
power  steering  gears and integral ball and nut power  steering gears for cars,
light and heavy-duty  vehicles.  Shenyang and Zhejiang were  established in 2002
and are focused on power steering parts and power steering  pumps.  Jingzhou was
formed in 2003 to produce  environment-protection  textile and raw materials. At
present,   Henglong,  Jiulong  and  Shenyang  are  the  main  revenue-generating
entities,  while  Zhejiang and Jingzhou are in the early  development  stage and
generated approximately 6% of consolidated revenues in 2003.                    

At  December  31,  2002,  the  investors  in  Shenyang  were Ji Long,  Henglong,
Shengyang  Automotor  Industry   Investment   Corporation  and  Shenyang  Jinbei
Automotor Industry Co., Ltd. On December 12, 2002,  according to a decision made
at the meeting of the board of  directors,  30% of the stock  rights in Shenyang
held by Henglong were to be  transferred to Ji Long, and 17% of the stock rights
in Shenyang held by Shenyang Automotor Industry  Investment  Corporation were to
be transferred  to Shenyang  Jinbei  Automotor  Industry Co., Ltd. On January 8,
2003, Ji Long and Henglong signed an agreement for the transfer of stock rights,
which was approved by the  applicable  PRC  authorities  on May 22, 2003.  As of
December  31,  2002,  the Company  owned 25% of Shenyang  directly  and 12.6% of
Shenyang indirectly through its ownership in Henglong,  for a combined ownership
of 37.6%. As of December 31, 2003, the Company owned 55.0% of Shenyang directly.
The Company  accounted for this increase in ownership in Shenyang  commencing as
of the effective date of January 1, 2003, with an appropriate  adjustment to the
minority interest.                                                              

During December 2002, the Company entered into three  transactions with entities
controlled by its chairman and controlling  shareholder  involving the Company's
minority  interest  ownership in certain of its  Sino-foreign  joint ventures as
follows: (1) the Company acquired a 21% interest in Jiulong for $6,320,241;  (2)
the  Company  acquired a 7% interest in  Henglong  for  $3,310,602;  and (3) the
Company transferred a 7% interest in Henglong in exchange for an 11% interest in
Jiulong.  The  amounts  due  to  or  from  the  chairman  resulting  from  these
transactions  were accounted for as increases or decreases to the amounts due to
or from shareholders/directors and were recorded at fair value, as determined by
an independent  appraisal firm. The difference between fair value and book value
resulting  from the  disposition  of joint  venture  interests  was  credited to
additional paid-in capital. With respect to consideration paid by the Company in
excess of the chairman's  basis in his investment,  such excess has been charged
to additional  paid-in capital as a distribution  to the chairman,  resulting in
the acquired investment being recorded by the Company at the chairman's original
cost basis.                                                                     

Jingzhou was formed in February  2003 to produce  environmental  textile and raw
materials,  and is owned  51% by Ji Long and 49% by Cixi City  Fulida  Synthetic
Fibre  Co.,  Ltd.  Operations  to date  have  not been  material.  As an "Act in
Concert"  Agreement  has been executed for  Jingzhou,  the Company  consolidated
Jingzhou as of December 31, 2003, and for the year then ended.                  

2.   Basis of Presentation                                                      

Basis of  Presentation - For the year ended December 31, 2003, the  accompanying
consolidated  financial  statements  include the accounts of the Company and its
majority-owned  subsidiaries and Sino-foreign joint ventures. For the year ended
December 31, 2002, the accompanying financial statements include the accounts of
the Company,  with the Company's  investments in its Sino-foreign joint ventures
accounted  for  under  the  equity  method  of   accounting.   All   significant
intercompany  accounts and transactions  have been eliminated in  consolidation.
The  consolidated  financial  statements  have been prepared in accordance  with
generally accepted accounting principles in the United States of America.       

During early 2003, the Directors of the Company and the other joint venturers in
the Company's  Sino-foreign joint ventures executed "Act in Concert" agreements,
resulting  in the  Company  having  voting  control of such  Sino-foreign  joint
ventures.  The Company is in the process of making  application  to the relevant
PRC authorities  for their approval to effect this change through  amendments to
the respective  joint venture  agreements.  Consequently,  effective  January 1,

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2003, the Company changed from equity accounting to consolidation accounting for
its investments in  Sino-foreign  joint ventures for the year ended December 31,
2003.                                                                           

Prior to  January 1, 2003,  the  Company  used the  equity  method  pursuant  to
Emerging  Issues Task Force  Issue No.  96-16,  which  states that if a minority
joint venture  partner has the right to participate in management,  the majority
joint  venture  partner is  required  to account  for its  interest in the joint
venture  under the  equity  method of  accounting,  as more fully  described  as
follows:                                                                        

Jingzhou was formed in February 2003,  with 51% owned by Jilong and 49% owned by
Cixi City Fulida Synthetic Fibre Co., Ltd.  ("Cixi").  The highest  authority of
the  joint  venture  is the  Board of  Directors,  which is  comprised  of seven
directors,  four of which (57%) are  appointed by the Company and three of which
(43%) are appointed by Cixi. Pursuant to the Joint Venture Agreement,  unanimous
approval of the Board of  Directors  is required  for any  decisions  concerning
issues such as  amendments  to the  articles of  incorporation,  termination  or
dissolution  of the joint venture,  increase or decrease in registered  capital,
guaranties,  share  transfers,  mergers and  consolidations,  and formation of a
subsidiary.  As for other operating matters, approval of more than two-thirds of
the members of the Board of  Directors  (67%) is  required.  The Chairman of the
Board of Directors is appointed by the Company. The general manager is appointed
by Cixi.                                                                        

Zhejiang  was formed in 2002,  with 51% owned by Great  Genesis and 49% owned by
Zhejiang Vie Group  ("ZVG").  The highest  authority of the joint venture is the
Board of Directors,  which is comprised of seven directors,  four of which (57%)
are  appointed  by the Company and three of which  (43%) are  appointed  by ZVG.
Pursuant  to the Joint  Venture  Agreement,  unanimous  approval of the Board of
Directors is required for any decisions  concerning issues such as amendments to
the articles of incorporation,  termination or dissolution of the joint venture,
increase or decrease in registered capital, guaranties, share transfers, mergers
and  consolidations,  and  formation  of a  subsidiary.  As for other  operating
matters,  approval  by more  than  two-thirds  of the  members  of the  Board of
Directors (67%) is required. The Chairman of the Board of Directors is appointed
by ZVG. The general manager is appointed by the Company.                        

Henglong  was  formed  in 1997,  with 42%  owned by  Jilong,  34% owned by Hubei
Wanlong Investment Co., Ltd.  ("HBWL"),  12% owned by Jingzhou Jiulong Machinery
and  Electronic   Manufacturing  Co.,  Ltd.  ("JLME"),  7%  owned  by  Jiangling
Tongchuang Machinery Co., Ltd.  ("Jiangling") and 5% owned by Shanghai Tianxiang
Automotive  Parts Co.,  Ltd.  ("Shanghai").  The highest  authority of the joint
venture is the Board of Directors,  which is comprised of seven directors,  four
of which (57%) are appointed by the Company, two of which (29%) are appointed by
HBWL, and one of which (14%) is appointed by JLME. Pursuant to the Joint Venture
Agreement,  unanimous  approval of the Board of  Directors  is required  for any
decisions concerning issues such as amendments to the articles of incorporation,
termination  or  dissolution  of the joint  venture,  increase  or  decrease  in
registered capital, guaranties, share transfers, mergers and consolidations, and
formation of a subsidiary. As for other operating matters, approval by more than
two-thirds  of the  members of the Board of  Directors  (67%) is  required.  The
Chairman of the Board of Directors  is  appointed  by the  Company.  The general
manager is appointed by the Company.                                            

Jiulong  was  formed in 1993,  with 49% owned by Jilong,  20% owned by  Jingzhou
Jiulong Machinery and Electronic  Manufacturing Co., Ltd. ("JLME"), 21% owned by
Xiamen Joylon Co., Ltd.  ("Joylon") and 10% owned by Jingzhou Tianxin Investment
Consulting Co., Ltd. ("Tianxin").  The highest authority of the joint venture is
the Board of  Directors,  which is comprised of seven  directors,  four of which
(57%) are  appointed by the Company,  two of which (29%) are  appointed by JLME,
and one of which (14%) is  appointed  by Joylon.  Pursuant to the Joint  Venture
Agreement,  unanimous  approval of the Board of  Directors  is required  for any
decisions concerning issues such as amendments to the articles of incorporation,
termination  or  dissolution  of the joint  venture,  increase  or  decrease  in
registered capital, guaranties, share transfers, mergers and consolidations, and
formation of a subsidiary. As for other operating matters, approval by more than
two-thirds  of the  members of the Board of  Directors  (67%) is  required.  The
Chairman of the Board of Directors is appointed by the JLME. The general manager
is appointed by the Company.                                                    

Shenyang  was formed in 2002,  with 25% owned by Jilong,  30% owned by Henglong,
28% owned by Shenyang Jinbei Automotive Industry Co., Ltd. ("JB Industry"),  and
17%  owned  by  Shengyang   Automotive  Industry  Investment   Corporation  ("JB
Investment").  The  highest  authority  of the  joint  venture  is the  Board of
Directors,  which is  comprised  of seven  directors,  four of which  (57%)  are
appointed by the Company,  two of which (29%) are appointed by JB Industry,  and
one of which (14%) is appointed by JB Investment.  Pursuant to the Joint Venture
Agreement,  unanimous  approval of the Board of  Directors  is required  for any
decisions concerning issues such as amendments to the articles of incorporation,
termination  or  dissolution  of the joint  venture,  increase  or  decrease  in
registered capital, guaranties, share transfers, mergers and consolidations, and
formation of a subsidiary. As for other operating matters, approval by more than
two-thirds  of the  members of the Board of  Directors  (67%) is  required.  The
Chairman of the Board of Directors  is  appointed  by the  Company.  The general
manager is appointed by the Company.                                            

As a result of the foregoing board structures,  each of the minority partners of
Zhejiang, Jingzhou, Henlong, Jiulong and Shenyang had the right to approve major
operating  decisions of their  respective  joint ventures  because the Company's
representatives on the Boards of Directors of the joint ventures did not account
for the requisite 67% of voting control  required to approve  various  operating
matters, which allowed the minority partners to participate in the operations of
the management of the respective joint ventures.  As such, the Company accounted
for its  interest  in these  joint  ventures  under  the  equity  method in 2002
pursuant to EITF 96-16.                                                         

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The minority  partners of each of the joint  ventures are all private  companies
not controlled, directly or indirectly, by any PRC municipal government or other
similar government entity.                                                      

In March 2003,  Henglong  outsourced  to Jiulong the  production  of an integral
power steering  system.  Jiulong sells the related finished product to Henglong,
which  then sells the  product  to third  parties.  All  intercompany  profit is
eliminated on consolidation.  The transferred profit due to this transaction has
been  recorded in the  interest  account of minority  shareholders  according to
their investment ratios.                                                        

Use of Estimates - The  preparation of financial  statements in conformity  with
accounting   principles   generally  accepted  in  the  United  States  requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities,  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.  Significant estimates primarily relate to
the  realizable  value of accounts  receivable and  inventories.  Actual results
could differ from those estimates.                                              

Cash and Cash Equivalents - Cash and cash equivalents  include all highly-liquid
investments  with an original  maturity  of three  months or less at the date of
purchase.                                                                       

Pledged Cash  Deposits - The Company has pledged  cash  deposits to secure trade
finance provided by banks.                                                      

Accounts  Receivable - In order to determine the value of the Company's accounts
receivable,  the Company  records a  provision  for  doubtful  accounts to cover
estimated  credit  losses.   Management   reviews  and  adjusts  this  allowance
periodically   based  on  historical   experience  and  its  evaluation  of  the
collectibility  of outstanding  accounts  receivable.  The Company evaluates the
credit risk of its customers  utilizing  historical data and estimates of future
performance.                                                                    

Inventories  -  Inventories  are  stated at the lower of cost or net  realizable
value. Cost is calculated on the moving-average  basis and includes all costs to
acquire  and other  costs  incurred in bring the  inventories  to their  present
location and condition.  The Company  evaluates the net realizable  value of its
inventories  on a regular  basis and records a provision  for loss to reduce the
computed moving-average cost if it exceeds the net realizable value.            

Advance  Payments - These amounts  represent  advances or prepayments to acquire
various  assets to be utilized in the future in the  Company's  normal  business
operations.  Such amounts are paid according to their respective  contract terms
and are classified as a current asset in the consolidated balance sheet.        

Property  and  Equipment  - Property  and  equipment  are stated at cost.  Major
renewals and improvements are  capitalized;  minor  replacements and maintenance
and  repairs  are  charged  to  operations.  Depreciation  is  provided  on  the
straight-line method over the estimated useful lives of the respective assets as
follows:                                                                        

Category                        Estimated Useful Life (Years)                   
--------                        -----------------------------                   

Land use rights and buildings:                                                  
Land use rights                           45                                
Buildings                                 25                                
Machinery and equipment                      6                                  
Electronic equipment                         4                                  
Motor vehicles                               6                                  

Assets under construction  represent  buildings under construction and plant and
equipment   pending   installation   and  are  stated  at  cost.  Cost  includes
construction and acquisitions, and interest charges arising from borrowings used
to finance assets during the period of construction or installation and testing.
No provision for  depreciation is made on assets under  construction  until such
time  as the  relevant  assets  are  completed  and  ready  for  their  intended
commercial use.                                                                 

Gains or losses on disposal of property,  plant and equipment are  determined as
the difference  between the net disposal proceeds and the carrying amount of the
relevant asset, and are recognized in the consolidated  statements of operations
on the date of disposal.                                                        

Interest Costs Capitalized - Interest costs incurred in connection with specific
borrowings for the acquisition, construction or installation of fixed assets are
capitalized  and  depreciated  as  part  of the  asset's  total  cost  when  the
respective asset is placed into service.                                        

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Intangible  Assets -  Intangible  assets,  representing  patents  and  technical
know-how  acquired,  are  stated  at  cost  less  accumulated  amortization  and
impairment losses. Amortization is provided on the straight-line method over the
estimated useful lives of the respective assets of 5 years.                     

In  January  2002,  the  Company  adopted  SFAS No.  142,  "Goodwill  and  Other
Intangible  Assets".  The Company did not have any goodwill at December 31, 2002
or 2003.                                                                        

Impairment  of  long-lived  assets is monitored on a  continuing  basis,  and is
assessed  based on the  undiscounted  cash  flows  generated  by the  underlying
assets.  In the event that the carrying amount of long-lived  assets exceeds the
undiscounted  future  cash  flows,  then the  carrying  amount of such assets is
adjusted to their fair value.                                                   

Long-Lived  Assets - The  Company has adopted the  provisions  of  Statement  of
Financial  Accounting  Standards  No. 144,  "Accounting  for the  Impairment  or
Disposal of Long-Lived  Assets".  Property,  plant and equipment and  intangible
assets are  reviewed  periodically  for  impairment  losses  whenever  events or
changes in  circumstances  indicate that the carrying amount of an asset may not
be fully  recoverable.  If required,  an  impairment  loss is  recognized as the
difference between the carrying value and the fair value of the assets.         

Long-Term  Investments - Investments in which the Company owns less than 20% and
does not have the ability to exert significant influence are stated at cost, and
are reviewed periodically for realizability.                                    

Revenue  Recognition - The Company recognizes revenue when the significant risks
and rewards of ownership have been  transferred to the customer  pursuant to PRC
law,  including  factors  such as when  persuasive  evidence  of an  arrangement
exists,  delivery has occurred, the sales price is fixed or determinable,  sales
and value  added  tax laws  have  been  complied  with,  and  collectibility  is
probable. The Company recognizes product sales generally at the time the product
is shipped.  Concurrent  with the  recognition of revenue,  the Company  reduces
revenue for estimated product returns.  Shipping and handling costs are included
in cost of goods sold. Revenue is presented net of any sales tax and value added
tax.                                                                            

Sales Taxes - The Company is subject to value added tax ("VAT").  The applicable
VAT tax rate is 17% for products sold in the PRC. The amount of VAT liability is
determined by applying the applicable  tax rate to the invoiced  amount of goods
sold less VAT paid on purchases made with the relevant supporting invoices.  VAT
is collected from customers by the Company on behalf of the PRC tax  authorities
and is therefore not charged to the consolidated statements of operations.      

Warranties - The Company  provides for the estimated cost of product  warranties
at the time revenue is  recognized.  Warranty  costs are included in general and
administrative expense. The Company's warranty obligation is affected by product
failure  rates and  material  usage  and  service  delivery  costs  incurred  in
correcting a product  failure.  Should actual product  failure  rates,  material
usage or service delivery costs differ from the Company's estimates, the Company
may be required to revise its estimated product warranty liability.             

Concentration of Credit Risk - Financial  instruments  that potentially  subject
the Company to significant  concentrations  of credit risk consist  primarily of
trade accounts receivable.  The Company performs ongoing credit evaluations with
respect  to the  financial  condition  of its  creditors,  but does not  require
collateral.   In  order  to  determine  the  value  of  the  Company's  accounts
receivable,  the Company  records a  provision  for  doubtful  accounts to cover
probable   credit  losses.   Management   reviews  and  adjusts  this  allowance
periodically   based  on  historical   experience  and  its  evaluation  of  the
collectibility of outstanding accounts receivable.                              

Income Taxes - The Company  accounts for income taxes using the liability method
whereby  deferred  income  taxes  are  recognized  for the tax  consequences  of
temporary differences by applying statutory tax rates applicable to future years

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to  differences  between the financial  statement  carrying  amounts and the tax
bases of certain  assets and  liabilities.  Changes in  deferred  tax assets and
liabilities  include the impact of any tax rate changes enacted during the year.
A valuation  allowance  is provided  for the amount of deferred tax assets that,
based on available evidence, are not expected to be realized.                   

Research and Development  Costs - Research and development costs are expensed as
incurred.                                                                       

Income Per Share - Basic income per share is  calculated  by dividing net income
by the weighted average number of common shares  outstanding  during the period.
Diluted  income per share is calculated  assuming the issuance of common shares,
if dilutive,  resulting  from the exercise of warrants.  Income per common share
calculations  for the  years  ended  December  31,  2002  and 2003  reflect  the
retroactive restatement of the shareholders' equity section to reflect the March
2003 recapitalization.                                                          

The  Company  effected  a 3.5 to 1 forward  split of its  outstanding  shares of
common stock  during March 2003,  prior to the  transaction  with Great  Genesis
described  above.  Unless otherwise  indicated,  all share and per share amounts
presented herein have been adjusted to reflect the forward stock split.         

Comprehensive  Income  (Loss)  - The  Company  has  adopted  the  provisions  of
Statement of Financial  Accounting  Standards No. 130, "Reporting  Comprehensive
Income" ("SFAS No. 130").  SFAS No. 130 establishes  standards for the reporting
and display of comprehensive  income, its components and accumulated balances in
a full  set of  general  purpose  financial  statements.  SFAS No.  130  defines
comprehensive  income  (loss) to  include  all  changes in equity  except  those
resulting from  investments  by owners and  distributions  to owners,  including
adjustments  to  minimum  pension  liabilities,   accumulated  foreign  currency
translation, and unrealized gains or losses on marketable securities.           

The Company's  only  component of other  comprehensive  income (loss) is foreign
currency  translation  loss of $4,150 for the year ended December 31, 2003. This
amount has been recorded as a separate component of stockholders' equity.       

Fair Value of Financial  Instruments  - The Company  believes  that the carrying
value  of the its  cash and cash  equivalents,  accounts  receivables,  accounts
payable  and accrued  liabilities  as of December  31, 2003  approximates  their
respective fair values due to the short-term nature of those instruments.       

Stock-Based  Compensation - The Company may periodically  issue shares of common
stock for services  rendered or for financing costs.  Such shares will be valued
based on the market price on the transaction date.                              

The Company may periodically  issue stock options to employees and stock options
or warrants to  non-employees in non-capital  raising  transactions for services
and for financing costs.                                                        

The Company has adopted  Statement of Financial  Accounting  Standards  No. 123,
"Accounting for Stock-Based  Compensation" ("SFAS No. 123"), which establishes a
fair value method of accounting for stock-based compensation plans.             

The  provisions  of SFAS No. 123 allow  companies to either record an expense in
the financial statements to reflect the estimated fair value of stock options to
employees,  or to continue  to follow the  intrinsic  value  method set forth in
Accounting  Principles  Board  Opinion No. 25,  "Accounting  for Stock Issued to
Employees",  but to  disclose  on an annual  basis  the pro forma  effect on net
income  (loss) and net  income  (loss) per share had the fair value of the stock
options been recorded in the financial  statements.  SFAS No. 123 was amended by
SFAS No. 148,  which now  requires  companies  to disclose in interim  financial
statements  the pro forma effect on net income  (loss) and net income (loss) per
common  share of the  estimated  fair market  value of stock  options  issued to
employees.  The Company  has  elected to  continue  to account  for  stock-based
compensation   plans   utilizing  the  intrinsic   value  method.   Accordingly,
compensation  cost for stock options will be measured as the excess,  if any, of
the fair market price of the  Company's  common stock at the date of grant above
the amount an employee must pay to acquire the common stock.                    

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In accordance  with SFAS No. 123, the cost of stock options and warrants  issued
to  non-employees  is  measured at the grant date based on the fair value of the
award.  The  fair  value  of the  stock-based  award  is  determined  using  the
Black-Scholes  option-pricing  model. The resulting amount is charged to expense
on the  straight-line  basis  over the  period in which the  Company  expects to
receive benefit, which is generally the vesting period.                         

Pro Forma  Financial  Disclosure  - Since the  Company  has not issued any stock
options to employees, no pro forma financial disclosure has been presented.     

In accordance  with SFAS No. 123, the Company will provide  footnote  disclosure
with respect to stock-based  employee  compensation.  The value of a stock-based
award will be determined using the Black-Scholes  option-pricing  model, whereby
compensation  cost is the fair value of the award as  determined  by the pricing
model at the grant date or other  measurement date. The resulting amount will be
charged  to  expense  on the  straight-line  basis  over the period in which the
Company expects to receive benefit, which is generally the vesting period. Stock
options issued to non-employee  directors at fair market value will be accounted
for under the intrinsic value method.                                           

As  of  December  31,  2003,  the  Company  had  not  adopted  any   stock-based
compensation plans.                                                             

Foreign  Currencies  - The Company  maintains  its books and records in Renminbi
("RMB"),  the  currency of the PRC,  its  functional  currency.  Translation  of
amounts into United States dollars  ("US$") has been made at the rate of RMB8.30
to US$1.00.                                                                     

Foreign  currency  transactions in RMB are reflected using the temporal  method.
Under  this  method,  all  monetary  items are  translated  into the  functional
currency  at the  rate  of  exchange  prevailing  at  the  balance  sheet  date.
Non-monetary  items are translated at historical rates.  Income and expenses are
translated at the rate in effect on the transaction dates. Transaction gains and
losses,  if any, are included in the  determination of net income (loss) for the
period.                                                                         

In  translating  the  financial  statements  of the Company from its  functional
currency into its reporting  currency in United  States  dollars,  balance sheet
accounts are translated using the closing exchange rate in effect at the balance
sheet date and income  and  expense  accounts  are  translated  using an average
exchange rate prevailing during the reporting period. Adjustments resulting from
the translation,  if any, are included in cumulative other comprehensive  income
(loss) in stockholders' equity.                                                 

The RMB is not readily  convertible  into United States dollars or other foreign
currencies.  The foreign  exchange rate between the United States dollar and the
RMB has been stable at  approximately  1RMB to US$0.1205 for the last few years.
No  representation  is made that the RMB amounts  could have been,  or could be,
converted into United States dollars at that rate or at any other rate.         

Segment  Information  - No business  or  geographical  segmentation  analysis is
provided,  as less  than  10% of  consolidated  revenues  and  less  than 10% of
consolidated  income from operations is attributable to business  segments other
than the manufacture and sale of automotive components in the PRC.              

3. Certain Significant Risks and Uncertainties                                  

The Company is subject to the  consideration  and risks of operating in the PRC.
These include  risks  associated  with the  political and economic  environment,
foreign currency exchange and the legal system in the PRC.                      

The economy of PRC differs  significantly  from the  economies of the  "western"
industrialized  nations in such  respects as  structure,  level of  development,
gross national product, growth rate, capital reinvestment,  resource allocation,
self-sufficiency,  rate of  inflation  and balance of payments  position,  among

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others.  Only recently has the PRC  government  encouraged  substantial  private
economic activities.  The Chinese economy has experienced  significant growth in
the past several years, but such growth has been uneven among various sectors of
the economy and  geographic  regions.  Actions by the PRC  government to control
inflation have significantly  restrained  economic expansion in the recent past.
Similar  actions by the PRC  government  in the future could have a  significant
adverse effect on economic conditions in PRC.                                   

Many laws and regulations  dealing with economic  matters in general and foreign
investment in particular  have been enacted in the PRC.  However,  the PRC still
does not have a  comprehensive  system of laws, and enforcement of existing laws
may be uncertain and sporadic.                                                  

The Company's  operating assets and primary sources of income and cash flows are
the interests of its subsidiaries in Sino-foreign joint ventures in the PRC. The
PRC economy has, for many years, been a centrally-planned  economy, operating on
the basis of annual,  five-year and ten-year  state plans adopted by central PRC
governmental  authorities,  which set out national  production  and  development
targets.  The PRC government has been pursuing  economic  reforms since it first
adopted  its  "open-door"  policy in 1978.  There is no  assurance  that the PRC
government  will continue to pursue  economic  reforms or that there will not be
any significant  change in its economic or other  policies,  particularly in the
event of any change in the political  leadership of, or the political,  economic
or social  conditions  in, the PRC.  There is also no assurance that the Company
will not be adversely  affected by any such change in  governmental  policies or
any unfavorable change in the political, economic or social conditions, the laws
or regulations, or the rate or method of taxation in the PRC.                   

As many of the economic reforms which have been or are being  implemented by the
PRC  government  are  unprecedented  or  experimental,  they may be  subject  to
adjustment  or  refinement,  which  may have  adverse  effects  on the  Company.
Further,  through state plans and other economic and fiscal measures, it remains
possible  for the PRC  government  to  exert  significant  influence  on the PRC
economy.                                                                        

The Company's financial  instruments that are exposed to concentration of credit
risk consist  primarily of cash and cash  equivalents,  and accounts  receivable
from customers. Cash and cash equivalents are maintained with major banks in the
PRC. The Company's  business  activity is with customers in the PRC. The Company
periodically  performs credit  analysis and monitors the financial  condition of
its clients in order to minimize credit risk.                                   

Any  devaluation  of the Renminbi  (RMB)  against the United States dollar would
consequently  have adverse  effects on the Company's  financial  performance and
asset values when measured in terms of the United States dollar.  Should the RMB
significantly  devalue against the United States dollar,  such devaluation could
have a  material  adverse  effect  on the  Company's  earnings  and the  foreign
currency  equivalent  of such  earnings.  The  Company  does not hedge its RMB -
United States dollar exchange rate exposure.                                    

On January 1, 1994, the PRC  government  introduced a single rate of exchange as
quoted daily by the People's Bank of China (the  "Unified  Exchange  Rate").  No
representation  is made that the RMB amounts have been,  or could be,  converted
into US$ at that rate.  This  quotation  of  exchange  rates does not imply free
convertibility  of  RMB  to  other  foreign  currencies.  All  foreign  exchange
transactions  continue to take place  either  through the Bank of China or other
banks authorized to buy and sell foreign  currencies at the exchange rate quoted
by the  People's  Bank of China.  Approval of foreign  currency  payments by the
People's  Bank of China or other  institutions  requires  submitting  a  payment
application  form  together with  suppliers'  invoices,  shipping  documents and
signed contracts.                                                               

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4.   Recent Accounting Pronouncements                                           

In August 2001, the FASB issued SFAS No. 143,  "Accounting for Asset  Retirement
Obligations".  SFAS No. 143  addresses  the  diverse  accounting  practices  for
obligations associated with the retirement of tangible long-lived assets and the
associated  asset  retirement  costs. The Company adopted SFAS No. 143 effective
January 1, 2003. The adoption of SFAS No. 143 did not have a significant  effect
on the Company's financial statement presentation or disclosures.               

In April 2002, the FASB issued SFAS No. 145,  "Rescission of FASB Statements No.
4, 44, and 64,  Amendment of FASB Statement No. 13, and Technical  Corrections".
SFAS No. 145 rescinds the  provisions of SFAS No. 4 that  requires  companies to
classify  certain gains and losses from debt  extinguishments  as  extraordinary
items,  eliminates  the  provisions  of SFAS No. 44 regarding  transition to the
Motor  Carrier Act of 1980 and amends the  provisions  of SFAS No. 13 to require
that certain lease modifications be treated as sale leaseback transactions.  The
provisions of SFAS No. 145 related to classification of debt extinguishments are
effective for fiscal years  beginning  after May 15, 2002.  The adoption of SFAS
No. 145 did not have a significant effect on the Company's  financial  statement
presentation or disclosures.                                                    

In June 2002,  the FASB issued SFAS No. 146,  "Accounting  for Costs  Associated
with Exit or Disposal  Activities",  which requires companies to recognize costs
associated  with exit or disposal  activities when they are incurred rather than
at the date of a commitment to an exit or disposal  plan.  Such costs covered by
SFAS No. 146 include  lease  termination  costs and certain  employee  severance
costs that are associated with a restructuring,  discontinued  operation,  plant
closing, or other exit or disposal activity.  SFAS No. 146 replaces the previous
accounting  guidance provided by the EITF No. 94-3,  "Liability  Recognition for
Certain  Employee  Termination  Benefits  and  Other  Costs to Exit an  Activity
(including  Certain Costs Incurred in a  Restructuring)".  SFAS No. 146 is to be
applied  prospectively to exit or disposal  activities  initiated after December
31, 2002. The adoption of SFAS No. 146 did not have a significant  effect on the
Company's financial statement presentation or disclosures.                      

In December  2002,  the FASB issued SFAS No. 148,  "Accounting  for  Stock-Based
Compensation  - Transition  and  Disclosure".  SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock-Based  Compensation",  to provide  alternative  methods of
transition  for a voluntary  change to the fair value based method of accounting
for  stock-based  employee  compensation.  In addition,  SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in both
annual and  interim  financial  statements  about the method of  accounting  for
stock-based employee  compensation and the effect of the method used on reported
results. SFAS No. 148 is effective for fiscal years beginning after December 15,
2002.  The interim  disclosure  provisions  are effective for financial  reports
containing financial statements for interim periods beginning after December 15,
2002.  The  adoption  of SFAS No. 148 did not have a  significant  effect on the
Company's financial statement presentation or disclosures.                      

In April 2003,  the FASB issued SFAS No. 149,  "Amendment  of  Statement  133 on
Derivative  Instruments  and  Hedging  Activities".  SFAS  No.  149  amends  and
clarifies under what circumstances a contract with initial investments meets the
characteristics  of a  derivative  and when a  derivative  contains a  financing
component.  SFAS No. 149 is  effective  for  contracts  entered into or modified
after June 30,  2003.  The  adoption of SFAS No. 149 did not have a  significant
effect on the Company's financial statement presentation or disclosures.        

In May 2003,  the FASB issued SFAS No. 150,  "Accounting  for Certain  Financial
Instruments with  Characteristics of both Liabilities and Equity".  SFAS No. 150
establishes standards for how an issuer classifies and measures in its statement
of financial position certain financial instruments with characteristics of both
liabilities  and  equity.  SFAS No.  150  requires  that an  issuer  classify  a
financial  instrument  that is within its scope as a  liability  (or an asset in
some circumstances)  because that financial instrument embodies an obligation of
the issuer. SFAS No. 150 is effective for financial  instruments entered into or
modified  after May 31, 2003 and  otherwise is effective at the beginning of the
first  interim  period  beginning  after  June 15,  2003.  SFAS No. 150 is to be
implemented  by  reporting  the  cumulative  effect  of a change  in  accounting
principle for financial instruments created before the issuance date of SFAS No.
150 and still  existing  at the  beginning  of the interim  period of  adoption.
Restatement  is not  permitted.  The  adoption  of SFAS  No.  150 did not have a
significant  effect  on  the  Company's  financial  statement   presentation  or
disclosures.                                                                    

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In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure  Requirements for Guarantees,  Including  Indirect  Guarantees of
Indebtedness of Others" ("FIN 45"). FIN 45 elaborates on the existing disclosure
requirements  for most  guarantees,  including loan  guarantees  such as standby
letters  of  credit.  It also  clarifies  that at the  time a  company  issues a
guarantee,  the company must recognize an initial  liability for the fair market
value of the  obligations it assumes under that guarantee and must disclose that
information  in  its  interim  and  annual  financial  statements.  The  initial
recognition and measurement provisions of FIN 45 apply on a prospective basis to
guarantees  issued or modified after December 31, 2002. The Company  implemented
the  disclosure  provisions  of FIN 45 in its  December  31,  2002  consolidated
financial  statements,  and the measurement  and recording  provisions of FIN 45
effective January 1, 2003.                                                      

In January  2003,  the FASB  issued  Interpretation  No. 46,  "Consolidation  of
Variable Interest  Entities (and  Interpretation of ARB No. 51)" ("FIN 46"). FIN
46  requires  that  the  primary  beneficiary  in  a  variable  interest  entity
consolidate the entity even if the primary  beneficiary does not have a majority
voting  interest.  The  consolidation  requirements of FIN 46 are required to be
implemented  for any variable  interest  entity  created on or after January 31,
2003.  In  addition,   FIN  46  requires  disclosure  of  information  regarding
guarantees  or  exposures  to loss  relating  to any  variable  interest  entity
existing prior to January 31, 2003 in financial  statements issued after January
31, 2003. The  implementation  of the provisions of FIN 46 effective January 31,
2003 did not have a significant effect on the Company's  consolidated  financial
statement presentation or disclosures.                                          

5.   Accounts Receivable                                                        

The Company's accounts receivable at December 31, 2003 are summarized as        
follows:                                                                        

Accounts receivable                    $ 19,737,417                             
Bills receivable                         21,699,968                             
Less:  Allowance for doubtful                                                   
accounts                               (2,757,374)                          
          ------------
          $ 38,680,011
          ============

Bills receivable  represent accounts receivable in the form of bills of exchange
whose acceptances and settlements are handled by banks.                         

The activity in the Company's  allowance for doubtful  accounts  during the year
ended December 31, 2003 is summarized as follows:                               

Balance at beginning of year           $  1,979,533                             
Add:  Amounts provided during                                                   
the year                                  777,841                           
Less:  Amounts written off                                                      
during the year                              --                             
          ------------
Balance at end of year                 $  2,757,374                             
          ============

6.   Other Receivables                                                          

Other  receivables  consist of amounts  advanced to both  related and  unrelated
parties,  primarily as unsecured  demand loans,  with no stated interest rate or
due date. At December 31, 2003, other receivables totaled $2,313,017,  including
$1,472,758  to related  parties,  net of an allowance  for doubtful  accounts of
$1,053,047.  During the year ended December 31, 2003, the allowance for doubtful
accounts  was  increased  by  $1,053,047,  including  $771,084 to an investee of
Jiulong.                                                                        

In 1997,  Jiulong,  one of the Company's  Sino-foreign  joint ventures,  made an
investment to establish an auto sales firm named Jingzhou Jiulong  Machinery and
Electronic  Material Co., Ltd. ("JL  Material") in  conjunction  with a partner,
Jingzhou  Jiulong  Machinery  and  Electronic   Manufacturing   Co.,  Ltd.  ("JL
Manufacturing").  JL Material had total capital of  $1,204,819  (RMB10,000,000),
owned 20% by Jiulong. During the six year period from 1997 through 2002, Jiulong
and JL Material  had an agreement  that Jiulong sold  vehicles to JL Material on
credit and JL Material repaid Jiulong according to the terms of the agreement.  

At December 31,  2003,  Jiulong had an accounts  receivable  from JL Material of
$1,003,987.  Since JL Material  was  experiencing  financial  difficulties,  the
Company believed there would be an uncollectible  amount of $771,084 at December
31, 2003,  and  accordingly,  recorded an increase to its allowance for doubtful
accounts by that amount.  The Company  terminated the agreement with JL Material
during 2003.                                                                    

With the exception of the receivable from JL Material, the Company believes that
all other  receivables  are  collectible,  as the  related  parties  are in good
financial  conditions and are paying their  payables to Company  pursuant to the
terms of their respective contracts.                                            

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7.   Inventories                                                                

Inventories at December 31, 2003 are summarized as follows:                     

Raw materials                          $  3,622,369                             
Work in process                           2,110,612                             
Finished goods                            4,808,434                             
          ------------
            10,541,415
Less:  Provision for loss                  (311,993)                            
          ------------
          $ 10,229,422
          ============

8.   Property, Plant and Equipment                                              

Property, plant and equipment at December 31, 2003 are summarized as follows:   

Land use rights and buildings          $  5,593,726                             
Machinery and equipment                  16,550,441                             
Electronic equipment                      1,233,580                             
Motor vehicles                            1,253,718                             
Construction in progress                  3,418,614                             
          ------------
            28,050,079
Less:  Accumulated depreciation          (5,700,023)                            
          ------------
          $ 22,350,056
          ============

9.   Intangible Assets                                                          

The activity in the Company's  intangible  asset  account  during the year ended
December 31, 2003 is summarized as follows:                                     

Balance at beginning of year,                                                   
consisting of technical know-how     $     38,831                           
Add:  Additions during the year -                                               
Financial software license             10,271                       
Mapping design software license       180,000                       
          ------------
               229,102
Less:  Accumulated amortization             (10,463)                            
          ------------
Balance at end of year                 $    218,639                             
          ============

For the year ended December 31, 2003, amortization expense was $10,463.         

10.  Accounts Payable                                                           

Accounts payable at December 31, 2003 are summarized as follows:                

Accounts payable                       $ 14,742,030                             
Bills payable                             8,275,191                             
          ------------
          $ 23,017,221
          ============

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Bills payable represent  accounts payable in the form of bills of exchange whose
acceptances and settlements are handled by banks.                               

The Company has pledged cash  deposits and certain plant and machinery to secure
trade financing granted by banks.                                               

11. Liability Related to Acquisition of Joint Venture Assets                    

In conjunction with the formation of the Jingzhou  Sino-foreign joint venture in
February 2003, the Company  purchased  certain  operating  assets  consisting of
production  equipment from the local  government and had a remaining  obligation
outstanding of $1,204,819 at December 31, 2003. The obligation was interest free
and matured on February 28, 2004.  The Company paid this  liability in full on a
timely basis.                                                                   

12.  Bank Loans                                                                 

At December 31, 2003, the Company,  through its Sino-foreign joint ventures, had
fixed-rate short-term bank loans outstanding of $9,638,554. The weighted average
interest rate for the year ended December 31, 2003 was 4.66% per annum. Jiulong,
one of the  Company's  joint  ventures,  has provided  Henglong,  another of the
Company's  joint  ventures,   with  loan  guarantees   covering  bank  loans  of
$4,819,000.  Henglong has provided  Jiulong with loan  guarantees  covering bank
loans of $3,012,000.  Great Genesis has provided  Henglong with loan  guarantees
covering  bank  loans  of  $602,000.  The  remaining  balance  of the  loans  of
$1,205,000 is unsecured.                                                        

13. Amounts Due From and Due to Shareholders/Directors                          

The activity in the amounts due to (due from) shareholders/directors  during the
years ended December 31, 2002 and 2003 is summarized as follows:                

Balance, December 31, 2001             $   (112,000)                            
Dividends declared                        3,609,000                             
Deemed distribution to shareholder        6,741,000                             
Advances from shareholder to fund                                               
investments in joint ventures           3,040,000                           
Other advances from shareholders             52,000                             
          ------------
Balance, December 31, 2002               13,330,000                             
Dividends declared                        2,295,394                             
Cash advances from shareholder            6,770,887                             
Cancellation of dividends previously                                            
declared                              (17,167,000)                          
          ------------
Balance, December 31, 2003             $  5,229,281                             
          ============

At December 31, 2002 and 2003,  the amounts due to  shareholders/directors  were
unsecured, interest free and repayable on demand.                               

During December 2002, the Company entered into three  transactions with entities
controlled by its chairman and controlling  shareholder  involving the Company's
minority  interest  ownership in certain of its  Sino-foreign  joint ventures as
follows: (1) the Company acquired a 21% interest in Jiulong for $6,320,241;  (2)
the  Company  acquired a 7% interest in  Henglong  for  $3,310,602;  and (3) the
Company transferred a 7% interest in Henglong in exchange for an 11% interest in
Jiulong.  The  amounts  due  to  or  from  the  chairman  resulting  from  these
transactions  were accounted for as increases or decreases to the amounts due to
or from shareholders/directors and were recorded at fair value, as determined by
an independent  appraisal firm. The difference between fair value and book value
resulting  from the  disposition  of joint  venture  interests  was  credited to
additional paid-in capital. With respect to consideration paid by the Company in
excess of the chairman's  basis in his investment,  such excess has been charged
to additional  paid-in capital as a distribution  to the chairman,  resulting in
the acquired investment being recorded by the Company at the chairman's original
cost basis.                                                                     

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14.  Stockholders' Equity                                                       

As of December 31, 2003,  the Company's  authorized  share  capital  consists of
80,000,000  shares of common stock,  par value $0.0001 per share, and 20,000,000
shares of preferred stock, par value $0.0001 per share.                         

During  March 2003,  in  conjunction  with the  transaction  with Great  Genesis
described  at Note 1,  the  Company  effected  a 3.5 to 1  forward  split of its
outstanding  shares of common stock,  thus  increasing  the 5,293,000  shares of
common stock outstanding at that time to 18,525,500  shares, of which 17,424,750
shares were then returned to the Company and cancelled.                         

During  March 2003,  in  conjunction  with the  transaction  with Great  Genesis
described at Note 1, the Company issued common stock purchase  warrants to three
consultants  to  acquire  an  aggregate  of  550,375  shares  of  common  stock,
exercisable  for a period of one year at $1.20 per  share.  The  aggregate  fair
value of these warrants, calculated pursuant to the Black-Scholes option-pricing
model,  was estimated to be $1,300,000,  which was charged to operations  during
the year ended December 31, 2003.  Effective  December 31, 2003,  these warrants
were exercised on a cashless basis,  resulting in the issuance of 509,856 shares
of common stock.                                                                

During  September  2003,  the Company  sold 49,686  shares of common  stock in a
private  transaction to three  investors at approximate  fair value of $3.20 per
share for net proceeds of $159,000.                                             

As of December 31, 2003, the Company did not have any stock options outstanding,
and had not adopted a stock option plan.                                        

15.  Distribution of Profits                                                    

Pursuant to the relevant  laws and  regulations  of  Sino-foreign  joint venture
enterprises,  the profits of the Company's Sino-foreign subsidiaries,  which are
based  on  their  PRC  statutory   financial   statements,   are  available  for
distribution  in the form of cash dividends after they has satisfied all PRC tax
liabilities,  provided for losses in previous years, and made  appropriations to
reserve  funds,  as  determined  at the  discretion of the board of directors in
accordance with the PRC accounting standards and regulations.                   

As stipulated by the relevant laws and regulations for enterprises  operating in
the PRC, the Company's  Sino-foreign  joint ventures are required to make annual
appropriations  to two reserve  funds,  consisting of the statutory  surplus and
collective  welfare funds.  In accordance  with the relevant PRC regulations and
the articles of  association  of the  respective  companies,  the  companies are

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required to allocate a certain  percentage of their profits after  taxation,  as
determined in accordance  with the PRC  accounting  standards  applicable to the
companies,  to the statutory  surplus  reserve until such reserve reaches 50% of
the registered  capital of the companies.  Based on the business licenses of the
Sino-foreign  joint  ventures,  the  registered  capital of  Henglong,  Jiulong,
Shenyang,  Zhejiang and Jingzhou are $9,000,000, RMB 19,800,000, RMB 45,000,000,
$7,000,000 and $2,600,000, respectively.                                        

The   Company's   Sino-foreign   joint   ventures  are  also  required  to  make
appropriations to a general reserve fund, an enterprise  development fund and an
employee  welfare  and  incentive  fund,  in  which  the  percentage  of  annual
appropriations are subject to the joint venture agreement.  The employee welfare
and  incentive  fund is  charged  to the  statement  of  operations.  The  other
appropriations  are  accounted for as reserve funds in the balance sheet and are
not available for distribution as dividends to the joint venture partners of the
companies. Under the joint venture agreements, the boards of directors determine
the appropriations with regard to the economic situation of each company.       

Net income as reported in the US GAAP financial  statements differs from that as
reported in the PRC  statutory  financial  statements.  In  accordance  with the
relevant laws and regulations in the PRC, the profits available for distribution
are based on the  statutory  financial  statements.  If the  Company has foreign
currency available after meeting its operational needs, the Company may make its
profit  distributions  in foreign  currency  to the extent  foreign  currency is
available.  Otherwise,  it is  necessary  to obtain  approval  and convert  such
distributions at an authorized bank.                                            

16.  Income Taxes                                                               

The Company's subsidiaries  registered in the PRC are subject to state and local
income taxes within the PRC at the  applicable tax rate on the taxable income as
reported in their PRC statutory  financial  statements  in  accordance  with the
relevant income tax laws applicable to foreign enterprises. Two of the Company's
subsidiaries,  Henglong  and  Jiulong,  were subject to a tax rate of 15% during
2002  and  2003.  The tax  rate  for the  Company's  three  other  subsidiaries,
Shenyang, Zhejiang and Zhejiang, has not been ratified. Certain of the Company's
Sino-foreign  joint  ventures  are  also  entitled  to a  two-year  tax  holiday
commencing with the first profit-making year.                                   

Had these tax holidays and concessions  not been  available,  income tax expense
(net of the  allocation  to minority  interests)  would have been  increased  by
approximately  $1,382,000  or $0.06 per share for the year  ended  December  31,
2003.                                                                           

No  provision  for Hong  Kong  profits  tax has been  made as Ji Long and  Great
Genesis are investment holding companies and did not have any assessable profits
in Hong Kong in 2003.                                                           

The  reconciliation  of the  effective  income  tax rate of the  Company  to the
statutory  income tax rate in the PRC for the year ended December 31, 2003 is as
follows:                                                                        

Statutory tax rate                        33%                                   
Tax holidays and concessions             (17)                                   
      --
Effective tax rate                        16%                                   
      ==

During the year ended December 31, 2003, one of the Company's Sino-foreign joint
ventures,  Henglong,  received an income tax refund of $521,000,  which has been
reflected as a reduction to income tax expense in the accompanying  consolidated
statements of operations.                                                       

17.  Significant Concentrations                                                 

The Company grants credit to its customers,  generally on an open account basis.
The Company's customers are all located in the PRC.                             

The  Company's  ten  largest  customers  accounted  for 73.18% of the  Company's
consolidated  sales,  with three  customers  accounting  for in excess of 10% of
consolidated sales, with 25.02%,  11.08% and 10.49% of consolidated sales, or an
aggregate of 46.59% of consolidated sales.                                      

At December 31, 2003,  approximately 34% of accounts  receivable were from trade
transactions with the aforementioned three customers.                           

18.  Related Party Transactions                                                 

Effective  August 2, 2003,  the Company  entered  into a  five-year  License and
Technical  Assistance  Agreement  (the  "Agreement")  with  Sino-American,  Inc.
("Sino-American"),  a United States company controlled by the Company's Chairman
and  controlling  shareholder.  The  Agreement  provided  for total  payments of

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$6,000,000  to  enable   Sino-American  to  purchase  technical  assistance  and
equipment for use in the Company's business operations in China. During November
2003,  $2,000,000  was paid by the  Company  to  Sino-American,  which  has been
classified as advance payments in the consolidated balance sheet at December 31,
2003, net of amounts expended through such date.                                

This  agreement  also  allowed the  Company to transfer  funds from China to the
United States to fund normal corporate general and administrative expenses.     

Through  December  31,  2003,  Sino-American  had paid,  on behalf of or for the
benefit of the Company, a total of $1,136,737,  including $255,000 for equipment
and $180,000 for software to unrelated third parties,  $250,000 to the Company's
Chairman and controlling  shareholder as reimbursement for costs incurred by him
related to the March 2003  recapitalization,  and $451,737 for selling,  general
and administrative  expenses for the benefit of or on behalf of the Company.  As
this Agreement was terminated  effective  April 1, 2004, it is expected that any
funds not expended will be repaid to the Company by May 1, 2004.                

During December 2002, the Company entered into three  transactions with entities
controlled by its chairman and controlling  shareholder  involving the Company's
minority  interest  ownership in certain of its  Sino-foreign  joint ventures as
follows: (1) the Company acquired a 21% interest in Jiulong for $6,320,241;  (2)
the  Company  acquired a 7% interest in  Henglong  for  $3,310,602;  and (3) the
Company transferred a 7% interest in Henglong in exchange for an 11% interest in
Jiulong.  The  amounts  due  to  or  from  the  chairman  resulting  from  these
transactions  were accounted for as increases or decreases to the amounts due to
or from shareholders/directors and were recorded at fair value, as determined by
an independent  appraisal firm. The difference between fair value and book value
resulting  from the  disposition  of joint  venture  interests  was  credited to
additional paid-in capital. With respect to consideration paid by the Company in
excess of the chairman's  basis in his investment,  such excess has been charged
to additional  paid-in capital as a distribution  to the chairman,  resulting in
the acquired investment being recorded by the Company at the chairman's original
cost basis.                                                                     

During year ended  December 31, 2003,  the joint  ventures  entered into related
party transactions with companies with common directors as shown below:         

Sales                                         
-  received           $ 2,020,650             
-  receivable           1,248,328             

Purchases                                     
-  paid                   931,808             
-  payable              1,175,006             

These  transactions  were  consummated  under  similar  terms as those  with the
Company's customers and suppliers.                                              

19.  Commitments and Contingencies                                              

Legal  Proceedings - The Company is not  currently a party to any  threatened or
pending  legal  proceedings,  other than  incidental  litigation  arising in the
ordinary  course  of  business.  In the  opinion  of  management,  the  ultimate
disposition  of these  matters  will not have a material  adverse  effect on the
Company's consolidated financial position, results of operations or cash flows. 

License  Agreement  - On  October  29,  2001,  Henglong,  one of  the  Company's
Sino-foreign  joint  ventures,  entered into a ten year license  agreement  with
Bishop Steering Technology Limited ("Bishop"),  an Australian company engaged in
the design of power steering  systems.  Pursuant to the  agreement,  Henglong is
obligated  to pay Bishop an annual  technical  assistance  fee of  approximately
$200,000 per year during the first two years of the  agreement  and $110,000 per
year  during the  remaining  eight years of the  agreement,  and a royalty to be
determined.                                                                     

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License and Technical Assistance Agreement - On July 21, 2003, Henglong,  one of
the Company's Sino-foreign joint ventures,  entered into a five year license and
technical assistance agreement with Namyang Industrial Co. Ltd.  ("Namyang"),  a
Korean  company  engaged in the  manufacture  of steering  columns and universal
joint  assemblies  for  automobiles.  Pursuant to the  agreement,  Henglong paid
Namyang an initial payment of $100,000 and is further obligated to pay a royalty
of 3% of the sales price of products sold that include the licensed technology. 

Capital Commitments -                                                           

During October 2003, Henglong, one of the Company's Sino-foreign joint ventures,
signed an agreement with the  management  council of Wuhu Science and Technology
Zone to invest  $10,000,000  to develop an  industrial  enterprise  to carry out
automobile  component projects related to power steering systems.  The agreement
does not specify a time limit. The Company plans to invest in phases over a five
year period.  The Company  plans to invest  approximately  $870,000 in the first
phase to acquire land rights,  which will be completed  during 2004. The Company
advanced  approximately $435,000 during 2003 pursuant to the agreement under the
first phase. This new plant is expected to service a large vehicle  manufacturer
in Wuhu at reduced transportation and storage costs.                            

During March 2003,  Henglong signed a purchase and  construction  agreement with
Wuhan  Huazhong  Shuguang  Software Park Co., Ltd. for  $4,820,000 to design and
construct a software  research and  development  facility.  This  facility  will
design  software  and  other  products  for the  automobile.  The  Company  paid
$2,421,300  during  2003.  According to the  agreement,  the Company will pay an
additional  $952,900 during 2004 and pay off the remaining  $1,445,800  after it
receives  a  license  for the  right  to use the land  and a  building  property
certificate. This new software research and development facility will be located
in an area of Hubei  Province that contains ten  well-known  universities  and a
large vehicle manufacturer.                                                     

On October 20, 2003, Henglong, one of the Company's Sino-foreign joint ventures,
entered into a contract to purchase a land use right  relating to parcel of land
for  $3,680,000  and paid a $361,000  deposit.  This  transaction is expected to
close in 2004.                                                                  

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20. Information with Respect to the Company's Sino-Foreign Joint Ventures                         

For the year  ended  December  31,  2002,  the  Company's  financial  statements                  
included the Company's  investments in Sino-foreign joint ventures accounted for                  
under the equity method of accounting.                                                            

As of December 31, 2003 and 2002, the condensed  balance sheets of the Company's                  
Sino-foreign joint ventures were as follows:                                                      

                         Henglong                     Jiulong                     Shenyang        
                     2003          2002          2003          2002          2003          2002   
                 -----------   -----------   -----------   -----------   -----------   -----------
                                                                                                  
Current                                                                                           
assets            35,336,427    27,358,000    26,575,218    18,334,000     6,716,225     2,406,000

Non-current                                                                                       
Assets            11,633,355    11,353,000     1,528,072     1,519,000     3,294,543     2,427,000
                 -----------   -----------   -----------   -----------   -----------   -----------

Total assets      46,969,782    38,711,000    28,103,290    19,853,000    10,010,768     4,833,000
                 ===========   ===========   ===========   ===========   ===========   ===========
Current                                                                                           
Liabilities       28,831,634    22,880,000    16,888,077    10,849,000     2,761,733     1,258,000

Non-current                                                                                       
liabilities          192,459       196,000          --            --           4,089         9,000

Shareholders'                                                                                     
equity            17,945,689    15,635,000    11,215,213     9,004,000     7,244,946     3,566,000
                 -----------   -----------   -----------   -----------   -----------   -----------
Total                                                                                             
liabilities                                                                                       
and                                                                                               
shareholders'                                                                                     
equity            46,969,782    38,711,000   218,103,290    19,853,000    10,010,768     4,833,000
                 ===========   ===========   ===========   ===========   ===========   ===========

                          Zhejiang                   Jingzhou                      Total          
                     2003          2002          2003          2002          2003          2002   
                 -----------   -----------   -----------   -----------   -----------   -----------
Current                                                                                           
asset              3,358,264     2,450,000     1,003,992          --      72,990,126    50,548,000

Non-current                                                                                       
Assets             3,251,814     2,993,000     2,233,702          --      21,941,486    18,292,000
                 -----------   -----------   -----------   -----------   -----------   -----------

Total assets       6,610,078     5,443,000     3,237,694          --      94,931,612    68,840,000
                 ===========   ===========   ===========   ===========   ===========   ===========
Current                                                                                           
Liabilities        1,877,718       494,000     2,282,952          --      52,642,114    35,481,000

Non-current                                                                                       
liabilities             --            --            --            --         196,548       205,000

Shareholders'                                                                                     
equity             4,732,360     4,949,000       954,742          --      42,092,950    33,154,000
                 -----------   -----------   -----------   -----------   -----------   -----------
Total                                                                                             
liabilities                                                                                       
and                                                                                               
shareholders'                                                                                     
equity             6,610,078     5,443,000     3,237,694          --      94,931,612    68,840,000
                 ===========   ===========   ===========   ===========   ===========   ===========

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For the years ended  December 31, 2003 and 2002,  the  condensed  statements  of                                                 
operations of the Company's Sino-foreign joint ventures are presented below.                                                     

The condensed  statements of  operations  of the  Company's  Sino-foreign  joint                                                 
ventures for the year ended  December 31, 2003  excludes  corporate  general and                                                 
administrative  expense of $1,109,000,  stock-based  compensation of $1,300,000,                                                 
and non-operating income of $106,000.                                                                                            

                              Henglong                     Jiulong                     Shenyang                  zhejiang        
                       ----------    ----------    ----------    ----------    ----------    ----------  ----------    ----------
                          2003          2002          2003          2002          2003          2002        2003          2002   
                       ----------    ----------    ----------    ----------    ----------    ----------  ----------    ----------
                                                                                                                                 
Proportionate                                                                                                                    
ownership interest                                                                                                               
at end of year                42%           42%           81%           81%           55%        37.60%         51%           51%
                       ----------    ----------    ----------    ----------    ----------    ----------  ----------    ----------
Net sales              33,929,946    26,007,000    18,660,367    10,789,000    13,173,434     4,022,000   1,678,018        66,000
                       ----------    ----------    ----------    ----------    ----------    ----------  ----------    ----------
Cost of goods sold     21,242,707    14,841,000     9,695,034     5,881,000     9,964,598     3,814,000   1,215,407        69,000
                       ----------    ----------    ----------    ----------    ----------    ----------  ----------    ----------
Gross profit           12,687,239    11,166,000     8,965,333     4,908,000     3,208,836       208,000     462,611        -3,000
                       ----------    ----------    ----------    ----------    ----------    ----------  ----------    ----------
Selling expenses        1,434,715       632,000     1,078,316     1,900,000        85,499        28,000     121,046        18,000
                       ----------    ----------    ----------    ----------    ----------    ----------  ----------    ----------
General and                                                                                                                      
administrative                                                                                                                   
expenses                2,724,473     2,109,176     2,764,807     2,242,409       646,879       346,906     359,116       113,343
                       ----------    ----------    ----------    ----------    ----------    ----------  ----------    ----------
Research &                                                                                                                       
Development expenses      809,914        59,753       201,627       164,881          --            --         5,490         1,257
                       ----------    ----------    ----------    ----------    ----------    ----------  ----------    ----------
Depreciation and                                                                                                                 
amortization              757,219       167,071       263,925        99,710       139,168        20,094     161,290         4,400
                       ----------    ----------    ----------    ----------    ----------    ----------  ----------    ----------
Stock-based                                                                                                                      
compensation                                                                                                                     
                       ----------    ----------    ----------    ----------    ----------    ----------  ----------    ----------
Income (loss) from                                                                                                               
operations              6,960,918     8,198,000     4,656,658       501,000     2,337,290      -187,000    -184,331      -140,000
                       ----------    ----------    ----------    ----------    ----------    ----------  ----------    ----------
Finance costs             209,146       145,000       126,025        17,000        -1,667        -2,000       1,081        -6,000
                       ----------    ----------    ----------    ----------    ----------    ----------  ----------    ----------
Other income                                                                                                                     
(expense), net            228,587       451,000       139,989       216,000         9,553         9,000      49,303          --  
                       ----------    ----------    ----------    ----------    ----------    ----------  ----------    ----------
Income (loss)                                                                                                                    
before income taxes     6,980,359     8,504,000     4,670,622       700,000     2,348,510      -176,000    -136,109      -134,000
                       ----------    ----------    ----------    ----------    ----------    ----------  ----------    ----------
Income taxes              777,485     1,303,000       973,455       302,000          --            --          --            --  
                       ----------    ----------    ----------    ----------    ----------    ----------  ----------    ----------
Net income (loss)       6,202,874     7,201,000     3,697,167       398,000     2,348,510      -176,000    -136,109      -134,000
                       ----------    ----------    ----------    ----------    ----------    ----------  ----------    ----------
Equity in income                                                                                                                 
(loss) of joint                                                                                                                  
ventures                2,605,207     3,989,000     2,691,050       311,000     1,409,106       -65,000     -69,416       -75,000
                       ----------    ----------    ----------    ----------    ----------    ----------  ----------    ----------

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                               Jingzhou                  Elimination                     Total                                   
                       ----------    ----------    -----------   ----------    ----------    ----------                          
                          2003          2002          2003          2002          2003          2002                             
                       ----------    ----------    -----------   ----------    ----------    ----------                          
Proportionate                                                                                                                    
ownership interest                                                                                                               
at end of year                51%                                                                                                
                       ----------    ----------    -----------   ----------    ----------    ----------                          
Net sales               1,702,306          --      -13,816,897   -7,084,000    55,327,174    33,800,000                          
                       ----------    ----------    -----------   ----------    ----------    ----------                          
Cost of goods sold      1,764,293          --      -13,481,838   -7,084,000    30,400,201    17,521,000                          
                       ----------    ----------    -----------   ----------    ----------    ----------                          
Gross profit              -61,987             0    -335,059               0    24,926,973    16,279,000                          
                       ----------    ----------    -----------   ----------    ----------    ----------                          
Selling expenses           13,849          --             --           --       2,733,425     2,578,000                          
                       ----------    ----------    -----------   ----------    ----------    ----------                          
General and                                                                                                                      
administrative                                                                                                                   
expenses                  118,749          --             --           --       6,614,024     4,811,834                          
                       ----------    ----------    -----------   ----------    ----------    ----------                          
Research &                                                                                                                       
Development expenses         --            --             --           --       1,017,031       225,891                          
                       ----------    ----------    -----------   ----------    ----------    ----------                          
Depreciation and                                                                                                                 
amortization               45,569          --             --           --       1,367,171       291,275                          
                       ----------    ----------    -----------   ----------    ----------    ----------                          
Stock-based                                                                                                                      
compensation                                                                                                                     
                       ----------    ----------    -----------   ----------    ----------    ----------                          
Income (loss) from                                                                                                               
operations               -240,154             0       -335,059            0    13,195,322     8,372,000                          
                       ----------    ----------    -----------   ----------    ----------    ----------                          
Finance costs              11,387          --           -1,249         --         344,723       154,000                          
                       ----------    ----------    -----------   ----------    ----------    ----------                          
Other income                                                                                                                     
(expense), net              1,464          --             --           --         428,896       676,000                          
                       ----------    ----------    -----------   ----------    ----------    ----------                          
Income (loss)                                                                                                                    
before income taxes      -250,077             0       -333,810            0    13,279,495     8,894,000                          
                       ----------    ----------    -----------   ----------    ----------    ----------                          
Income taxes                 --            --             --           --       1,750,940     1,605,000                          
                       ----------    ----------    -----------   ----------    ----------    ----------                          
Net income (loss)        -250,077             0       -333,810            0    11,528,555     7,289,000                          
                       ----------    ----------    -----------   ----------    ----------    ----------                          
Equity in income                                                                                                                 
(loss) of joint                                                                                                                  
ventures                 -127,539          --         -333,810         --       6,174,598     4,160,000                          
                       ----------    ----------    -----------   ----------    ----------    ----------                          

F-28

10KSB/A
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21.  Restatement                                                                

In conjunction with the Company's audit of its consolidated financial statements
for the year ended December 31, 2003, the Company identified certain adjustments
to its  financial  statements  relating to the year ended  December  31, 2002. A
summary of the effect of these  adjustments  to the statement of operations  for
the year ended December 31, 2002 is as follows:                                 

Net income, as reported                           $  4,731,000                  

Adjustments to:                                                                 

Write-off intangible assets                                                 
improperly deferred at                                                  
December 31, 2002                                  (52,000)             
Record sales bonus not                                                      
properly accrued at                                                     
December 31, 2002                                 (520,000)             
                                ------------
Net income, as revised                            $  4,159,000                  
                                ============

Net income per common share -                                                   
basic and diluted - as reported                 $       0.23                

Adjustments to:                                                                 

Write-off intangible assets                                                 
improperly deferred at                                                  
December 31, 2002                                     --                
Record sales bonus not                                                      
properly accrued at                                                     
December 31, 2002                                    (0.03)             
                                ------------
Net income per common share -                                                   
basic and diluted - as adjusted                 $       0.20                
                                ============

Weighted average common shares                                                  
outstanding - basic and diluted                   20,914,250                
                                ============

F-29

10KSB/A
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22.  Restatement to financial statements                                        

Based on the comments from the Securities and Exchange  Commission,  the company
amended the consolidated statement of cash flows for the year ended December 31,
2003 and  extended  or  modified  certain  notes to the  consolidated  financial
statements to provide additional information as detailed below. The consolidated
balance sheets,  consolidated statements of operations,  consolidated statements
of  comprehensive  income and consolidated  statements of  stockholders'  equity
remained unchanged.                                                             

The following table presents the effects of the aforementioned amendments to the
consolidated  statement of cash flows,  reflecting  interest paid of $330,167 as
"net cash provided by operating  activities" instead of as "net cash provided by
financing  activities".  Certain  other items  included in "net cash provided by
operating activities" were also reclassified.                                   

                                                2003
                                                 -------------------------------
                                                   $                   $
                                                 As restated       As previously
                                                                        reported
Net cash provided by operating activities          3,925,587           4,255,754
Net cash provided by financing activities         10,384,665          10,054,498

The  following  notes have been  expanded  or  modified  to  provide  additional
information: Notes 1, 2, 6, 9, 11 and 20.                                       

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘10KSB/A’ Filing		Date		First		Last			Other Filings
		12/31/04		26					10KSB,  10KSB/A
Filed on:		10/29/04							8-K/A
		10/26/04		40
		10/20/04		39
		5/1/04		64
		4/21/04		37
		4/12/04		1
		4/1/04		40		64
		3/15/04		14
		2/28/04		61
		2/14/04		40
For Period End:		12/31/03		1		70			10KSB,  NT 10-K
		10/20/03		27		65
		9/30/03		21					10QSB
		8/2/03		37		63
		7/21/03		27		65
		6/30/03		30		58			10QSB,  NT 10-Q
		6/15/03		30		58
		5/31/03		30		58
		5/22/03		51					10QSB
		5/19/03		4					8-K/A
		5/6/03		31		32			8-K
		3/10/03		3					3
		3/5/03		3		50			8-K,  8-K/A
		3/4/03		15		50
		1/31/03		30		59
		1/8/03		51
		1/3/03		15		50
		1/1/03		17		59
		12/31/02		16		69			10KSB
		12/15/02		29		58
		12/12/02		51
		8/23/02		3
		5/15/02		29		58
		1/1/02		46
		12/31/01		31		61			10KSB40,  10KSB40/A
		10/29/01		27		64
		6/29/99		3
		12/1/98		28
		1/1/94		57
		10/8/92		15		50
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