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<SEC-DOCUMENT>0001127855-05-000100.txt : 20050211
<SEC-HEADER>0001127855-05-000100.hdr.sgml : 20050211
<ACCEPTANCE-DATETIME>20050211171953
ACCESSION NUMBER:		0001127855-05-000100
CONFORMED SUBMISSION TYPE:	6-K
PUBLIC DOCUMENT COUNT:		2
CONFORMED PERIOD OF REPORT:	20050208
FILED AS OF DATE:		20050211
DATE AS OF CHANGE:		20050211

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			SINOVAC BIOTECH LTD
		CENTRAL INDEX KEY:			0001084201
		STANDARD INDUSTRIAL CLASSIFICATION:	PHARMACEUTICAL PREPARATIONS [2834]
		IRS NUMBER:				000000000
		STATE OF INCORPORATION:			B9
		FISCAL YEAR END:			0430

	FILING VALUES:
		FORM TYPE:		6-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-32371
		FILM NUMBER:		05600201

	BUSINESS ADDRESS:	
		STREET 1:		39 SHANGDI XI ROAD
		STREET 2:		HAIDIAN DISTRICT
		CITY:			BEIJING
		STATE:			F4
		ZIP:			100085
		BUSINESS PHONE:		86-10-82890088

	MAIL ADDRESS:	
		STREET 1:		39 SHANGDI XI ROAD
		STREET 2:		HAIDIAN DISTRICT
		CITY:			BEIJING
		STATE:			F4
		ZIP:			100085

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	NET FORCE SYSTEMS INC
		DATE OF NAME CHANGE:	19991110
</SEC-HEADER>
<DOCUMENT>
<TYPE>6-K
<SEQUENCE>1
<FILENAME>sinovac6k020805.txt
<DESCRIPTION>SINOVAC BIOTECH 6K, 02.08.05
<TEXT>






                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549


                                    FORM 6-K
                                    --------


  REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE
                         SECURITIES EXCHANGE ACT OF 1934


For the month of February, 2005

Commission File Number: 0-29031

                              SINOVAC BIOTECH LTD.
                              --------------------
                       (Name of Registrant in its charter)

                               ANTIGUA and BARBUDA
                               -------------------
         (State or other jurisdiction of incorporation or organization)

                               39 Shangdi Xi Road
                            Haidian District, Beijing
                                  China 100085
                            -------------------------
              (Address of principal executive offices and zip code)

                               Tel: 86-10-82890088
                               Fax: 86-10-62966910
                               -------------------
                      (Issuer's telephone and fax numbers)

Indicate by check mark whether the registrant  files or will file annual reports
under cover Form 20-F or Form 40-F

          Form 20-F  X          Form 40-F
                   -----                 -----

Indicate by check mark whether the  registrant  by  furnishing  the  information
contained  in this  Form is  also  thereby  furnishing  the  information  to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

          Yes                   No  X
             -----                -----

If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b): 82-
                                   -----



<PAGE>






INDEX
- -----

Item
- ----

1.   Interim financial  statements for the nine month period ended September 30,
     2004
2.   Management  discussion  and  analysis  for  the  nine  month  period  ended
     September 30, 2004
3.   Quantitative and qualitative disclosures about market risk
4.   Press Release dated February 9, 2005 - Exhibit 99.1


Item 1. Interim  financial  statements for the nine month period ended September
- --------------------------------------------------------------------------------
30, 2004
- --------










                              SINOVAC BIOTECH LTD.
                              --------------------
                              (formerly Net-Force Systems Inc.)

                              Consolidated Financial Statements
                              (Unaudited)
                              (Expressed in U.S. Dollars)

                               September 30, 2004






                              Index
                              -----

                              Consolidated Balance Sheets

                              Consolidated Statements of Stockholders' Equity

                              Consolidated Statements of Operations

                              Consolidated Statements of Cash Flows

                              Notes to Consolidated Financial Statements


<PAGE>




<TABLE>
<CAPTION>
SINOVAC BIOTECH LTD.
- --------------------
(formerly Net-Force Systems Inc.)

Consolidated Balance Sheets
(Expressed in U.S. Dollars)
=====================================================================================================
                                                                     September 30         December 31
                                                                             2004                2003
- -----------------------------------------------------------------------------------------------------
                                                                      (Unaudited)
ASSETS

<S>                                                              <C>                 <C>
Current assets
  Cash and cash equivalents                                      $     2,118,282     $     1,420,047
  Accounts receivable - net (Note 3)                                   2,512,019           1,470,761
  Inventories (Note 4)                                                   750,381           1,047,920
  Promissory note - related party (Note 9)                             2,341,361                   -
  Deferred financing charge                                               54,333                   -
  Prepaid expenses and deposits                                          496,441              13,723
- -----------------------------------------------------------------------------------------------------

Total current assets                                                   8,272,817           3,952,451

Property, plant and equipment                                          9,126,848           7,459,883

Due from related parties (Note 11)                                     3,338,317             947,267

Licenses and permits                                                   2,392,474           2,538,115
- -----------------------------------------------------------------------------------------------------

Total assets                                                     $    23,130,456     $    14,897,716
=====================================================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
  Loans payable (Note 8)                                         $     1,403,623     $       752,415
  Accounts payable and accrued liabilities                             1,580,115           1,483,690
  Due to related parties (Note 11)                                     2,232,277           1,170,474
  Deferred research grants                                             1,204,439                   -
- -----------------------------------------------------------------------------------------------------

Total current liabilities                                              6,420,454           3,406,579

Loans payable (Note 8)                                                 1,395,914             603,865
- -----------------------------------------------------------------------------------------------------

Total liabilities                                                      7,816,368           4,010,444
- -----------------------------------------------------------------------------------------------------

Minority interest                                                      4,702,528           4,737,656
- -----------------------------------------------------------------------------------------------------

STOCKHOLDERS' EQUITY

Preferred stock                                                                -                   -
  Authorized 50,000,000 shares at par value of $0.001 each
  Issued and outstanding: nil

Common stock                                                              34,824              27,091
  Authorized: 100,000,000 shares at par value of $0.001 each
  Issued and outstanding:  34,823,233 (2003 - 27,091,033)

Subscription received                                                    226,381           1,031,959

Additional paid in capital                                            15,428,305           5,798,220

Accumulated other comprehensive income (loss)                             (4,580)                206

Accumulated deficit                                                   (5,073,370)           (707,860)
- -----------------------------------------------------------------------------------------------------

Total stockholders' equity                                            10,611,560           6,149,616
- -----------------------------------------------------------------------------------------------------

Total liabilities and stockholders' equity                       $    23,130,456     $    14,897,716
=====================================================================================================
</TABLE>



The accompanying notes are an integral part of these financial statements.
<PAGE>




<TABLE>
<CAPTION>
SINOVAC BIOTECH LTD.
(formerly Net-Force Systems Inc.)

Consolidated Statements of Stockholders' Equity
(Unaudited)
(Expressed in U.S. Dollars)
===========================================================================================================================

                                                                                                     Compre-
                                                           Common stock            Additional        hensive
                                                    --------------------------        paid in         income        Deficit
                                                         Shares        Amount         capital         (loss)    accumulated
- ---------------------------------------------------------------------------------------------------------------------------

<S>                                                 <C>           <C>            <C>            <C>            <C>
Recapitalization as a result of reverse
  acquisition (Note 1)                                        -   $         -    $ 8,007,871    $         -    $   (77,408)

Contribution of drug licenses for shares at
  transferor's cost                                           -             -        458,634              -              -

Subscriptions receivable received                             -             -              -              -              -

Component of comprehensive income (loss)
- - Net (loss) for the period                                   -             -              -       (592,208)      (592,208)
- ---------------------------------------------------------------------------------------------------------------------------

Comprehensive (loss)                                                                            $  (592,208)
                                                                                                ============

Balance, December 31, 2002                                    -             -      8,466,505                      (669,616)

Debt exchange for shares (Note 10c)                           -             -      2,608,696              -              -

Recapitalization adjustment (Note 1)                 10,000,000        10,000    (5,436,848)              -        423,295

Recapitalization to effect the acquisition of
  Net-Force (Note 1)                                 17,091,033        17,091       (16,991)              -              -
- ---------------------------------------------------------------------------------------------------------------------------

Balance after recapitalization adjustment            27,091,033        27,091      5,621,362              -       (246,321)

Imputed interest on advances from related parties             -             -         57,277              -              -

Stock-based compensation                                      -             -        119,581              -              -

Subscriptions received                                        -             -              -              -              -

Components of comprehensive income (loss)

- - Foreign currency translation                                -             -              -            206              -

- - Net (loss) for the period                                   -             -              -       (461,539)      (461,539)
- ---------------------------------------------------------------------------------------------------------------------------

Comprehensive (loss)                                                                            $  (461,333)
                                                                                                ============

Balance, December 31, 2003                           27,091,033   $    27,091    $ 5,798,220                   $  (707,860)
============================================================================================                   ============



<PAGE>




<CAPTION>
(con't)
===============================================================================================
                                                     Accumulated
                                                           Other     Subscript-
                                                         compre-           ions           Total
                                                         hensive   (receivable)   stockholders'
                                                          Income   and received          equity
- -----------------------------------------------------------------------------------------------

<S>                                                 <C>            <C>            <C>
Recapitalization as a result of reverse
  acquisition (Note 1)                              $         -    $(1,020,139)   $  6,910,324

Contribution of drug licenses for shares at
  transferor's cost                                           -              -         458,634

Subscriptions receivable received                             -      1,020,139       1,020,139

Component of comprehensive income (loss)
- - Net (loss) for the period                                   -              -        (592,208)
- -----------------------------------------------------------------------------------------------

Comprehensive (loss)


Balance, December 31, 2002                                    -              -       7,796,889

Debt exchange for shares (Note 10c)                           -              -       2,608,696

Recapitalization adjustment (Note 1)                          -              -      (5,003,553)

Recapitalization to effect the acquisition of
  Net-Force (Note 1)                                          -              -             100
- -----------------------------------------------------------------------------------------------

Balance after recapitalization adjustment                     -              -       5,402,132

Imputed interest on advances from related parties             -              -          57,277

Stock-based compensation                                      -              -         119,581

Subscriptions received                                        -      1,031,959       1,031,959

Components of comprehensive income (loss)

- - Foreign currency translation                              206              -             206

- - Net (loss) for the period                                   -              -        (461,539)
- -----------------------------------------------------------------------------------------------

Comprehensive (loss)


Balance, December 31, 2003                          $       206    $ 1,031,959    $  6,149,616
===============================================================================================



The accompanying notes are an integral part of these financial statements.
<PAGE>


<CAPTION>
SINOVAC BIOTECH LTD.
- --------------------
(formerly Net-Force Systems Inc.)

Consolidated Statements of Stockholders' Equity
- - continued
(Unaudited)
(Expressed in U.S. Dollars)
===========================================================================================================================

                                                                                                     Compre-
                                                           Common stock            Additional        hensive
                                                    --------------------------        paid in         income        Deficit
                                                         Shares        Amount         capital         (loss)    accumulated
- ---------------------------------------------------------------------------------------------------------------------------

<S>                                                 <C>           <C>            <C>            <C>            <C>
Balance, December 31, 2003                           27,091,033   $    27,091    $ 5,798,220                   $  (707,860)

Imputed interest on advances from related parties             -             -            262              -              -

Stock-based compensation                                      -             -      3,220,958              -              -

Common shares issued in connection with
acquisition of Tangshan Yian                          3,500,000         3,500      1,569,543              -              -

Private placement                                     4,179,200         4,179      4,745,821

Exercise of stock options                                40,500            41         53,014              -              -

Stock issued for services                                12,500            13         40,487              -              -

Subscription received                                         -             -              -              -              -

Components of comprehensive income (loss)

- - Foreign currency translation                                -             -              -         (4,786)             -

- - Net (loss) for the period                                   -             -              -     (4,365,510)    (4,365,510)
- ---------------------------------------------------------------------------------------------------------------------------

Comprehensive (loss)                                                                            $(4,370,296)
                                                                                                ============

Balance, September 30, 2004                          34,823,233   $    34,824    $15,428,305                   $(5,073,370)
============================================================================================                   ============

<CAPTION>
(con't)
===============================================================================================
                                                     Accumulated
                                                           Other     Subscript-
                                                         compre-           ions           Total
                                                         hensive   (receivable)   stockholders'
                                                          Income   and received          equity
- -----------------------------------------------------------------------------------------------

<S>                                                 <C>            <C>            <C>
Balance, December 31, 2003                          $       206    $ 1,031,959    $  6,149,616

Imputed interest on advances from related parties             -              -             262

Stock-based compensation                                      -              -       3,220,958

Common shares issued in connection with
acquisition of Tangshan Yian                                  -              -       1,573,043

Private placement                                                   (1,031,959)      3,718,041

Exercise of stock options                                     -              -          53,055

Stock issued for services                                     -              -          40,500

Subscription received                                         -        226,381         226,381

Components of comprehensive income (loss)

- - Foreign currency translation                           (4,786)             -          (4,786)

- - Net (loss) for the period                                   -              -      (4,365,510)
- -----------------------------------------------------------------------------------------------

Comprehensive (loss)


Balance, September 30, 2004                         $    (4,580)   $   226,381    $ 10,611,560
===============================================================================================
</TABLE>

The accompanying notes are an integral part of these financial statements.
<PAGE>




<TABLE>
<CAPTION>
SINOVAC BIOTECH LTD.
- --------------------
(formerly Net-Force Systems Inc.)

Consolidated Statements of Operations
(Unaudited)
(Expressed in U.S. Dollars)
======================================================================================
                                                      Three Months         Nine Months
                                                             Ended               Ended
                                                      September 30        September 30
                                                              2004                2004
- --------------------------------------------------------------------------------------

<S>                                               <C>                 <C>
Sales                                             $     1,279,725     $     3,571,283

Cost of sales                                             490,389           1,252,348
- --------------------------------------------------------------------------------------

Gross profit                                              789,336           2,318,935
- --------------------------------------------------------------------------------------

Selling, general and administrative expenses            1,174,652           3,035,981

Stock-based compensation                                  982,860           3,220,958

Research and development expenses                          35,472             172,630

Interest and financing expenses                            97,622             269,809

Depreciation of property, plant and equipment
  and amortization of licenses and permits                 90,687             263,148
- --------------------------------------------------------------------------------------

Total operation expenses                                2,381,293           6,962,526
- --------------------------------------------------------------------------------------

Operating loss                                         (1,591,957)         (4,643,591)

Interest income                                            72,003             242,938
- --------------------------------------------------------------------------------------

Net (loss) before minority interests                   (1,519,954)         (4,400,653)

Minority interest share of loss                            43,740              35,143
- --------------------------------------------------------------------------------------

Net (loss) for the period                         $    (1,476,214)    $    (4,365,510)
======================================================================================

(Loss) per share - basic and diluted              $      (   0.04)    $      (   0.14)
======================================================================================

Weighted average number of
  common stocks outstanding
   - Basic and diluted                                 33,278,162          31,975,688
======================================================================================
</TABLE>


The accompanying notes are an integral part of these financial statements.
<PAGE>




<TABLE>
<CAPTION>
SINOVAC BIOTECH LTD.
- --------------------
(formerly Net-Force Systems Inc.)

Consolidated Statements of Cash Flows
(Unaudited)
(Expressed in U.S. Dollars)
=====================================================================================================
                                                                     Three Months         Nine Months
                                                                            Ended               Ended
                                                                     September 30        September 30
                                                                             2004                2004
- -----------------------------------------------------------------------------------------------------

<S>                                                              <C>                 <C>
Cash flows from (used in) operating activities
  Net (loss) for the period                                      $    (1,476,214)    $    (4,365,510)
  Adjustments to reconcile net (loss) to net cash
    used by operating activities:
  - stock-based compensation                                             982,860           3,220,958
  - stock issued for services                                             40,500              40,500
  - provision for doubtful debts                                          46,153             289,734
  - interest accrued on promissory note                                   (9,227)           (102,487)
  - imputed interest on advances received from
     related parties                                                           -                 262
  - depreciation of property, plant and equipment
     and amortization of licenses and permits                            178,455             596,095
  - amortization of financing charge                                      31,286              30,878
  - minority interests share of loss                                     (43,740)            (35,143)
  Change in other assets and liabilities (net of effect of
    acquisition of subsidiary):
  - accounts receivable                                                 (139,298)         (1,288,297)
  - inventories                                                          310,739             366,345
  - prepaid expenses and deposits                                       (464,281)           (482,915)
  - accounts payable and accrued liabilities                              44,712            (555,466)
- -----------------------------------------------------------------------------------------------------

Net cash used in operating activities                                   (498,055)         (2,285,046)
- -----------------------------------------------------------------------------------------------------

Cash flows from (used in) financing activities
  Loan proceeds, net of repayment                                        602,905             179,889
  Proceeds from issuance of shares                                       279,436           3,997,477
  Government grant received, net of qualified research                   (25,269)          1,415,215
     and development expenditures
  Advances from (to) related parties                                     (21,342)           (986,228)
- -----------------------------------------------------------------------------------------------------

Net cash provided by (used in) financing activities                      835,730           4,606,353
- -----------------------------------------------------------------------------------------------------

Cash flows from (used in) investing activities
  Cash acquired in connection with acquisition of subsidiary                   -              42,216
  Deposit on purchase of interest in subsidiary from related
     parties                                                          (1,079,910)         (1,079,910)
  Acquisition of property, plant and equipment                          (158,137)           (585,378)
- -----------------------------------------------------------------------------------------------------

Net cash used in investing activities                                 (1,238,047)         (1,623,072)
- -----------------------------------------------------------------------------------------------------

Increase (decrease) in cash and cash equivalents                        (900,372)            698,235

Cash and cash equivalents, beginning of period                         3,018,654           1,420,047
- -----------------------------------------------------------------------------------------------------

Cash and cash equivalents, end of period                         $     2,118,282     $     2,118,282
=====================================================================================================

Supplemental disclosure of cash flow information:
  Cash paid for interest, net of interest capitalized            $        18,837     $        62,844
=====================================================================================================
</TABLE>



The accompanying notes are an integral part of these financial statements.
<PAGE>




SINOVAC BIOTECH LTD.
- --------------------
(formerly Net-Force Systems Inc.)

Notes to Consolidated Financial Statements
September 30, 2004
(Unaudited)
(Expressed in U.S. Dollars)
================================================================================

1.   Nature of Business and Basis of Presentation
- -------------------------------------------------

     These unaudited  consolidated  financial  statements presented are those of
     Sinovac Biotech Ltd.,  formerly Net-Force Systems Inc., ("parent company"),
     its 51% owned subsidiary Sinovac Biotech Co., Ltd. ("Sinovac  Beijing") and
     its 100% owned subsidiary Tangshan Yian Bioengineering Co., Ltd. ("Tangshan
     Yian"). Collectively, they are referred to herein as "the Company".

     Sinovac Beijing was incorporated under the laws of China on April 28, 2001.
     It is in the business of research and development,  production and sales of
     pharmaceutical products in China.

     Tangshan Yian was incorporated under the laws of China on February 9, 1993.
     It is in the business of research and development,  production and sales of
     pharmaceutical products in China.

     The accompanying  unaudited interim consolidated  financial statements have
     been prepared by the  management  pursuant to the rules and  regulations of
     the Securities and Exchange  Commission and reflected all adjustments which
     are, in the opinion of the management,  necessary for a fair  presentation.
     The  results  of  operations  for the  interim  periods  presented  are not
     necessarily indicative of the results to be expected for the full year. The
     unaudited  interim  consolidated  financial  statements  should  be read in
     conjunction with the Company's  consolidated  financial  statements for the
     year ended December 31, 2003 included in the annual report previously filed
     on Form 20-F.

     Comparative  consolidated  statements of operations  and cash flows for the
     corresponding  period ended September 30, 2003 are not available as Sinovac
     Beijing was a private company until September 23, 2003.

2.   Significant Accounting Policies
- ------------------------------------

     (a)  Base of Presentation

          These  consolidated  financial  statements include the accounts of the
          parent company, its 51% owned subsidiary, Sinovac Beijing and its 100%
          owned  subsidiary,   Tangshan  Yian.  All  significant   inter-company
          transactions have been eliminated.

     (b)  Use of Estimates

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




<PAGE>


SINOVAC BIOTECH LTD.
- --------------------
(formerly Net-Force Systems Inc.)

Notes to Consolidated Financial Statements
September 30, 2004
(Unaudited)
(Expressed in U.S. Dollars)
================================================================================

2.   Significant Accounting Policies (continued)
- ------------------------------------------------

     (c)  Cash and Cash Equivalents

          Cash equivalents usually consist of highly liquid investments that are
          readily  convertible  to cash with  maturities of three months or less
          when purchased.

     (d)  Inventories

          Inventories  are  stated  at the  lower of cost or  market  with  cost
          generally  determined on a first-in,  first-out  basis.  Cost includes
          direct material, direct labour and overheads.

     (e)  Property, Plant and Equipment

          Property,   plant  and  equipment  are  recorded  at  cost,  including
          capitalized  interest  and  internal  engineering  costs.  Significant
          additions  and  improvements   are  capitalized,   while  repairs  and
          maintenance are charged to expenses as incurred.  Equipment  purchased
          for specific  research and  development  projects with no  alternative
          uses are  expensed.  Depreciation  of  property,  plant and  equipment
          generally  is computed  using the  straight-line  method  based on the
          estimated useful lives of the assets as follows:

               Land-use rights                         49 years
               Plant and building                      30 years
               Machinery and equipment                 8 - 10 years
               Motor vehicles                          5 years
               Office equipment and furniture          5 years
               Leasehold improvements                  Term of lease (5 years)

     (f)  Licenses and Permits

          Licenses  and  permits,  in  relation to the  production  and sales of
          pharmaceutical  products in China,  are  amortized on a  straight-line
          basis over their  useful  lives of 10 years.  Carrying  values of such
          assets are  reviewed  at least  annually  by  comparing  the  carrying
          amounts to their estimated  undiscounted net future cash flows.  There
          were no impairment  adjustments  to the carrying value of the licenses
          and permits for the nine months ended September 30, 2004.



<PAGE>




SINOVAC BIOTECH LTD.
- --------------------
(formerly Net-Force Systems Inc.)

Notes to Consolidated Financial Statements
September 30, 2004
(Unaudited)
(Expressed in U.S. Dollars)
================================================================================

2.   Significant Accounting Policies (continued)
- ------------------------------------------------

     (g)  Impairment of Long-Lived Assets

          The Company has adopted  Statement of Financial  Accounting  Standards
          ("SFAS")  No.  144  "Accounting  for the  Impairment  or  Disposal  of
          Long-Lived Assets". Long-lived assets and intangible assets subject to
          amortization are reviewed for impairment whenever events or changes in
          circumstances indicate that the carrying value of the asset may not be
          recoverable  from the future,  undiscounted net cash flows expected to
          be generated by the asset. If the asset is not fully  recoverable,  an
          impairment  loss would be recognized  for the  difference  between the
          carrying  value of the asset and its  estimated  fair  value  based on
          discounted net future cash flows or quoted market  prices.  There have
          been no impairment losses recognized to date.

     (h)  Income Taxes

          The Company has adopted  Statement of Financial  Accounting  Standards
          ("SFAS") No. 109,  "Accounting  for Income Taxes",  which requires the
          Company  to  recognize  deferred  tax  liabilities  and assets for the
          expected  future tax  consequences of events that have been recognized
          in the  Company's  financial  statements  or  tax  returns  using  the
          liability  method.  Under this method,  deferred tax  liabilities  and
          assets are determined based on the temporary  differences  between the
          financial  statements  and tax bases of assets and  liabilities  using
          enacted tax rates in effect in the years in which the  differences are
          expected to reverse.

     (i)  Revenue Recognition

          Sales revenue is recognized when persuasive evidence of an arrangement
          exists, the price is fixed and final,  delivery has occurred and there
          is  reasonable  assurance of  collection  of the sales  proceeds.  The
          Company generally obtains purchase  authorizations  from its customers
          for a specified  amount of products at a specified price and considers
          delivery to have  occurred when the customer  takes  possession of the
          products.  The Company  provides its customers with a limited right of
          return.  Revenue is  recognized  upon delivery and a reserve for sales
          returns is recorded.  The Company has demonstrated the ability to make
          reasonable  and reliable  estimates of products  returns in accordance
          with SFAS No. 48, Revenue Recognition When Right of Return Exists.

     (j)  Advertising Expenses

          Advertising  costs are  expensed as incurred  and  included in selling
          expenses.  Advertising  costs were  $10,725 for the nine months  ended
          September 30, 2004.



<PAGE>




SINOVAC BIOTECH LTD.
- --------------------
(formerly Net-Force Systems Inc.)

Notes to Consolidated Financial Statements
September 30, 2004
(Unaudited)
(Expressed in U.S. Dollars)
================================================================================

2.   Significant Accounting Policies (continued)
- ------------------------------------------------

     (k)  Research and Development

          Research and development  costs are charged to operations as incurred.
          Research and  development  costs are listed as a separate line item on
          the Company's statements of operations.

          Research  grants are taken into income as a reduction  of research and
          development   expenses  when  conditions  imposed  by  the  government
          authorities are fulfilled.

     (l)  Foreign Currency Transactions

          The parent  company and its  subsidiaries  maintain  their  accounting
          records in their functional currencies, i.e. U.S. dollars and Renminbi
          Yuan ("RMB")  respectively.  The Company  translates  foreign currency
          transactions into its functional currency in the following manner:

          At the transaction date, each asset, liability, revenue and expense is
          translated  into the  functional  currency by the use of the  exchange
          rate in effect at that  date.  At the  period  end,  foreign  currency
          monetary assets,  and liabilities are re-evaluated into the functional
          currency by using the  exchange  rate in effect at the  balance  sheet
          date. The resulting  foreign exchange gains and losses are included in
          operations.

     (m)  Foreign Currency Translations

          The  assets  and  liabilities  of the  foreign  subsidiaries,  Sinovac
          Beijing  and  Tangshan  Yian  (whose  functional  currency is Renminbi
          Yuan), are translated into U.S. dollars at exchange rates in effect at
          the balance sheet date. Revenue and expenses are translated at average
          exchange rate. Gain and losses from such  translations are included in
          stockholders' equity, as a component of other comprehensive income.

     (n)  Stock-based Compensation

          The  Company  has  adopted  the fair value  method of  accounting  for
          stock-based  compensation  recommended  by of  Statement  of Financial
          Accounting  Standards No. 123 (SFAS 123),  "Accounting for Stock-based
          Compensation".  On April 14, 2004 and  November 1, 2003,  the board of
          directors approved stock option plans that are described more fully in
          Note 12.



<PAGE>




SINOVAC BIOTECH LTD.
- --------------------
(formerly Net-Force Systems Inc.)

Notes to Consolidated Financial Statements
September 30, 2004
(Unaudited)
(Expressed in U.S. Dollars)
================================================================================

2.   Significant Accounting Policies (continued)
- ------------------------------------------------

     (o)  Comprehensive Income

          The  Company  has  adopted  SFAS  No.  130,  "Reporting  Comprehensive
          Income",  which  establishes  standards  for  reporting and display of
          comprehensive  income,  its components and accumulated  balances.  The
          Company  is   disclosing   this   information   on  its  Statement  of
          Stockholders'  Equity. The Company's  comprehensive income consists of
          net earnings (loss) and foreign currency translation adjustments.

     (p)  Earnings (Loss) Per Share

          Basic earning (loss) per share is computed using the weighted  average
          number of shares  outstanding  during the period.  The Company adopted
          SFAS No. 128,  "Earnings per Share".  1,500,000  shares held in escrow
          and  contingently  cancelable are excluded in the  computation of loss
          per share until the conditions  for their release are satisfied  (Note
          6).  Diluted  loss per share is equal to the basic  loss per share for
          the  periods  presented  because  common  stock  equivalents  that are
          outstanding  are  anti-dilutive.  However,  they  may be  dilutive  in
          future.

     (q)  Financial Instruments and Concentration of Credit Risks

          The fair values of financial  instruments  are estimated at a specific
          point in time, based on relevant  information  about financial markets
          and specific financial instruments.  As these estimates are subjective
          in  nature,   involving   uncertainties  and  matters  of  significant
          judgement,  they  cannot be  determined  with  precision.  Changes  in
          assumptions can significantly affect estimated fair values.

          The carrying value of cash and cash equivalents,  accounts receivable,
          short-term  loans payable,  accounts  payable and accrued  liabilities
          approximate their fair value because of the short-term nature of these
          instruments.  The  fair  value  of  long-term  debt  is  based  on the
          discounted  value of contractual cash flows and at September 30, 2004,
          approximates  its carrying value. The discount rate is estimated using
          the  rates   currently   offered  for  debt  with  similar   remaining
          maturities.


<PAGE>




SINOVAC BIOTECH LTD.
- --------------------
(formerly Net-Force Systems Inc.)

Notes to Consolidated Financial Statements
September 30, 2004
(Unaudited)
(Expressed in U.S. Dollars)
================================================================================

2.   Significant Accounting Policies (continued)
- ------------------------------------------------

     (q)  Financial Instruments and Concentration of Credit Risks (continued)

          The Company is operating in China,  which may give rise to significant
          foreign currency risks from  fluctuations and the degree of volatility
          of foreign  exchange rates between US dollars and the Chinese currency
          RMB.  Financial  instruments that  potentially  subject the Company to
          concentration  of credit risks consist  principally  of cash and trade
          receivables,  the  balances  of which are  stated on the  consolidated
          balance  sheets.  The Company  places its cash in high credit  quality
          financial   institutions.   The  Company's   customers  are  primarily
          pharmaceutical and biotechnology  companies.  Two customers  accounted
          for 37% of total sales for the nine months ended  September  30, 2004.
          Concentration  of credit  risks with respect to trade  receivables  is
          limited  to a degree  due to the  Company's  large  number of  diverse
          customers in different locations in China.  Ongoing credit evaluations
          of  customers'  financial  condition  are  performed  and the  Company
          maintains  provision  for potential  credit  losses if necessary.  The
          Company  does not  require  collateral  or other  security  to support
          financial  instruments  subject to credit  risks.  The  Company is not
          subject to significant interest risk.

     (r)  Accounting for Derivative Instruments and Hedging Activities

          The  Company  has  adopted  the  Statement  of  Financial   Accounting
          Standards No. 133 (SFAS 133),  Accounting for  Derivative  Instruments
          and Hedging  Activities,  which  requires  companies to recognize  all
          derivatives  contracts as either assets or  liabilities in the balance
          sheet and to measure  them at fair value.  If certain  conditions  are
          met, a  derivative  may be  specifically  designated  as a hedge,  the
          objective of which is to match the timing of gain or loss  recognition
          on the hedging  derivative  with the recognition of (i) the changes in
          the fair value of the hedged asset or liability that are  attributable
          to the  hedged  risk  or  (ii)  the  earnings  effect  of  the  hedged
          forecasted  transaction.  For a derivative not designated as a hedging
          instrument,  the gain or loss is recognized in income in the period of
          change.

          The Company has not entered into derivative  contracts either to hedge
          existing  risks  or for  speculative  purposes.  The  option  of  this
          pronouncement  does not have an impact on its  consolidated  financial
          statements.




<PAGE>




SINOVAC BIOTECH LTD.
- --------------------
(formerly Net-Force Systems Inc.)

Notes to Consolidated Financial Statements
September 30, 2004
(Unaudited)
(Expressed in U.S. Dollars)
================================================================================

2.   Significant Accounting Policies (continued)
- ------------------------------------------------

     (s)  New Accounting Pronouncements

          In a December 11, 2003 speech at the  American  Institute of Certified
          Public  Accountants,  the Securities and Exchange  Commission  ("SEC")
          expressed that  rate-lock  commitments  represent  written put options
          and, therefore, be valued as a liability.  The SEC expressed that they
          expect  registrants to disclose the effect on the financial  statement
          of recognizing the rate-lock  commitments as written put options,  for
          quarters  commencing  after  March  15,  2004.  Additionally,  the SEC
          recently issued Staff  Accounting  Bulletin (SAB) No. 105. SAB No. 105
          clarifies  the SEC's  position  that the  inclusion of cash flows from
          servicing or ancillary  income in the  determination of the fair value
          of interest rate lock commitments is not appropriate.  The adoption of
          SAF No.  105 does not have an  impact  on the  Company's  consolidated
          financial statements.

          In November 2004, the FASB issued SFAS No. 151,  "Inventory  Costs--an
          amendment of ARB No. 43, Chapter 4", which is the result of the FASB's
          project  to  reduce   differences   between  U.S.  and   international
          accounting  standards.  SFAS No. 151  requires  idle  facility  costs,
          abnormal  freight,  handling  costs,  and amounts of wasted  materials
          (spoilage) be treated as current-period  costs. Under this concept, if
          the costs  associated  with the actual level of spoilage or production
          defects are greater than the costs associated with the range of normal
          spoilage or defects, the difference would be charged to current-period
          expense,  not  included  in  inventory  costs.  SFAS  No.  151 will be
          effective for inventory  costs incurred  during fiscal years beginning
          after  June 15,  2005.  The  adoption  of SFAS No. 151 does not have a
          material impact on the Company's consolidated financial statements.

          In December  2004, the FASB issued SFAS No.  123(R),  "Accounting  for
          Stock-Based  Compensation".  SFAS 123(R) establishes standards for the
          accounting for  transactions  in which an entity  exchanges its equity
          instruments for goods or services. This Statement focuses primarily on
          accounting  for  transactions  in which  an  entity  obtains  employee
          services in share-based  payment  transactions.  SFAS 123(R)  requires
          that the fair  value  of such  equity  instruments  be  recognized  as
          expense  in  the  historical  financial  statements  as  services  are
          performed. Prior to SFAS 123(R), only certain pro-forma disclosures of
          fair value were  required.  SFAS  123(R)  shall be  effective  for the
          Company as of the beginning of the first  interim or annual  reporting
          period that begins after  December 15, 2005.  The adoption of this new
          accounting  pronouncement  does not have an  impact  on the  Company's
          consolidated financial statements.




<PAGE>




SINOVAC BIOTECH LTD.
- --------------------
(formerly Net-Force Systems Inc.)

Notes to Consolidated Financial Statements
September 30, 2004
(Unaudited)
(Expressed in U.S. Dollars)
================================================================================

3.   Accounts Receivable
- ------------------------

                                                 September 30        December 31
                                                         2004               2003
     ---------------------------------------------------------------------------

     Trade receivables                        $    2,840,889     $    1,609,209
     Allowance for doubtful accounts                (438,165)          (148,551)
     ---------------------------------------------------------------------------

                                                   2,402,724          1,460,658

     Other receivables                               109,295             10,103
     ---------------------------------------------------------------------------

     Total                                    $    2,512,019     $    1,470,761
     ===========================================================================

4.   Inventories
- ----------------

                                                 September 30        December 31
                                                         2004               2003
     ---------------------------------------------------------------------------

     Raw materials                            $      228,500     $      237,974
     Finished goods                                  294,065            692,673
     Work in progress                                227,816            117,273
     ---------------------------------------------------------------------------

     Total                                    $      750,381     $    1,047,920
     ===========================================================================




<PAGE>




SINOVAC BIOTECH LTD.
- --------------------
(formerly Net-Force Systems Inc.)

Notes to Consolidated Financial Statements
September 30, 2004
(Unaudited)
(Expressed in U.S. Dollars)
================================================================================

5.   Property, Plant and Equipment
- ----------------------------------

<TABLE>
<CAPTION>
                                                         September 30, 2004
                                        -----------------------------------------------------
                                                   Cost        Accumulated           Net book
                                                              Amortization              Value
     ----------------------------------------------------------------------------------------

<S>                                     <C>                <C>                <C>
     Land-use rights                    $      592,087     $       52,940     $      539,147
     Plant and building                      5,988,914            403,990          5,584,924
     Machinery and equipment                 3,536,907            833,217          2,703,690
     Motor vehicles                            242,406             82,254            160,152
     Office equipment and furniture            232,005             93,070            138,935
     ----------------------------------------------------------------------------------------

     Total                              $   10,592,319     $    1,465,471     $    9,126,848
     ========================================================================================
</TABLE>


<TABLE>
<CAPTION>
                                                          December 31, 2003
                                        -----------------------------------------------------
                                                   Cost        Accumulated           Net book
                                                              Amortization              Value
     ----------------------------------------------------------------------------------------

<S>                                     <C>                <C>                <C>
     Land-use rights                    $      365,510     $       19,892     $      345,618
     Plant and building                      4,191,009            189,342          4,001,667
     Machinery and equipment                 3,134,007            412,862          2,721,145
     Motor vehicles                            166,219             48,834            117,385
     Office equipment and furniture            174,847             51,326            123,521
     Leasehold improvements                    167,274             16,727            150,547
     ----------------------------------------------------------------------------------------
     Total
                                        $    8,198,866     $      738,983     $    7,459,883
     ========================================================================================
</TABLE>

     As at  September  30,  2004,  the three  apartments  included  in plant and
     building  with a net book value of  $467,200  is  pledged  as a  collateral
     against to $207,810 outstanding mortgage (note 8). Depreciation expense for
     the nine months ended September 30, 2004 was $450,454.

6.   Acquisition of Tangshan Yian
- ---------------------------------

     On January 26, 2004,  Sinovac  acquired 100% of the shares of Tangshan Yian
     from a director (the "Vendor") of the Company by issuing  3,500,000  common
     shares and paying  $2,200,000  cash in the form of a promissory  note.  The
     $2,200,000 promissory note is non-interest bearing and payable on or before
     January 26, 2005. In connection with the acquisition, the Vendor has agreed
     to assume  and pay off a $1  million  of debt owed by  Tangshan  Yian on or
     before January 31, 2006. 1,500,000 of 3,500,000 shares are placed in escrow
     and contingently  cancellable if the debt is not paid within the given time
     frame.  Accordingly,  these escrow shares are excluded from the calculation
     of the  weighted  average  number of shares for purposes of loss per share.
     The total  consideration,  not including the 1.5 million escrow shares,  is
     valued at $3.6 million.




<PAGE>




SINOVAC BIOTECH LTD.
- --------------------
(formerly Net-Force Systems Inc.)

Notes to Consolidated Financial Statements
September 30, 2004
(Unaudited)
(Expressed in U.S. Dollars)
================================================================================

6.   Acquisition of Tangshan Yian (continued)
- ---------------------------------------------

     The acquisition has been accounted for by the purchase method with the fair
     value of the  consideration  paid being  allocated to the fair value of the
     identifiable assets and liabilities acquired as follows:

          Cash and cash equivalents                     $     42,216
          Tangible assets                                  6,445,222
          Liabilities                                     (2,877,395)
          -----------------------------------------------------------
          Net assets acquired                          $   3,610,043
          ===========================================================

     Tangshan  Yian is in the business of research and  development,  production
     and  sales of  certain  pharmaceutical  products  in China.  The  operating
     results of the Tangshan  Yian from  January 26, 2004 to September  30, 2004
     are included in the consolidated statements of operations.

7.   Licenses and Permits
- -------------------------

                                                    September        December 31
                                                         2004               2003
     ---------------------------------------------------------------------------

     Inactive Hepatitis A                     $    1,941,879     $    1,941,879
     Recombinant Hepatitis A&B                       506,460            506,460
     Influenza Virus HA Vaccine                      381,058            381,058
     ---------------------------------------------------------------------------

                                                   2,829,397          2,829,397
     Less: accumulated amortization                 (436,923)          (291,282)
     ---------------------------------------------------------------------------

     Total                                    $    2,392,474     $    2,538,115
     ===========================================================================

     (a)  In March 2003, Sinovac Beijing acquired the Influenza Virus HA Vaccine
          drug license from Tangshan Yian at the vendor's cost. In January 2004,
          Sinovac  Beijing  completed the  acquisition  of 100% of the shares of
          Tangshan  Yian (Note 6) and has  continued to carry the license at the
          original  cost to Tangshan  Yian.  Sinovac  Beijing is applying  for a
          production  permit for this  pharmaceutical  product.  The cost of the
          license  will be  amortized  based on an  estimated  useful life of 10
          years commencing with the production of the drug, which is expected to
          be in 2005.




<PAGE>




SINOVAC BIOTECH LTD.
- --------------------
(formerly Net-Force Systems Inc.)

Notes to Consolidated Financial Statements
September 30, 2004
(Unaudited)
(Expressed in U.S. Dollars)
================================================================================

7.   Licenses and Permits (continued)
- -------------------------------------

     (b)  In April 2002, Sinovac Beijing acquired the Recombinant  Hepatitis A&B
          drug license from a company called Beijing Keding Investment Co., Ltd.
          ("Beijing  Keding") by issuing  shares  equal to a 10.71%  interest in
          Sinovac  Beijing  and paying  $18,116  (RMB150,000)  in cash.  Beijing
          Keding  is owned by a  director,  president  and  three  other  senior
          officers  of  Sinovac  Beijing.  As at  September  30,  2004,  $10,487
          (December 31, 2003 - $10,487)  remained unpaid and was recorded in due
          to related  parties (see Note 11b).  Sinovac Beijing is applying for a
          production  permit for this  pharmaceutical  product.  The cost of the
          license  will be  amortized  based on an  estimated  useful life of 10
          years commencing with the production of the drug, which is expected to
          be in early 2005. The drug license was recorded at the vendor's cost.

     (c)  Amortization expense for the licenses and permits was $145,641 for the
          nine months ended September 30, 2004.

          The estimated  amortization  expenses for each of the five  succeeding
          fiscal years ended December 31 are as follows:

                    2005                           $283,000
                    2006                           $283,000
                    2007                           $283,000
                    2008                           $283,000
                    2009                           $283,000

          The above amortization expense forecast is an estimate. Actual amounts
          of  amortization  expense  may differ  from  estimated  amounts due to
          additional intangible asset acquisitions,  changes in foreign currency
          exchange   rates,   impairment  of  intangible   assets,   accelerated
          amortization of licenses and permits, and other events.



<PAGE>




SINOVAC BIOTECH LTD.
- --------------------
(formerly Net-Force Systems Inc.)

Notes to Consolidated Financial Statements
September 30, 2004
(Unaudited)
(Expressed in U.S. Dollars)
================================================================================

8.   Loans Payable
- ------------------

<TABLE>
<CAPTION>
                                                                         September 30        December 31
                                                                                 2004               2003
     ---------------------------------------------------------------------------------------------------
<S>                                                                   <C>                <C>
     Bank loan:  RMB  5,000,000,  bearing  interest  at 5.84% per
     annum  and due on June 26,  2004.  The loan was  secured  by
     certain machinery and equipment                                  $            -     $      603,865

     Bank loan: RMB 5,000,000,  bearing interest at 9% per annum.
     The loan was repaid on November 5, 2004                                 603,865                  -

     Loan from  China High Tech  Investment  Co.,  Ltd.:  RMB 5.4
     million  (including  principal and interest) of RMB9 million
     loan,  bearing interest at 5% per annum, is due on September
     30, 2005                                                                652,174                  -

     Employees loan: RMB 1,222,000 (2003 - RMB 1,230,000) bearing
     interest at 15% per annum and due on demand                             147,584            148,550
     ---------------------------------------------------------------------------------------------------

     Total loans payable - current                                    $    1,403,623     $      752,415
     ===================================================================================================

     Bank loan:  RMB  5,000,000,  bearing  interest  at 5.49% per
     annum,  interest is payable  quarterly  and the principal is
     repayable on December 19, 2005                                   $      603,865     $      603,865

     Mortgage payable:  RMB 1,720,667,  bearing interest at 5.04%
     per annum with the monthly blended payment of $2,284 and due
     on May 25, 2014. The mortgage is secured by three apartments
     included in property, plant and equipment                               207,810                  -

     Loan from China High Tech Investment Co. Ltd.: RMB9,000,000,
     bearing  interest  at  5%  per  annum;  $652,174  (including
     principal  and  interest) of which due on September 30, 2005
     with the balance due on December 31, 2005                               584,239                  -
     ---------------------------------------------------------------------------------------------------

     Total loans payable - long-term                                  $    1,395,914     $      603,865
     ===================================================================================================
</TABLE>

     The weighted  average interest rate was 6.33% and 8.52% for the nine months
     ended September 30, 2004 and the year ended December 31, 2003 respectively.




<PAGE>




SINOVAC BIOTECH LTD.
- --------------------
(formerly Net-Force Systems Inc.)

Notes to Consolidated Financial Statements
September 30, 2004
(Unaudited)
(Expressed in U.S. Dollars)
================================================================================

9.   Promissory Note Receivable
- -------------------------------

                                                   September 30      December 31
                                                           2004             2003
     ---------------------------------------------------------------------------

     Promissory note                             $   2,222,811     $          -

     Interest accrued                                  118,550                -
     ---------------------------------------------------------------------------

     Total                                       $   2,341,361     $          -
     ===========================================================================

     The promissory note is due from a company  controlled by a former director.
     The note is payable on or before  January 26, 2005 and bears interest at 8%
     per annum.

10.  Income Taxes
- -----------------

     Sinovac  Beijing and  Tangshan  Yian is subject to income taxes in China on
     its taxable  income as reported in its statutory  accounts at a tax rate in
     accordance  with the relevant  income tax laws  applicable to  Sino-foreign
     investment enterprises. Sinovac Beijing is exempt from income tax for three
     years  until 2003  followed by a 7.5%  corporation  income tax rate for the
     next three  years.  No income  taxes were  charged to Sinovac  Beijing  and
     Tangshan  Yian for the nine months ended  September  30,  2004.  The parent
     company is not subject to income taxes.

     The tax effects of temporary  differences  that give rise to the  Company's
     deferred tax asset (liability) are as follow:

                                                   September 30      December 31
                                                           2004             2003
     ---------------------------------------------------------------------------

     Tax losses carried forward                  $     171,000     $    139,000
     Excess of tax cost over the net book
      value of the certain long-lived assets           684,000          711,000
     Less: valuation allowance                        (855,000)        (850,000)
     ---------------------------------------------------------------------------

     Total deferred tax asset (liability)        $           -     $          -
     ===========================================================================

     The potential  tax benefits  arising from the losses have not been recorded
     in the financial statements.  The Company evaluates its valuation allowance
     requirements on an annual basis based on projected future operations. When,
     in management's judgment,  circumstances warrant a change in recognition of
     deferred tax assets, the change on the valuation allowance may be reflected
     in current income.





<PAGE>




SINOVAC BIOTECH LTD.
- --------------------
(formerly Net-Force Systems Inc.)

Notes to Consolidated Financial Statements
September 30, 2004
(Unaudited)
(Expressed in U.S. Dollars)
================================================================================

11.  Related Party Transactions
- -------------------------------

     Related  party  transactions  not disclosed  elsewhere in the  consolidated
     financial statements are as follows:

     (a)  Due from related parties consist of the following (Notes 6 & 7):

<TABLE>
<CAPTION>
          ----------------------------------------------------------------------------------------------
                                                                         September 30        December 31
                                                                                 2004               2003
          ----------------------------------------------------------------------------------------------
<S>                                                                   <C>                <C>
          o    Advances to Tangshan Yian, a company  related by a
               common director,  bearing interest at 5% per annum
               (secured by the floating  charge on the  property,
               plant and equipment of Tangshan Yian)                  $            -     $      786,300

          o    Due from Shenzhen  Bio-Port  Co., Ltd.  ("Shenzhen
               Co."),  a  non-controlling  shareholder of Sinovac
               Beijing, bearing interest at the prime rate of the
               Bank of P.R. of China                                         419,489             32,178

          o    Due from Beijing Xinfu,  a corporation  controlled
               by a director Sinovac Beijing, bearing interest at
               5% per annum                                                        -            128,789

          o    Due  from  Beijing  Weiming,   a   non-controlling
               shareholder of Sinovac Beijing,  bearing  interest
               at the prime rate of the Bank of P.R. of China                667,458                 -

          o    Due from Sino Pharma, a corporation  controlled by
               a director of Sinovac Beijing, bearing interest at
               5%                                                            394,022                  -

          o    Promissory note from a director (see below)                 1,849,000                  -

          o    Due from a former shareholder                                   8,348                  -
          ----------------------------------------------------------------------------------------------

          Total                                                       $    3,338,317     $      947,267
          ==============================================================================================
</TABLE>

          The $1,849,000  promissory  note is due from a director of the Company
          and due on  September  24,  2004.  On October  12,  2004,  the Company
          entered into a Pledge,  Escrow and Promissory Note Agreement  ("Escrow
          Agreement") with this director to extend the repayment date.  Pursuant
          to the  Escrow  Agreement,  the  promissory  note  shall  be  paid  in
          installments  of $200,000  commencing  November  15, 2004 and the like
          amount each three months thereafter ("Installment") with any remaining
          sum due on November 15, 2006.  The note bears interest at 5% per annum
          payable with each  Installment.  This director placed 3,000,000 shares
          of the Company in escrow as security  for the amounts  owing under the
          term of the Escrow Agreement.



<PAGE>




SINOVAC BIOTECH LTD.
- --------------------
(formerly Net-Force Systems Inc.)

Notes to Consolidated Financial Statements
September 30, 2004
(Unaudited)
(Expressed in U.S. Dollars)
================================================================================

11.  Related Party Transactions (continued)
- -------------------------------------------

     (b)  Amounts  due  to  related  parties  are  unsecured  and
          consist of the following:

<TABLE>
<CAPTION>
          ----------------------------------------------------------------------------------------------
                                                                         September 30        December 31
                                                                                 2004               2003
          ----------------------------------------------------------------------------------------------
<S>                                                                   <C>                <C>
          o    Due  to   Beijing   Weiming,   a   non-controlling
               shareholder of Sinovac Beijing                         $            -     $    1,135,045

          o    Due   to   Beijing   Keding,   a   non-controlling
               shareholder of Sinovac Beijing (Note 7b)                       10,481             10,487

          o    Due to Beijing Xinfu, a corporation  controlled by
               a director of Sinovac Beijing                                   5,611                  -

          o    Due to a director                                              16,185             24,942

          o    Due to a director and shareholder (Note 6)                  2,200,000                  -
          ----------------------------------------------------------------------------------------------

          Total                                                       $    2,232,277     $    1,170,474
          ==============================================================================================
</TABLE>

     (c)  The Company  entered  into the  following  transactions  with  related
          parties:

<TABLE>
<CAPTION>
          ----------------------------------------------------------------------------------------------
                                                                         Three Months        Nine Months
                                                                                Ended              Ended
                                                                         September 30       September 30
                                                                                 2004               2004
          ----------------------------------------------------------------------------------------------
<S>                                                                   <C>                <C>
          Interest  income  earned  on the  advances  to  related
          parties                                                     $       59,455     $      221,040

          Rent  paid  to  Beijing  Weiming,   a   non-controlling
          shareholder of Sinovac Beijing (see d below)                $       14,000     $            -

          Interest expenses incurred on the advances from related
          parties  (including  interest imputed at the rate of 5%
          per annum on the interest-free advances received):          $       40,750     $      108,929
          ----------------------------------------------------------------------------------------------
</TABLE>

     (d)  During the period ended  September 30, 2004, the Company  entered into
          two operating lease agreements with Beijing Weiming, a non-controlling
          shareholder  of Sinovac  Beijing,  with  respect to Sinovac  Beijing's
          production plant and laboratory in Beijing,  China for an annual lease
          of  totalling  of $169,000  (RMB1,398,680).  The leases  commenced  on
          August 12,  2004 and have a term of 20 years.  Included in the prepaid
          and   deposits  as  at   September   30,   2004,   there  is  $416,900
          (RMB3,452,225)  representing  the lease  payment  made to this related
          party.




<PAGE>




SINOVAC BIOTECH LTD.
- --------------------
(formerly Net-Force Systems Inc.)

Notes to Consolidated Financial Statements
September 30, 2004
(Unaudited)
(Expressed in U.S. Dollars)
================================================================================

12.  Stock Option Plan
- ----------------------

     The board of  directors  has  approved  a stock  option  plan (the  "Plan")
     effective  on November  1, 2003,  pursuant  to which  directors,  officers,
     employees and  consultants of the Company are eligible to receive grants of
     options for the Company's common stock. Options granted under the plan have
     a maximum  life of 10 years and the plan  expires on  November  1, 2023.  A
     maximum of 5,000,000  common stocks have been reserved under the plan. Each
     stock  option  entitles  its holder to  purchase  one  common  share of the
     Company.  Options may be granted for a term not exceeding 10 years from the
     date of grant. The Plan is administered by the board of directors.

     In 2003,  3,000,000  stock  options  under  the Plan  were  granted  to its
     directors,  officers  and  employees  with an  exercise  price of $1.31 per
     share,  being the market price at the time of the grant. These options vest
     from April 1, 2004 to July 1, 2006 and expire on November 12, 2008.

     In April 2004,  2,000,000  stock options under the Plan were granted to its
     directors,  officers  and  employees  with an  exercise  price of $4.55 per
     share,  being the market price at the time of the grant. These options vest
     from April 14, 2004 to July 14, 2006 and expire on April 13, 2009.

     A summary of the Company's stock options activities is presented below:

<TABLE>
<CAPTION>
     -----------------------------------------------------------------------------------
                                                                                Weighted
                                                            Number of            Average
                                                        Common Shares     Exercise Price
     -----------------------------------------------------------------------------------

<S>                                                   <C>                <C>
     Options outstanding at December 31, 2002                      -                  -
     Granted in 2003                                       3,000,000     $         1.31
     -----------------------------------------------------------------------------------

     Options outstanding as at December 31, 2003           3,000,000               1.31

     Granted in 2004                                       2,000,000               4.55

     Exercised in 2004                                       (40,500)             (1.31)
     -----------------------------------------------------------------------------------

     Options outstanding as at September 30, 2004          4,959,500     $         2.61
     ===================================================================================

     Options exercisable as at September 30, 2004          2,135,000     $         2.74
     ===================================================================================
</TABLE>

     The Company  charged  $3,220,958  stock-based  compensation  in relating to
     selling,  general and  administrative  expenses to operations  for the nine
     months  ended  September  30,  2004 by  applying  the fair value  method in
     accordance with SFAS No.123.




<PAGE>




SINOVAC BIOTECH LTD.
- --------------------
(formerly Net-Force Systems Inc.)

Notes to Consolidated Financial Statements
September 30, 2004
(Unaudited)
(Expressed in U.S. Dollars)
================================================================================

12.  Stock Option Plan (continued)
- ----------------------------------

     The following table shows the assumptions  used in determining  stock-based
     compensation costs under the Black-Scholes option pricing model:

<TABLE>
<CAPTION>
                                                      September 30      December 31
                                                              2004             2003
     ------------------------------------------------------------------------------

<S>                                                     <C>              <C>
     Expected volatility                                    74.0%            74.0%

     Risk-free interest rate                                3.44%            3.42%

     Expected life (years)                                    5.0              4.0

     Dividend yield                                           Nil              Nil

     Number of stock options granted                    2,000,000        3,000,000

     Weighted average fair value of options granted         $2.85            $0.74
     ------------------------------------------------------------------------------
</TABLE>

13.  Capital Stock
- ------------------

     (a)  Share Capital

          In  2004,  the  Company  completed  a  private  placement  by  issuing
          3,800,000  units at a price of $1.25  per unit for gross  proceeds  of
          $4,750,000,  of which  $1,031,959  was  received by December 31, 2003.
          Each unit consists of one share of common stock of the Company and one
          share purchase warrant. The terms of the warrants are described below.
          The Company also issued  379,200  units as a finder's  fee.  (Also see
          note 16 c)

     (b)  Share Purchase Warrants

          As at September 30, 2004,  there are warrants  outstanding to purchase
          up to 8,358,400  shares of common stock of the Company.  In particular
          there are 4,179,200 share purchase warrants outstanding;  each warrant
          entitles  the holder to  purchase  one common  share of the Company at
          $1.50 per share  until  November  14,  2005 (also see note 16 a) and a
          "piggyback"  right to purchase one additional  share of the Company at
          $3.00 per share until  November 14, 2005 only if the holder  exercises
          the share  purchase  warrant.  There were no share  purchase  warrants
          outstanding at December 31, 2003.

     (c)  Stock Issued for Services

          During the nine months ended  September 30, 2004,  the Company  issued
          12,500  common stock to a  consulting  firm for  financial  consulting
          services rendered at a value of $40,500.



<PAGE>




SINOVAC BIOTECH LTD.
- --------------------
(formerly Net-Force Systems Inc.)

Notes to Consolidated Financial Statements
September 30, 2004
(Unaudited)
(Expressed in U.S. Dollars)
================================================================================

14.  Segmented Information
- --------------------------

     The Company  operates  exclusively  in the biotech  sector.  The  Company's
     business is considered as operating in one segment based upon the Company's
     organizational  structure,  the way in which the  operation  is managed and
     evaluated,  the availability of separate  financial results and materiality
     considerations.  All the revenues are  generated  in China.  The  Company's
     assets by geographical location are as follows:

     ---------------------------------------------------------------------------
                                                 September 30        December 31
                                                         2004               2003
     ---------------------------------------------------------------------------
     Assets

     North America                            $      587,050     $      342,268
     China                                        22,543,406         14,555,448
     ---------------------------------------------------------------------------
     Total                                    $   23,130,456     $   14,897,716
     ===========================================================================

15.  Non Cash Transactions
- --------------------------

     (a)  In January  2004,  the  Company  issued  3,500,000  common  shares and
          $2,200,000  promissory note for the acquisition of Tangshan Yian (Note
          6).

     (b)  During the nine months ended  September 30, 2004,  the Company  issued
          12,500 to a consulting firm for financial consulting services provided
          to the Company.

16.  Subsequent Events
- ----------------------

     (a)  On November 13, 2004,  the Board of Directors of the Company  approved
          for an extension of the phase one expiry date of the outstanding share
          purchase warrants from November 14, 2004 to February 28, 2005 with the
          exercise price  increasing by $0.05 every month commencing on November
          15, 2004.

     (b)  On  November  30,  2004,  the  Company  entered  into  share  purchase
          agreements with  non-controlling  shareholders  to acquire  aggregated
          additional  20.56% interest in Sinovac Beijing for cash  consideration
          of $3.31 million  increasing the Company's interest in Sinovac Beijing
          to 71.56%, which was completed on February 4, 2005.

     (c)  On December 31, 2004,  the Company  entered into  Securities  Purchase
          Agreements  to issue  491,667  units at $3.00 per unit for total gross
          proceeds  of  $1,475,000.  Each unit  consists  of one share of common
          stock of the  Company and one share  purchase  warrant.  Each  warrant
          entitles its holder to purchase one  additional  share of common stock
          of the Company at $3.35 per share until the one year  anniversary date
          from the date of issuance,  and at a price of $4.00  thereafter  until
          the two year  anniversary  date after the  issuance.  The  Company has
          agreed  to pay 8%  cash  and 8%  warrants  of the  gross  proceeds  as
          finders' fees.






<PAGE>






Item 2.  Management  discussion  and  analysis  for the nine month  period ended
- --------------------------------------------------------------------------------
September 30, 2004
- ------------------

Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
- --------------------------------------------------------------------------------
Operations
- ----------


Forward-Looking Information
- ---------------------------

Certain statements in this Management Discussion and Analysis, to the extent
that they are not based on historical events, are forward-looking statements
that rely on certain assumptions and reflect our current expectations.
Forward-looking statements include, without limitation, statements evaluating
market and general economic conditions in the preceding sections, and statements
regarding growth strategy and future-oriented project expenditures. Our actual
results could differ materially from those projected and readers should not rely
on forward-looking statements as a prediction of future events.

A variety of inherent risks, uncertainties and factors, many of which are beyond
our control, affect our operations, performance, results and the business, and
could cause actual results to differ materially from current expectations of
estimated or anticipated events or results. Some of these risks, uncertainties
and factors include the impact or unanticipated impact of: current, pending and
proposed legislative or regulatory developments in the jurisdictions where we
operate, in particular in China; change in tax laws; political conditions and
developments; changes in Chinese government support or restrictions on foreign
investment; general economic conditions worldwide, as well as in China. We are
also subject to risks common to biopharmaceutical companies, including risks
inherent in the research and development efforts and clinical trials,
enforcement of patent and proprietary rights, the need for future capital,
potential competition and uncertainty of regulatory approvals. This list is not
exhaustive of the factors that may affect any of our forward-looking statements.

We undertake no obligation to update any forward-looking statement to reflect
events or circumstances after the date on which such statement is made, or to
reflect the occurrence of unanticipated events, whether as a result of new
information, future events or results otherwise. Readers are cautioned not to
put undue reliance on forward-looking statements.

Management Discussion and Analysis
- ----------------------------------

I.      Overview
- ----------------

Vaccines and Markets: Global and Chinese

The global vaccine market in 2001 was valued at $ 5.4 billion and is forecast to
reach $17 billion by 2010 (Datamonitor). This predicted year-on-year growth of
10-12% makes vaccines the fastest growing pharmaceutical sector, eclipsing even
prescription drugs. A key driver of this growth is the threat of the emergence
of new, more powerful super viruses, such as SARS and avian influenza.

The efficacy of vaccines in preventing viral infections is underscored by the
prevalence of prevention programs worldwide; some 116 countries have initiated
childhood vaccination regimes. World health authorities concur that vaccination
is the most cost effective way to deal with viral threats.

But issues of quality and cost have created a shortage of effective, affordable
vaccines to prevent hepatitis A, hepatitis B, and influenza. The undersupply of
influenza vaccines in China is especially acute, with an estimated annual
shortfall of some 15 to 20 million doses. Hepatitis A is endemic in China, with
2.4 million cases of acute hepatitis every year. Up to 80% of the population is
estimated to likely be infected at some point in their lives. Two billion people
around the world are infected with hepatitis B, with between 10 to 30 million
new infections annually. More than 350 million will suffer lifelong infection,
and some 500,000 die from liver disease caused by this viral disease every year.
With an aging Chinese population and a growing health-conscious middle class,
the demand for influenza vaccines is expected to grow dramatically in the next
few years in China. No approved vaccines exist yet for SARS and avian influenza.




<PAGE>






The Chinese Vaccine Market

China's population of 1.3 billion is the world's largest. With between 15 to 20
million newborns a year and an increasing elderly population of more than 135
million, there is growing need for safe, highly effective, low-cost vaccines to
protect these most vulnerable segments of the population, as well as the general
public, from infectious diseases caused by viruses. Between 1992 and 2002 demand
for vaccines rose 21.8% a year and consistently exceeded output, despite large
gains in production.

There are several factors driving China's commitment to develop and deploy
vaccines for viral diseases. They include its still-rapidly growing economy,
increased awareness of the need for health management, the launch of a $145
million nationwide disease prevention program, and a government focus on disease
prevention as a key element in the development of the country's pharmaceutical
industry.

Early in 2004, we acquired 100% of the issued and outstanding shares of Tangshan
Yian Biological Engineering Co., Ltd. ("Tangshan Yian"). Since this acquisition,
the financial results of Tangshan Yian have been consolidated in our financial
statements. The strategic acquisition of Tangshan Yian, founded in 1993, is a
logical step to enhance the Company's research and development capacity. Our
majority-owned subsidiary, Sinovac Biotech Co., Ltd. ("Sinovac") now owns a
state-of-the-art vaccine research laboratory meeting P-3 safety standards for
SARS vaccine research in China, which is located at the Tangshan Yian facility
and will be our main research center.

II.     Objectives
- ------------------

Our objective is to continuously increase the sales of our inactivated hepatitis
A vaccine, HealiveTM and BiliveTM vaccine for hepatitis A and B, in the Chinese
market and to develop overseas markets for our existing products as well as
those in development, including vaccines for influenza, SARS and avian
influenza. To this end, we will continue expanding our domestic Chinese sales
network nationwide that dovetails with the Chinese vaccine distribution system
administered by the China Center for Disease Control. We are also expanding our
international marketing program to increase the sales of our affordable
world-class vaccines. To date, we have contracted two experienced marketing and
sales organizations: Innopath of South Korea and China National Medicine and
Health Products Import/Export Corporation, known as MEHECO.

We are also actively looking for and evaluating synergistic acquisition targets
both in China and internationally. The objective is to dramatically increase
corporate revenues in the short term and to leverage the acquisitions' existing
market share to allow faster penetration of our current vaccine products.

Approvals and Trials

Bilive(TM), our combined hepatitis A and B vaccine, has received final approval
for marketing and sales from the Chinese FDA. The Bilive(TM) production license
has now been issued by the Chinese FDA and sales of the vaccine will commence in
China shortly. This is the first combined inactivated hepatitis A and B vaccine
developed by Chinese scientists. The product may be distributed through the same
channels as HealiveTM, a hepatitis A vaccine that is already available in the
Chinese market.

We expect to gain approval for our influenza vaccine in 2005. The new drug
application has been submitted to Chinese FDA after the clinical trials our
influenza vaccine were completed earlier this year. Currently, the production
process is undergoing optimization. The construction of manufacturing facilities
for influenza vaccine with a 2 million-dose production capacity is expected to
be completed in 2005.

The clinical trial is expected to end after every volunteer has been observed
for 210 days after inoculation. During this period, the level of the neutralized
antibody in the blood serum of each volunteer is going to be tested. An
evaluation of the safety profile and immunogenicity (the ability of an antigen
or vaccine to stimulate immune responses) effect of the vaccine will also be
released.

On December 13, 2004, we announced that our SARS vaccine has induced
SARS-neutralizing antibodies in tests of the human volunteers' blood serum.
After the preliminary 56-day observation period, 11 out of 12 (91.6%) of the
volunteers who received high-dosage vaccine and 12 out of 12 (100%) of the



<PAGE>






volunteers who received low-dosage vaccine showed blood serum conversion. Blood
serum conversion is the ability of the induced antibodies to neutralize the SARS
virus. These preliminary results show that the SARS vaccine Phase I clinical
trial has already attained a positive outcome.

III.    Description of Business
- -------------------------------

We specialize in the research, development, commercialization, and sale of
vaccines to prevent infectious diseases such as hepatitis A and hepatitis B,
influenza, SARS, and avian influenza or "bird flu". We focus on manufacturing
and marketing human use vaccines and related products and work closely with
Chinese public health officials and institutions. Having successfully developed
and launched the first inactivated hepatitis A vaccine developed in China for
the Chinese market, we were also the first company to have commenced human
clinical trials for a vaccine to prevent SARS. Our existing products and those
in development include:

o HealiveTM is a high-quality inactivated vaccine developed to prevent hepatitis
A. Highly stable and very safe, it comes in both adult and child doses,
providing reliable and long-lasting immune effectiveness. As the first
inactivated hepatitis A vaccine developed by Chinese scientists, Healive
received the Chinese State Certificate for new drugs in 1999 and is fully
endorsed by China's National Institute for the Control of Pharmaceutical and
Biological Products (NICPBP).

o BiliveTM is an inactivated vaccine developed to prevent hepatitis A and B.
Like Healive, it is very safe, highly stable, available in both adult and child
doses, and provides reliable and long-lasting immunity.

o SPLIT FLU: Vaccine for influenza. We are developing a Split Flu Influenza
vaccine in response to Chinese CDC estimates that the supply shortfall of
influenza vaccine is as much as 15 to 20 million doses in China. We are working
towards establishing ourselves as a market leader for the production of a Split
Flu vaccine. Split vaccine is the most widely used influenza vaccine because of
its safety. Whole particle vaccines are prohibited for children under 12 because
of potential severe adverse reactions.

o Vaccine for Severe Acute Respiratory Syndrome (SARS). In 2004, we received
permission to undertake human clinical trials of a SARS vaccine, becoming the
first company authorized to conduct such trials. Working closely with the
Chinese FDA (SFDA) and world health authorities, we developed clinical protocols
in accordance with worldwide protocols for conducting SARS vaccine clinical
trials. In May 2004, Sinovac began Phase I clinical trials to determine if the
vaccine is safe for human use.

After the preliminary 56-day observation period, 11 out of 12 (91.6%) of the
volunteers who received high-dosage vaccine and 12 out of 12 (100%) of the
volunteers who received low-dosage vaccine showed blood serum conversion. Blood
serum conversion is the ability of the induced antibodies to neutralize the SARS
virus. These preliminary results show that the SARS vaccine Phase I clinical
trial has attained a positive outcome in that the SARS vaccine has induced
SARS-neutralizing antibodies in tests of the human volunteers' blood serum.

o Vaccine for avian influenza: we have begun working on an avian flu virus with
our New Human Influenza (H5N1) Vaccine and Development Project in 2004.
Collaborating with the China Center for Disease Control, Sinovac has completed
the research protocol and is moving ahead with the development of an avian flu
vaccine.

R&D and Production Facilities

Our corporate headquarters and primary research and development facilities are
located in the Beijing University Biological Industry Park at a 4,113 square
meter, state-of-the-art plant. Our new influenza vaccine production line is
situated at a new manufacturing facility being built next to our existing
Beijing headquarters. The 2,600 square-meter facilities, built to global Good
Manufacturing Practice (GMP) standards, are expected to have a production
capacity of 2 million doses of flu vaccine per year.

Our Tangshan Yian plant (formerly the Tangshan Yian Biological Engineering Co.
Ltd.) conducts research and pilot-production for the company's other
in-development vaccine biotechnologies. The plant includes a world class P-3 lab
(BL3). The Tangshan Yian facility is located in the New Hi-tech Development Zone



<PAGE>






of Tangshan City 160 kilometers from Beijing. By utilizing the P-3 lab, we have
produced enough SARS vaccine for subsequent trials. As a general precaution, the
Chinese government has closed all P-3 labs in China except some state-owned
facilities. Our SARS research is being carried out as planned since we have
produced sufficient SARS vaccine.

All of our facilities conform to the World Health Organization's recommended
bio-safety standards and the primary manufacturing plant has been certified as
meeting the GMP standard of both the China State Pharmaceutical Administration
and the US Food and Drug Administration.

Management

We have a highly experienced management team that is well qualified to guide the
timely development of our proprietary, cost-effective vaccines. The success of
these vaccines is expected to accelerate us to the forefront of China's
fast-emerging biopharmaceutical industry. Furthermore, we expect to be able to
offer other developing Southeast Asian nations low-cost alternatives to
expensive Western vaccines. Moreover, management is focusing on vaccines that
have significant commercial viability in developing nations around the world.

President: Dr. Wei Dong Yin, M.D.
Dr. Yin has been dedicated to hepatitis research for more than 20 years. He is
credited with developing the intellectual property that led to the development
of our hepatitis A vaccine. Dr. Yin has also been instrumental in shaping the
Ministry of Public Health's policy for prioritizing hepatitis as one of the
major diseases that the Chinese healthcare system is trying to combat over the
next five years. Dr. Yin has an EMBA from the National University of Singapore.

Chairman of the Sinovac subsidiary in Beijing: Professor Aihua Pan, PhD., M.D.
The American Biographical Institute listed Dr. Pan, an award-winning luminary in
biochemistry at Beijing University, as one of the world's 500 most influential
leaders in 1997. He is currently Chairman of China Bioway Biotech Group Co.,
Ltd., Senior Consultant of Shenzhen Municipal Science and Technology Consultancy
Commission and Hong Kong Biotech Unions, Executive Director of China National
Bio-engineering, Deputy Director Committeeman of Industry Promotion Committee of
China Biotech Academy, Vice Director-General of China Medicine Biological
Technology Association and Assessment Expert in the biological field of China's
863 Hi-tech Plan.

Vice General Manager: Mr. Jiansan Zhang
Mr. Zhang has long experience in vaccine development and production. Trained in
biological product manufacturing management and quality control in the
Netherlands, he is fully conversant with European GMP standards, which were used
in the manufacturing workshop construction of inactivated hepatitis A vaccine
and split flu vaccines. His experience helps ensures that the production
management and quality control of Sinovac meets international standards. Mr.
Zhang has an EMBA from Tsinghua University and received a Bachelor in Medical
Treatment from Sun Yat-sen University of Medical Sciences.

Vice General Manager: Dr. Changju Fu
Dr. Fu is a qualified medical doctor with many years experience in vaccine
marketing. He has held a number of leading positions in government and industry
involved with expanding sales of vaccine and allied products. Dr. Fu was the
first to sell a Chinese made hepatitis vaccine to the Chinese market and has a
deep understanding of the issues involved when selling into Asian markets. He
leads the sales team as it expands further into the Chinese and foreign markets.

IV.     Operating Results
- -------------------------

Our operations are undertaken by subsidiaries that were private companies during
the comparative period in 2003. As a result, our financial statements and the
discussion of the results of operations do not compare the current period
results to those in period ended September 30, 2003.





<PAGE>






A.      Sales
- -------------

During the three and nine months ended September 30, 2004, we generated revenue
of $1.28 million and $3.57 million respectively in sales of Healive(TM). The
revenue growth in the quarter ended September 30, 2004 is due to our more
extensive sales network and an improved corporate profile.

B.      Gross Profit
- --------------------

Our gross profit reflects the contribution from sales after direct costs such as
production labor and production facilities costs. Gross profit margin for the
three and nine months ended September 30, 2004 was 61.7% and 64.9% respectively.

C.      Selling, General and Administrative Expenses
- ----------------------------------------------------

Selling, general and administrative expenses ("SG&A expenses") for the three and
nine months ended September 30, 2004 were $1,174,652 and $3,035,981. Our SG&A
expenses have increased over historical levels due to the exploration of the new
markets and efforts to improve our sales network and refine our sales strategy.
The administrative expenses of $218,469 of Tangshan Yian were also included in
the consolidated financial statement as the result of the acquisition. To
support the continuing market penetration and brand awareness, we may see
further increase in SG&A.

D.      Stock-Based Compensation
- --------------------------------

We incurred stock-based compensation of $982,860 and $3,220,958 in the three and
nine months ended September 30, 2004, respectively. In the current fiscal year,
2,000 000 stock options were granted to the directors, employees and consultants
at an exercise price of $4.55 per share. The stock options granted in 2004 have
an estimated fair value of $2.85 per share and have different vesting schedules
and, as a result, the Company has unearned compensation cost of about $3.02
million. This unearned component will be recognized over the remaining vesting
period. This item does not reduce the cash balance of the company but reflects
the fair value of the above-mentioned stock options.

E.      Research and Development Expenses
- -----------------------------------------

Research and development expenses reflect amounts spent on the influenza and
SARS vaccines, less grants received on account of the SARS vaccine. During the
nine-month period ended September 30, 2004, we received a Chinese government
SARS research grant of $1,639,879. Research and development expenses totalling
$35,472 and $172,630 respectively for the three and nine months ended September
30, 2004, representing R & D activities on the influenza vaccine.

After the SARS outbreak in 2003, we commenced the study and research of a SARS
vaccine. We were the first to be approved to commence human clinical trial on
SARS vaccine in the world. In the first half of 2004, after receiving the phase
I clinical trial certificate from SFDA, we started working on the preparation
for the trial. On May 22, 2004, the commencement of the Phase I clinical trial
was announced when the first clinical trial volunteer received his first shot of
either SARS vaccine or a placebo. The Chinese government has demonstrated its
support to the research on our SARS vaccine. China's Ministry of Science and
Technology and some other central government agencies have given a research
grant to us for the SARS vaccine study. This has provided sufficient funding for
the phase I clinical trial.

F.      Provision for Income Taxes
- ----------------------------------

We mainly operate in China. Therefore, we are subject to income taxes in China
on our taxable income as reported in its statutory income declaration at a tax
rate in accordance with the relevant income tax laws and regulations applicable
to Sino-foreign joint ventures. Sinovac Beijing is exempt from income tax for
three years until 2003 followed by a 7.5% corporation income tax rate for the
next three years.



<PAGE>






G.      Interest and Financing Expenses
- ---------------------------------------

Interest and financing expenses for the three and nine months ended September
30, 2004 were $97,622 and $269,809 respectively. During this period, the Company
acquired 100% of Tangshan Yian. Our financing expenses for the nine month period
included $108,667 of amortization of the deferred financing fee with respect to
the $2,200,000 debt owed to Mr. Heping Wang, one our directors, as part of the
consideration for the acquisition of 100% of Tangshan Yian.

H.      Net Loss
- ----------------

Net loss for the three and nine months ended September 30, 2004 was $1,476,214
and $4,365,510 respectively. The increase in net loss in the current quarter
over historical levels was primarily due to increased SG&A expenses.

I.      Cash Flow and Liquidity
- -------------------------------

Our capital requirements have generally been funded by cash flow from commercial
bank borrowings and issuance of common stock. Our cash and cash equivalents
totalled $2,118,282 at September 30, 2004, which is not sufficient to fund our
business plan over the next 12 months as we intend to make several investments
to expand our business:

     o    We plan to spend $4 million constructing an influenza vaccine
          production line.
     o    We have acquired a further 20.56% of Sinovac Beijing, giving us a
          71.67% interest in that company, for cash consideration of $3.31
          million.
     o    We intend to undertake product promotion campaigns.

We plan to raise the necessary capital from the sale of equity securities. There
can be no assurance that any that such financing will be available, if at all,
on terms acceptable to us. If additional funds are raised by the issuance of
equity securities, stockholders may experience dilution of their ownership
interest.

For the nine months ended September 30, 2004, we generated net cash of $698,235.
Our net loss for the period of $4,365,510 incorporated certain non-cash charges
including stock-based compensation ($3,220,958), a provision for doubtful debts
($289,734) and depreciation ($596,095). Changes in our operating working capital
consumed $1,960,333 of cash, resulting in net cash used in operations of
$2,285,046. Our accounts receivable increased as a result of increased sales. In
the three months ended September 30, 2004, cash consumed by operating activities
was $498,055. The proportionate decrease in cash used, compared to earlier
quarters, was primarily attributable to lower working capital requirements in
the third quarter.

Our financing activities generated $4,606,353, which included $3,997,477 of
newly raised share capital and $1,415,215 from government funding (net of
qualified research and development expenditures). In the nine months ended
September 30, 2004 we also paid $1,135,512 to reduce amounts owing to a
non-controlling shareholder of Sinovac Beijing. Other financing activities
included receiving $149,284 from related parties and generating net loan
proceeds of $179,889.

We used $1,623,072 in investing activities, which included $585,378 to acquire
property, plant and equipment offset by cash of $42,216 acquired on the purchase
of Tangshan Yian. During the current period, we were negotiating agreements that
govern the purchase of a further 20.56% interest in Sinovac Beijing. In
connection with these negotiations, we advanced $1,079,710 to two
non-controlling shareholders of Sinovac Beijing as deposits on account of the
share purchase agreements. The deposits bear interest at 5.31%, and the
principal and interest will be repaid to us when we make full payment of the
share purchase consideration.





<PAGE>






Financial ratios for the nine months ended September 30, 2004
- -------------------------------------------------------------

   Current ratio:                1.29
   Debt to Equity:               73.6%
   Working Capital:              $1,825,363
   Equity:                       $10,611,560

* Current ratio = Current Assets / Current Liabilities
** Debt to Equity = Total Debt / Equity

J.      Factors That May Affect Future Results
- ----------------------------------------------

As an emerging biopharmaceutical company, we are engaged in a competitive and
rapidly evolving business environment.

Success in pre-clinical or early clinical trials (which generally focus on
safety issues) may not translate into success in large-scale clinical trials
(which are designed to show efficacy). Further, success in clinical trials will
likely lead to increased investment, adversely affecting short-term
profitability, to bring such products to market. Even after a product is
approved and launched, general usage or post-marketing studies may identify
safety or other previously unknown problems with the product which may result in
regulatory approvals being suspended, limited to narrow indications or revoked,
or which may otherwise prevent successful commercialization.

We must obtain and maintain regulatory approval in order to market our products.
Generally, these approvals are on a product-by-product and country-by-country
basis. Regulations may be amended from time to time. Revised regulations may
require us to obtain additional regulatory approvals. There is no guarantee that
we will be able to satisfy these new regulatory requirements and may suffer a
loss of revenue as a result.

Our success is very much dependent on the talents and commitment of a core
management team. The loss of the services of any key management figure such as
Sinovac's President, Dr. Yin, could negatively impact our progress.

Financing difficulty may adversely affect our growth since the construction of
the manufacturing facilities for the production of the influenza vaccine is
dependent on further financing from the financial market.

There can be no assurance that all of the clinical trials pertaining to our
in-development vaccines will be completed within the anticipated time frame.
Furthermore, such trials may be delayed or suspended at any time by regulatory
agencies if unforeseen health risks become an issue with the participants of
clinical trials.

K.      Employees
- -----------------

At September 30, 2004, the total number of employees was 169. We incurred
employee compensation expenses of $344,050 in the nine months ended September
30, 2004.

L.      Seasonality of Sales
- ----------------------------

The Chinese traditional New Year is usually in January and February and, as a
result, not many orders come in during that period. From the end of March, sales
generally increase rapidly and then slow down in May and June.

One of the main end user groups for our vaccines are students. Usually the
schools organize vaccination for the students. In July and August, students take
exams and then break for summer holidays. Large-scale vaccination does not take
place during this period. Accordingly, sales are also relatively low in July and
August. In September, new students come to register in their schools. New
students are required to receive vaccination during registration and this
vaccination requirement thus drives up sales in September. At the beginning of
October, Chinese companies usually undertake their planning and budgeting for
the coming year and China's Center for Disease Control ("CDC"), which places
orders for vaccines, follows this schedule.





<PAGE>






In December, as Chinese New Year approaches, the Center of Disease Control
usually purchases an inventory of vaccines for the coming year. Hence, there are
usually many larger orders at the end of the year.


Item 3.  Quantitative and qualitative disclosures about market risk
- -------------------------------------------------------------------

The carrying value of cash and cash equivalents, accounts receivable, short-term
loans payable, accounts payable and accrued liabilities approximate their fair
value because of the short-term nature of these instruments. The fair value of
long-term debt is based on the discounted value of contractual cash flows and at
September 30, 2004, approximates its carrying value. The discount rate is
estimated using the rates currently offered for debt with similar remaining
maturities.

The Company is operating in China, which may give rise to significant foreign
currency risks from fluctuations and the degree of volatility of foreign
exchange rates between US dollars and the Chinese currency RMB. Financial
instruments that potentially subject the Company to concentration of credit
risks consist principally of cash and trade receivables, the balances of which
are stated on the consolidated balance sheets. The Company places its cash in
high credit quality financial institutions.

The Company has not entered into derivative contracts either to hedge existing
risks or for speculative purposes.


Item 4.  Press Release dated February 9, 2005 - Exhibit 99.1
- ------------------------------------------------------------




<PAGE>






                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.


                                              SINOVAC BIOTECH LTD.
                                              --------------------


Date:  February 11, 2005                       By:     /s/ Lily Wang
                                                  -----------------------------
                                                    Lily Wang, CFO and a
                                                    Director



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.1
<SEQUENCE>2
<FILENAME>sinovacexh99_1.txt
<DESCRIPTION>SINOVAC BIOTECH 6K, PRESS RELEASE, 02.09.05
<TEXT>






Exhibit 99.1
- ------------


    SINOVAC BIOTECH LTD. COMPLETES THE ACQUISITION OF AN ADDITIONAL 20.56% OF
    -------------------------------------------------------------------------
                     SINOVAC (BEIJING) OPERATING SUBSIDIARY
                     --------------------------------------

BEIJING,  February 9, 2004 - Sinovac  Biotech Ltd.  ("Sinovac")  ("the Company")
(AMEX - SVA)  announces  that as of  February  4th  2005  it has  completed  the
acquisition of an additional 20.56% of its Beijing-based  operating  subsidiary,
Sinovac Biotech Co., Ltd. ("Sinovac (Beijing)") for approximately US $3,310,000.
Sinovac's  intention to make this purchase was previously  announced on December
10, 2004.

Sinovac's  holdings now include nearly 72% of Sinovac  (Beijing) and 100% of the
Tangshan  Yian R&D and  production  facility.  The  Tangshan  Yian  facility was
acquired by Sinovac in February 2004 and is now a 100% owned  subsidiary.  China
Bioway Biotech Group ("China Bioway"), a subsidiary of Beijing University,  owns
the remaining 28% of Sinovac (Beijing).

Per the  purchase  agreement,  Sinovac  paid  cash  for the  20.56%  of  Sinovac
(Beijing),  to the  following  companies:  acquired  9.73% of from China  Bioway
Biotech Group Co., Ltd. for US$1,570,000;  acquired 7.92% from Shenzhen Bio-Port
Co., Ltd. for US$1,270,000; and acquired 2.91% from Beijing Keding Co., Ltd. for
US$470,000.

Dr. Wei Dong Yin,  president of Sinovac,  commented,  "We are  delighted to have
increased  the ownership of Sinovac in its key Beijing  operating  subsidiary to
almost 72%. If possible,  we will endeavour to purchase  further  interests from
China Bioway at an attractive valuation as we continue to implement our business
strategy and to further set the foundation for building value for Sinovac public
company shareholders. Beyond the increased interest in Sinovac (Beijing) and the
Tangshan  Yian  acquisition,  Sinovac is looking  for and  evaluating  potential
synergistic  and  accretive  acquisition  targets in the vaccine  industry  that
complement Sinovac's current vaccine portfolio."


About Sinovac Biotech Ltd.
- --------------------------

Sinovac    Biotech   Ltd.    specializes    in   the   research,    development,
commercialization,  and sales of human vaccines for infectious illnesses such as
hepatitis A and hepatitis B, influenza,  SARS, and avian flu.  Sinovac is one of
the leading emerging biotechnology companies in China.

Sinovac now has two vaccines fully approved for sale in China - Healive(TM)  for
Hepatitis A and Bilive(TM) for Hepatitis A&B combined.  The Hepatitis A vaccine,
Healive(TM),  is currently  experiencing strong sales growth in China. Sinovac's
Hepatitis  A&B  combined  vaccine,  Bilive(TM),  has just  received  approval to
commence  sales in China and is  expected  to achieve  similar  sales  growth to
Healive(TM).  The Company's flu vaccine completed  clinical trials in April 2004
and a New Drug Application has been filed with the Chinese FDA (SFDA).  Approval
of  Sinovac's  flu  vaccine is  expected  in 2005 upon  completion  of a new flu
vaccine production line.

Sinovac  currently  leads the world in the  development  of a human  vaccine  to
prevent  SARS.  Preliminary  Phase I clinical  trial results show that this SARS
vaccine is safe and induces  SARS-neutralizing  antibodies in the human body. In
addition,  the Company is co-developing a human vaccine  targeting the avian flu
virus in partnership with China CDC.


For further  information  please refer to the Company's  filings with the SEC on
EDGAR or refer to Sinovac's website at www.sinovac.com.
                                       ---------------

If you would like to receive  regular  updates on Sinovac please send your email
request to info@sinovac.com.
           ----------------




<PAGE>






Contact:  Investor Relations at (888) 888-8312 or 1 604 684-5990 from outside of
North America or info@sinovac.com
                 ----------------




THIS NEWS RELEASE MAY INCLUDE  FORWARD-LOOKING  STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND SECTION
21E OF THE UNITED STATES  SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED,  WITH
RESPECT  TO  ACHIEVING  CORPORATE  OBJECTIVES,   DEVELOPING  ADDITIONAL  PROJECT
INTERESTS,   SINOVAC'S   ANALYSIS  OF   OPPORTUNITIES  IN  THE  ACQUISITION  AND
DEVELOPMENT  OF VARIOUS  PROJECT  INTERESTS  AND CERTAIN  OTHER  MATTERS.  THESE
STATEMENTS  ARE MADE UNDER THE "SAFE  HARBOR"  PROVISIONS  OF THE UNITED  STATES
PRIVATE  SECURITIES  LITIGATION  REFORM  ACT  OF  1995  AND  INVOLVE  RISKS  AND
UNCERTAINTIES  WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER  MATERIALLY FROM THOSE
IN THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN.


</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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