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<SEC-DOCUMENT>0001144204-04-009017.txt : 20040625
<SEC-HEADER>0001144204-04-009017.hdr.sgml : 20040625
<ACCEPTANCE-DATETIME>20040625093828
ACCESSION NUMBER:		0001144204-04-009017
CONFORMED SUBMISSION TYPE:	20-F
PUBLIC DOCUMENT COUNT:		13
CONFORMED PERIOD OF REPORT:	20040331
FILED AS OF DATE:		20040625

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			HIGHWAY HOLDINGS LTD
		CENTRAL INDEX KEY:			0001026785
		STANDARD INDUSTRIAL CLASSIFICATION:	MISCELLANEOUS FABRICATED METAL PRODUCTS [3490]
		IRS NUMBER:				000000000
		FISCAL YEAR END:			0331

	FILING VALUES:
		FORM TYPE:		20-F
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-28990
		FILM NUMBER:		04880897

	BUSINESS ADDRESS:	
		STREET 1:		LEVEL 8 LANDMARK N 39 LUNG SUM AVE
		STREET 2:		STE 810
		CITY:			SHEUNG SHUI
		STATE:			K3
		ZIP:			00000

	MAIL ADDRESS:	
		STREET 1:		LEVEL 8 LANDMARK N 39 LUNG SUM AVE
		STREET 2:		STE 810
		CITY:			SHEUNG SHUI
		STATE:			K3
		ZIP:			999999999
</SEC-HEADER>
<DOCUMENT>
<TYPE>20-F
<SEQUENCE>1
<FILENAME>v04060_20f.htm
<TEXT>
<HTML>
<HEAD>
   <TITLE>v04060_20f</TITLE>
   <META name="HandheldFriendly" content="true">
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<BODY bgcolor="#ffffff">


<A name="page_1"></A>

<P align="center">
<FONT face="serif">United States </FONT>
<BR> <FONT face="serif">SECURITIES AND EXCHANGE COMMISSION </FONT>
<BR>
<FONT face="serif">Washington, D.C. 20549 </FONT>
</P>
<P align="center">
<B><FONT size=5 face="serif">FORM 20-F</FONT></B>
</P>
<TABLE width="100%" border=0 cellspacing=0 cellpadding=0>
  <TR>
    <TD align="center"><FONT face="serif">[&nbsp;&nbsp;&nbsp;]</FONT></TD>
    <TD align="center" width="2%">&nbsp;</TD>
    <TD align="left" width="96%"><FONT size=2 face="serif">REGISTRATION STATEMENT
      PURSUANT TO SECTION 12(b) or (g) OF THE SECURITIES EXCHANGE ACT OF 1934</FONT></TD>
  </TR>
  <TR>
    <TD colspan="3"><FONT size="2" face="serif">&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD colspan="3"><DIV align="center"><FONT size=2 face="serif">or</FONT></DIV></TD>
  </TR>
  <TR>
    <TD colspan="3"><FONT size="2" face="serif">&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD><FONT size=2 face="serif">[&nbsp;<B>X</B>&nbsp;]</FONT></TD>
    <TD align="center" width="2%">&nbsp;</TD>
    <TD width="96%"><FONT size=2 face="serif">ANNUAL REPORT PURSUANT TO SECTION
      13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</FONT></TD>
  </TR>
  <TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD>&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="96%"><B><FONT size=2 face="serif">For the fiscal year ended March
      31, 2004.</FONT></B></TD>
  </TR>
  <TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD><FONT face="serif">[&nbsp;&nbsp;&nbsp;]</FONT></TD>
    <TD align="center" width="2%">&nbsp;</TD>
    <TD width="96%"><FONT size=2 face="serif">TRANSITION REPORT PURSUANT TO SECTION
      13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</FONT></TD>
  </TR>
  <TR>
    <TD>&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="96%"><B><FONT size=2 face="serif">For the transition period from
      ____________ to ____________.</FONT></B></TD>
  </TR>
</TABLE>
<P align="center"> <B><FONT size=2 face="serif">Commission file number 0-28990</FONT></B></P>
<P align="center"><B><FONT size=4 face="serif">HIGHWAY
  HOLDINGS LIMITED </FONT></B> <BR>
<FONT size=2 face="serif">(Exact name of Registrant as specified in its charter) </FONT>
</P>
<P align="center">
<B><FONT size=2 face="serif">British Virgin Islands </FONT></B>
<BR>
<FONT size=2 face="serif">(Jurisdiction of incorporation or organization) </FONT>
</P>
<P align="center"> <FONT size=2 face="serif">Suite 810, Level 8, Landmark North<br>
  39 Lung Sum Avenue<br>Sheung Shui<br>New Territories, Hong Kong<br>(Address of principal
  executive offices) </FONT> </P>
<P align="center"> <B><FONT size=2 face="serif">Securities registered or to be
  registered pursuant to Section 12(b) of the Act: None</FONT></B><FONT size=2 face="serif">
  </FONT> </P>
<P align="center"> <B><FONT size=2 face="serif">Securities registered or to be
  registered pursuant to Section 12(g) of the Act:</FONT></B><BR><U><FONT size=2 face="serif">Title of each class</FONT></U>
<BR>
<FONT size=2 face="serif">Common Shares, $0.01 par value per share </FONT>
</P>
<P>
<B><FONT size=2 face="serif">Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: NONE </FONT></B>
</P>
<P>
<B><FONT size=2 face="serif">Indicate the number of outstanding shares of each of the issuer&#146;s classes of capital or common stock as of the close of the period covered by the annual report. 3,074,123 Common Shares were outstanding as of March
31, 2004. </FONT></B>
</P>
<P>
<B><FONT size=2 face="serif">Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes </FONT></B><B><U><FONT size=2 face="serif">&nbsp;&nbsp;X&nbsp;&nbsp;</FONT></U></B><B><FONT size=2 face="serif">No <u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u></FONT></B>
</P>
<P>
<B><FONT size=2 face="serif">Indicate by check mark which financial statement item the registrant has elected to follow.</FONT></B>
</P>
<P> <B><FONT size=2 face="serif">Item 17 <u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u>&nbsp;&nbsp;&nbsp;Item
  18 </FONT></B><B><U><FONT size=2 face="serif">&nbsp;&nbsp;X&nbsp;&nbsp;</FONT></U></B>
</P>

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<A name="page_2"></A>
<P align="center">
<B><U><FONT face="serif">TABLE OF CONTENTS</FONT></U></B><B><FONT face="serif"> </FONT></B>
</P>
<TABLE width="100%" border=0 cellspacing=0 cellpadding=0>
  <TR>
    <TD><A href="#page_3"><B><FONT face="serif">PART I</FONT></B></A></TD>
    <TD align="right" width="3%"><A href="#page_3"><FONT face="serif">1</FONT></A></TD>
    <TD width="3%">&nbsp;</TD>
  </TR>
  <TR>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD><FONT face="serif">Item 1. Identity of Directors, Senior Management and
      Advisers</FONT></TD>
    <TD align="right" width="3%"><A href="#page_3"><FONT face="serif">1</FONT></A></TD>
    <TD width="3%">&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD><FONT face="serif">Item 2. Offer Statistics and Expected Timetable</FONT></TD>
    <TD width="3%" align="right"><A href="#page_3"><FONT face="serif">1</FONT></A></TD>
    <TD width="3%">&nbsp;</TD>
  </TR>
  <TR>
    <TD><FONT face="serif">Item 3. Key Information</FONT></TD>
    <TD align="right" width="3%"><A href="#page_4"><FONT face="serif">2</FONT></A></TD>
    <TD width="3%">&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD><FONT face="serif">Item 4. Information on the Company</FONT></TD>
    <TD width="3%" align="right"><A href="#page_14"><FONT face="serif">12</FONT></A></TD>
    <TD width="3%">&nbsp;</TD>
  </TR>
  <TR>
    <TD><FONT face="serif">Item 5. Operating and Financial Review and Prospects</FONT></TD>
    <TD align="right" width="3%"><A href="#page_33"><FONT face="serif">31</FONT></A></TD>
    <TD width="3%">&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD><FONT face="serif">Item 6. Directors, Senior Management and Employees</FONT></TD>
    <TD width="3%" align="right"><A href="#page_43"><FONT face="serif">41</FONT></A></TD>
    <TD width="3%">&nbsp;</TD>
  </TR>
  <TR>
    <TD><FONT face="serif">Item 7. Major Shareholders and Related Party Transactions</FONT></TD>
    <TD align="right" width="3%"><A href="#page_48"><FONT face="serif">46</FONT></A></TD>
    <TD width="3%">&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD><FONT face="serif">Item 8. Financial Information.</FONT></TD>
    <TD width="3%" align="right"><A href="#page_50"><FONT face="serif">48</FONT></A></TD>
    <TD width="3%">&nbsp;</TD>
  </TR>
  <TR>
    <TD><FONT face="serif">Item 9. The Listing</FONT></TD>
    <TD align="right" width="3%"><A href="#page_52"><FONT face="serif">50</FONT></A></TD>
    <TD width="3%">&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD><FONT face="serif">Item 10. Additional Information</FONT></TD>
    <TD width="3%" align="right"><A href="#page_53"><FONT face="serif">51</FONT></A></TD>
    <TD width="3%">&nbsp;</TD>
  </TR>
  <TR>
    <TD><FONT face="serif">Item 11. Quantitative and Qualitative Disclosures About
      Market Risk.</FONT></TD>
    <TD align="right" width="3%"><A href="#page_56"><FONT face="serif">54</FONT></A></TD>
    <TD width="3%">&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD><FONT face="serif">Item 12. Description of Securities Other Than Equity
      Securities</FONT></TD>
    <TD width="3%" align="right"><A href="#page_57"><FONT face="serif">55</FONT></A></TD>
    <TD width="3%">&nbsp;</TD>
  </TR>
  <TR>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD><A href="#page_57"><B><FONT face="serif">PART II</FONT></B></A></TD>
    <TD align="right" width="3%"><A href="#page_57"><FONT face="serif">55</FONT></A></TD>
    <TD width="3%">&nbsp;</TD>
  </TR>
  <TR>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD><FONT face="serif">Item 13. Defaults, Dividend Arrearages and Delinquencies</FONT></TD>
    <TD align="right" width="3%"><A href="#page_57"><FONT face="serif">55</FONT></A></TD>
    <TD width="3%">&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD><FONT face="serif">Item 14. Material Modification to the Rights of Securities
      Holders and use of Proceeds.</FONT></TD>
    <TD width="3%" align="right"><A href="#page_57"><FONT face="serif">55</FONT></A></TD>
    <TD width="3%">&nbsp;</TD>
  </TR>
  <TR>
    <TD><FONT face="serif">Item 15. Controls and Procedures</FONT></TD>
    <TD align="right" width="3%"><A href="#page_57"><FONT face="serif">55</FONT></A></TD>
    <TD width="3%">&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD><FONT face="serif">Item 16. Not applicable</FONT></TD>
    <TD width="3%" align="right"><A href="#page_58"><FONT face="serif">56</FONT></A></TD>
    <TD width="3%">&nbsp;</TD>
  </TR>
  <TR>
    <TD><FONT face="serif">Item 16A. Audit Committee Financial Expert</FONT></TD>
    <TD align="right" width="3%"><A href="#page_58"><FONT face="serif">56</FONT></A></TD>
    <TD width="3%">&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD><FONT face="serif">Item 16B. Code of Ethics</FONT></TD>
    <TD width="3%" align="right"><A href="#page_58"><FONT face="serif">56</FONT></A></TD>
    <TD width="3%">&nbsp;</TD>
  </TR>
  <TR>
    <TD><FONT face="serif">Item 16C. Principal Accountant Fees and Services</FONT></TD>
    <TD align="right" width="3%"><A href="#page_59"><FONT face="serif">57</FONT></A></TD>
    <TD width="3%">&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD><FONT face="serif">Item 16D. Exemptions From the Listing Standards for
      Audit Committees</FONT></TD>
    <TD width="3%" align="right"><A href="#page_59"><FONT face="serif">57</FONT></A></TD>
    <TD width="3%">&nbsp;</TD>
  </TR>
  <TR>
    <TD><FONT face="serif">Item 16E. Purchase of Equity Securities by the Issuer
      and Affiliated Purchasers</FONT></TD>
    <TD align="right" width="3%"><A href="#page_59"><FONT face="serif">57</FONT></A></TD>
    <TD width="3%">&nbsp;</TD>
  </TR>
  <TR>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD><A href="#page_59"><B><FONT face="serif">PART III</FONT></B></A></TD>
    <TD width="3%" align="right"><A href="#page_59"><FONT face="serif">57</FONT></A></TD>
    <TD width="3%">&nbsp;</TD>
  </TR>
  <TR>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD><FONT face="serif">Item 17. Not applicable</FONT></TD>
    <TD align="right" width="3%"><A href="#page_59"><FONT face="serif">57</FONT></A></TD>
    <TD width="3%">&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD><FONT face="serif">Item 18. Financial statements.</FONT></TD>
    <TD width="3%" align="right"><A href="#page_60"><FONT face="serif">58</FONT></A></TD>
    <TD width="3%">&nbsp;</TD>
  </TR>
  <TR>
    <TD><FONT face="serif">Item 19. Exhibits</FONT></TD>
    <TD align="right" width="3%"><A href="#page_60"><FONT face="serif">58</FONT></A></TD>
    <TD width="3%">&nbsp;</TD>
  </TR>
</TABLE>
<P align="center">
<FONT face="serif">- i -</FONT>
</P>

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<A name="page_3"></A>

<P align="center">
<B><FONT face="serif">FORWARD - LOOKING STATEMENTS </FONT></B>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Except for any historical information contained herein, the matters discussed in this Annual Report on Form 20-F contain certain &#147;forward-looking statements&#148; within the meaning of the
Private Securities Litigation Reform Act of 1995 with respect to our financial condition, results of operation and business.  Forward-looking statements relate to analyses and other information which are based on forecasts of future results and
estimates of amounts not yet determinable, including statements about our future prospects, developments and business strategies.  These forward-looking statements are identified by their use of terms and phrases such as &#147;anticipate,&#148;
&#147;believe,&#148; &#147;could,&#148; &#147;estimate,&#148; &#147;expect,&#148; &#147;intend,&#148; &#147;may,&#148; &#147;plan,&#148; &#147;predicts,&#148; &#147;will&#148; and similar terms and phrases, including references to assumptions.
These forward-looking statements involve risks and uncertainties that may cause our actual future activities and results of operations to be materially different from those suggested or described in this Annual Report on Form 20-F. These risks
include: product demand; customer satisfaction and quality issues; labor disputes; competition; health and economic factors affecting China and Hong Kong; political relations between the United States and China; changes in policies by the Chinese
government; currency fluctuations; increased price competition; our ability to achieve and execute internal business plans; worldwide political instability and economic growth; and the impact of any economic downturns and inflation, including any
weakness in the currency, banking and equity markets of countries in the Asia region. </FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">If one or more of these risks or uncertainties materializes, or if underlying assumptions prove incorrect, our actual results may vary materially from those expected, estimated or projected. Given
these uncertainties, users of the information included in this Annual Report on Form 20-F, including investors and prospective investors are cautioned not to place undue reliance on such forward-looking statements. We do not intend to update the
forward-looking statements included in this Annual Report</FONT><FONT size=2 face="serif">. </FONT>
</P>
<P align="center"> <FONT face="serif">CONVENTIONS </FONT> </P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Highway Holdings Limited operates through various controlled subsidiaries. Unless the context indicates otherwise, all references herein to &#147;the Company&#148; refer collectively to Highway
Holdings Limited and its subsidiaries.  Unless otherwise stated, all references to &#147;dollars&#148; or $ are to United States dollars.</FONT><FONT size=2 face="serif"> </FONT>
</P>
<P>
<B><FONT face="serif">PART I</FONT></B><FONT face="serif"> </FONT>
</P>
<P>
<B><FONT face="serif">Item 1. Identity of Directors, Senior Management and Advisers </FONT></B>
</P>
<P>
<FONT face="serif">Not Applicable </FONT>
</P>
<P>
<B><FONT face="serif">Item 2. Offer Statistics and Expected Timetable</FONT></B>
</P>
<P>
<FONT face="serif">Not Applicable </FONT>
</P>
<P align="center">
<FONT face="serif">- 1 -</FONT>
</P>

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<A name="page_4"></A>

<P>
<B><FONT face="serif">Item 3. Key Information </FONT></B>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Our historical Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States (&#147;GAAP&#148;) and presented in United States
dollars.  The selected financial information set forth below is derived from the consolidated financial statements of the Company. The selected information is qualified in its entirety by reference to, and should be read in conjunction with, such
consolidated financial statements, related notes and &#147;Operating and Financial Review and Prospects&#148; included as Item 5 in this report. </FONT>
</P>
<P>
<FONT face="serif">Selected Consolidated Financial Information (In thousands, except per share data): </FONT>
</P>
<TABLE width="100%" border=0 cellspacing=0 cellpadding=0>
  <TR>
    <TD width="50%">&nbsp;</TD>
    <TD align="center"><U></U></TD>
    <TD colspan=3 align="right"><DIV align="right"><FONT face="serif"><u>2000</u>&nbsp;&nbsp;</FONT></DIV></TD>
    <TD align="center"><DIV align="right"></DIV></TD>
    <TD align="right" colspan=3><DIV align="right"><FONT face="serif"><U>2001</U>&nbsp;&nbsp;</FONT></DIV></TD>
    <TD align="center"><DIV align="right"></DIV></TD>
    <TD align="right" colspan=3><DIV align="right"><FONT face="serif"><U>2002</U>&nbsp;&nbsp;</FONT></DIV></TD>
    <TD align="center"><DIV align="right"></DIV></TD>
    <TD align="right" colspan=2><DIV align="right"><FONT face="serif"><U>2003</U>&nbsp;&nbsp;</FONT></DIV></TD>
    <TD align="center"><DIV align="right"><U></U></DIV></TD>
    <TD colspan=3 align="right"><DIV align="right"><FONT face="serif"><u>2004</u>&nbsp;&nbsp;</FONT></DIV></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="50%" align="center" nowrap><DIV align="left"><FONT face="serif"><U>Income
        Statement Data</U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></DIV></TD>
    <TD align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD colspan=3 align="center">&nbsp;</TD>
    <TD align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD colspan=3 align="center">&nbsp;</TD>
    <TD align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="center" colspan=3>&nbsp;</TD>
    <TD align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD colspan="3" align="center">&nbsp;</TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
  </TR>
  <TR>
    <TD width="50%" nowrap><DIV align="left"><FONT face="serif">Net Sales</FONT></DIV></TD>
    <TD align="right"></TD>
    <TD align="left"><FONT face="serif">$&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD colspan=2 align="right"><FONT face="serif">18,187</FONT></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="left"><FONT face="serif">$&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD colspan=2 align="right"><FONT face="serif">17,543</FONT></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="left"><FONT face="serif">$&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD colspan=2 align="right"><FONT face="serif">19,432</FONT></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="left"><FONT face="serif">$&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><FONT face="serif">20,370</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="left"><FONT face="serif">$&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD colspan=2 align="right"><FONT face="serif">25,356</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="50%" nowrap><DIV align="left"><FONT face="serif">Gross profit</FONT></DIV></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD colspan=2 align="right"><FONT face="serif">3,347</FONT></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD colspan=2 align="right"><FONT face="serif">2,492</FONT></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD colspan=2 align="right"><FONT face="serif">3,384</FONT></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">3,882</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD colspan=2 align="right"><FONT face="serif">5,094</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="50%" nowrap><DIV align="left"><FONT face="serif">Operating income
        (loss)</FONT></DIV></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right" colspan=2><FONT face="serif">(105</FONT></TD>
    <TD align="left"><FONT face="serif">)</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD colspan=2 align="right"><FONT face="serif">(1,029</FONT></TD>
    <TD align="left"><FONT face="serif">)</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right" colspan=2><FONT face="serif">(241</FONT></TD>
    <TD align="left"><FONT face="serif">)</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">159</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right" colspan=2><FONT face="serif">875</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="50%" nowrap><DIV align="left"><FONT face="serif">Net income (loss)</FONT></DIV></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD colspan=2 align="right"><FONT face="serif">(265</FONT></TD>
    <TD align="left"><FONT face="serif">)</FONT></TD>
    <TD colspan=3 align="right"><FONT face="serif">(1,252</FONT></TD>
    <TD align="left"><FONT face="serif">)</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD colspan=2 align="right"><FONT face="serif">(231</FONT></TD>
    <TD align="left"><FONT face="serif">)</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">485</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD colspan=2 align="right"><FONT face="serif">982</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="50%" nowrap><DIV align="left"><FONT face="serif">Dividend declared
        and paid </FONT><SUP><FONT face="serif">(1)</FONT></SUP></DIV></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right" colspan=2><FONT face="serif">126</FONT></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD colspan=2 align="right"><FONT face="serif">0</FONT></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right" colspan=2><FONT face="serif">0</FONT></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">0</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right" colspan=2><FONT face="serif">237</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="50%" nowrap><DIV align="left"><FONT face="serif">Per share amounts</FONT></DIV></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD colspan=2 align="right">&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD colspan=2 align="right">&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD colspan=2 align="right">&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD colspan=2 align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="50%" align="center" nowrap><DIV align="left">&nbsp;&nbsp;&nbsp;<FONT face="serif">Net
        income (loss)-basic</FONT></DIV></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="left"><FONT face="serif">$&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">(0.09</FONT></TD>
    <TD align="left"><FONT face="serif">)</FONT></TD>
    <TD align="left"><FONT face="serif">$&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">(0.43</FONT></TD>
    <TD align="left"><FONT face="serif">)</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right" colspan=2><FONT face="serif">(0.08</FONT></TD>
    <TD align="left"><FONT face="serif">)</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">0.17</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right" colspan=2><FONT face="serif">0.32</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="50%" align="center" nowrap><DIV align="left">&nbsp;&nbsp;&nbsp;<FONT face="serif">Net
        income (loss)-diluted</FONT></DIV></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="left"><FONT face="serif">$&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD colspan=2 align="right"><FONT face="serif">(0.09</FONT></TD>
    <TD align="left"><FONT face="serif">)</FONT></TD>
    <TD align="left"><FONT face="serif">$&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">(0.43</FONT></TD>
    <TD align="left"><FONT face="serif">)</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD colspan=2 align="right"><FONT face="serif">(0.08</FONT></TD>
    <TD align="left"><FONT face="serif">)</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">0.17</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD colspan=2 align="right"><FONT face="serif">0.30</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="50%" align="center" nowrap><DIV align="left">&nbsp;&nbsp;&nbsp;<FONT face="serif">Dividend
        declared &amp; paid </FONT><SUP><FONT face="serif">(1)</FONT></SUP></DIV></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="right" colspan=2><FONT face="serif">0.044</FONT></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right" colspan=2><FONT face="serif">0</FONT></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right" colspan=2><FONT face="serif">0</FONT></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">0</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right" colspan=2><FONT face="serif">0.08</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="50%" nowrap><DIV align="left"><FONT face="serif">Weighted average
        shares:</FONT></DIV></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD colspan=2 align="right">&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD colspan=2 align="right">&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD colspan=2 align="right">&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD colspan=2 align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="50%" align="center" nowrap><DIV align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Basic</FONT></DIV></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="right" colspan=2><FONT face="serif">2,868</FONT></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right" colspan=2><FONT face="serif">2,905</FONT></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right" colspan=2><FONT face="serif">2,904</FONT></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">2,902</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right" colspan=2><FONT face="serif">3,030</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="50%" align="center" nowrap><DIV align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Diluted</FONT></DIV></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD colspan=2 align="right"><FONT face="serif">2,868</FONT></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD colspan=2 align="right"><FONT face="serif">2,905</FONT></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD colspan=2 align="right"><FONT face="serif">2,904</FONT></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">2,902</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD colspan=2 align="right"><FONT face="serif">3,258</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="50%" nowrap><DIV align="left"></DIV></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="right" colspan=2>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right" colspan=2>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right" colspan=2>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right" colspan=2>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="50%" align="center" nowrap><DIV align="left"><U><FONT face="serif">Balance
        Sheet Data</FONT></U></DIV></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="right" colspan=2>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right" colspan=2>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right" colspan=2>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right" colspan=2>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="50%" nowrap><DIV align="left"><FONT face="serif">Property, plant
        and equipment, net</FONT></DIV></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="left"><FONT face="serif">$&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right" colspan=2><FONT face="serif">5,263</FONT></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="left"><FONT face="serif">$&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right" colspan=2><FONT face="serif">4,723</FONT></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="left"><FONT face="serif">$&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right" colspan=2><FONT face="serif">4,243</FONT></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="left"><FONT face="serif">$&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><FONT face="serif">3,657</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="left"><FONT face="serif">$&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right" colspan=2><FONT face="serif">3,780</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="50%" nowrap><DIV align="left"><FONT face="serif">Working capital</FONT></DIV></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">7,110</FONT></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">6,425</FONT></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">6,716</FONT></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">7,753</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">8,774</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="50%" nowrap><DIV align="left"><FONT face="serif">Total assets</FONT></DIV></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="right" colspan=2><FONT face="serif">17,285</FONT></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right" colspan=2><FONT face="serif">15,644</FONT></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right" colspan=2><FONT face="serif">15,701</FONT></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">16,494</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right" colspan=2><FONT face="serif">18,688</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="50%" nowrap><DIV align="left"><FONT face="serif">Long Term Debt</FONT></DIV></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">305</FONT></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">49</FONT></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">112</FONT></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">230</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">385</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="50%" nowrap><DIV align="left"><FONT face="serif">Shareholders&#146;
        equity</FONT></DIV></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="right" colspan=2><FONT face="serif">12,929</FONT></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right" colspan=2><FONT face="serif">11,697</FONT></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right" colspan=2><FONT face="serif">11,466</FONT></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">11,907</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right" colspan=2><FONT face="serif">12,842</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
</TABLE>
<P>
<hr noshade size="1" width="15%" align="left">
<FONT size=2 face="serif">(1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dividends declared for all periods were declared as cash dividends. </FONT>
<P>
<B><FONT face="serif">RISK FACTORS</FONT></B>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company&#146;s business and operations involve numerous risks, some of which are beyond the Company&#146;s control, that may affect future results and the market price of the Company&#146;s Common
Shares.  The following discussion highlights some of the risks the Company faces. </FONT>
</P>
<P align="center">
<FONT face="serif">- 2</FONT>
</P>
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<A name="page_5"></A>

<P>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT face="serif">Risks Relating to China </FONT></I>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I><FONT face="serif">Dependence on Agreements with State-Owned Enterprises</FONT></I><FONT face="serif">.  All of the Company&#146;s operations are currently dependent on its manufacturing operations conducted in
China. Pursuant to its five leases (the &#147;Premises Leases&#148;), the Company utilizes approximately 450,000 square feet of space for manufacturing operations and dormitory facilities at the site of the factory complex in Long Hua, Shenzhen,
China where the Company conducts all of its manufacturing operations</FONT><B><FONT face="serif">.</FONT></B><FONT face="serif">  The Company&#146;s operations are conducted pursuant to agreements entered into between certain China companies set up
by the local government and the Shenzhen City Baoan District Foreign Economic Development Head Company and its designees (collectively, the &#147;BFDC&#148;) (the agreements, collectively the &#147;BFDC Agreements&#148;). The Premises Leases
currently expire on February 28, 2009. However, the Premises Leases may be terminated at any time prior to 2009 by either the Company or the landlord upon six months notice to the other party. Should the landlord elect to terminate the Premises
Leases before 2009, or should the Premises Lease be terminated for any other reason, the entire operations of the Company would have to be relocated to other facilities. Any such relocation would be costly and would disrupt the Company&#146;s
operations and would have a severe adverse affect on the Company, its operations, its viability and its financial condition. While the Company believes that it could find suitable alternative facilities, the terms of such alternate facilities could
be less favorable to the Company. Any contractual dispute under either of the BFDC Agreements or the Premises Leases could have a material adverse affect on the Company&#146;s operations and financial condition. </FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">To facilitate the Company&#146;s operations in China, the local government set up three separate China companies that are parties to the BFDC Agreements which, pursuant to extension agreements (the
&#147;Extension Agreements&#148;), expire March 31, 2006, unless renewed, with the BFDC.  The BFDC is owned by the local government of Long Hua, the town in which the factory is located. Pursuant to the BFDC Agreements, the BFDC is the party
responsible for providing manufacturing facilities and supplying workers to the Company and the Company is responsible for paying a management fee, and certain other charges to the BFDC. As a result of structuring its operations so that they are
conducted pursuant to the BFDC Agreements and the Premises Leases, the Company is not subject to certain rules and regulations that would be imposed on entities which are considered under China law to be doing business in China by utilizing other
business structures such as joint ventures or wholly owned subsidiaries organized in China. For example, the Company has not been required to apply for permits or licenses in China, to register to do business in China, or to pay taxes in China.
Should there be any adverse change in the Company&#146;s dealings with the BFDC, or should the local or federal government change the rules under which the Company currently operates, all of the Company&#146;s operations and assets could be
jeopardized.</FONT>
</P>
<P> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">To date, the Company and
  the BFDC have been dealing with each other on terms different in certain respects
  than those contained in the BFDC Agreements. There can be no assurance that
  the BFDC will not insist upon a change in the current practices so as to require
  adherence to the terms of the BFDC Agreements, which the Company considers less
  favorable to it than the practices currently in effect, or that the Company
  or BFDC may not be required to do so by the Ministry of Foreign Trade and Economic
  Co-operation of China and other relevant authorities. There can also be no assurances
  that the Company will be able to negotiate extensions
  and further supplements to any of the BFDC Agreements or that the Company will
  be able to continue its operations in China. If the Company were required to
  adhere to the terms of the BFDC Agreements, the Company&#146;s business and
  results of operations could be materially and adversely affected.</FONT> </P>
<P align="center">
<FONT face="serif">- 3 </FONT>
</P>

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<A name="page_6"></A>

<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The BFDC Agreements and the Premises Leases are dependent on the Company&#146;s continuing good relationship with the designees of the local government.  In the event of a dispute involving the BFDC
Agreements or the Premises Leases, the current arrangement under which the Company conducts its business may be difficult to enforce in China. The Company&#146;s operations and prospects will be materially and adversely affected by the failure of
the BFDC or Land &amp; Sun Company to honor or extend the current arrangement or renew the BFDC Agreements or the Premises Leases, respectively. </FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I><FONT face="serif">Internal Political and Other Risks</FONT></I><FONT face="serif">.  As of the date of this Annual Report, all of the Company&#146;s manufacturing facilities are located in China. As a result, the
Company&#146;s operations and assets are subject to significant political, economic, legal and other uncertainties associated with doing business in China.  Changes in policies by the Chinese government resulting in changes in laws, regulations, or
the interpretation thereof, confiscatory taxation, restrictions on imports and sources of supply, currency devaluations or the expropriation of private enterprise could materially adversely affect the Company.  An example of such uncertainty and
rapid changes was China&#146;s imposition in 2000 on the metals industry of the Customs License Deposit, which resulted in the Company being forced to pay a 20% deposit on all imported steel metals. The imposition of this deposit requirement
suddenly and materially affected the Company&#146;s metal stamping operations. However, as indicated elsewhere in this Annual Report, the Customs License Deposit rules have since been modified and partially repealed. </FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Under its current leadership, the Chinese government has been pursuing economic reform policies, including the encouragement of private economic activity and greater economic decentralization.  There
can be no assurance, however, that the Chinese government will continue to pursue such policies, that such policies will be successfully pursued, that such policies will not be significantly altered from time to time or that business operations in
China would not become subject to the risk of nationalization, which could result in the total loss of investments in that country.  Economic development may be limited as well by other factors, such as the imposition of austerity measures intended
to reduce inflation, the inadequate development of an infrastructure, and the potential unavailability of adequate transportation, adequate power, adequate water supplies, satisfactory roads and communications and raw materials and parts. If for any
reason the Company were required to move its manufacturing operations outside of China, the Company&#146;s favorable cost structure could be eliminated, its competitiveness and market position would be materially jeopardized, and there would be
substantial doubt as to whether the Company could continue its operations. </FONT>
</P>
<P> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I><FONT face="serif">Possible Reoccurrence
  of SARS. </FONT></I><FONT face="serif"> During 2002/2003, Severe Acute Respiratory
  Syndrome (SARS) became a major world-wide health concern. SARS is believed to
  have originated in China and most SARS infections and deaths occurred in China.
  Because SARS is a highly contagious disease, a number of countries and health
  organizations, including the World Health Organization, strongly advised people
  to avoid traveling to Hong Kong or the Guangdong province in mainland China.
  The Company&#146;s offices and facilities are located in both Hong Kong and
  in the Guangdong province. While SARS did not affect the Company&#146;s workers,
  the disease did materially and adversely affect business in China. Should SARS
  reoccur in China in the future, the Company&#146;s employees and operations
  could be affected. In addition, the Company&#146;s international customers may
  reduce their contacts and business with the Company by shifting their manufacturing
  needs to manufacturers located outside of China or by purchasing products manufactured
  outside of China. Any such future shift of work orders or product purchases
  from the Company to companies based in countries that are not so affected by
  SARS would have a material affect on the Company, its operations, and on its
  financial condition.</FONT> </P>
<P align="center">
<FONT face="serif">- 4 </FONT>
</P>

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<A name="page_7"></A>

<P> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I><FONT face="serif">Uncertain Legal System
  and Application of Laws</FONT></I><FONT face="serif">. The legal system of China
  is often unclear and is continually evolving, and currently there can be no
  certainty as to the application of its laws and regulations in particular instances.
  China does not have a comprehensive system of laws, and the existing regional
  and local laws are often in conflict and subject to inconsistent interpretation,
  implementation and enforcement. New laws and changes to existing laws occur
  quickly and sometimes unpredictably. As is the case with all businesses operating
  in China, the Company often is also required to comply with informal laws and
  trade practices imposed by local and regional administrators. Local taxes and
  other charges are levied depending on the local needs for tax revenues and may
  not be predictable or evenly applied. These local and regional taxes/charges
  and governmentally imposed business practices often affect the Company&#146;s
  cost of doing business and require the Company to constantly modify its business
  methods to both comply with these local rules and to lessen the financial impact
  and operational interference of such policies. In addition, it is often extremely
  burdensome for businesses to comply with some of the local and regional laws
  and regulations. As a result, with the knowledge and tacit approval of the local
  and regional agencies, most businesses fail to fully comply with certain of
  these more burdensome laws and regulations. Recently, however, the local and
  regional agencies have increasingly enforced rules that previously were not
  enforced, thereby increasing the burden on the Company and the other businesses
  operating in the region. While the Company has, to date, been able to operate
  with the newly enforced rules and within these changing administratively imposed
  business practices, no assurance can be given that it will continue to be able
  to do so in the future. Should the local or regional governments or administrators
  impose new practices or levies that the Company cannot effectively respond to,
  or should the administrators continue to enforce more of those rules that they
  have not previously enforced, the Company&#146;s operations and financial condition
  could be materially and adversely impacted. The Company&#146;s ability to appeal
  many of the local and regionally imposed law and regulations is limited, and
  the Company may not be able to seek adequate redress for laws that materially
  damage its business. The Chinese judiciary is relatively inexperienced in enforcing
  the laws that exist, leading to a higher than usual degree of uncertainty as
  to the outcome of any litigation. Even where adequate laws do exist in China,
  it may not be possible to obtain swift and equitable enforcement of that law.
  </FONT> </P>
<P> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I><FONT face="serif">Current Favorable Tax
  Policy Could Change</FONT></I><FONT face="serif">. Under the BFDC Agreements,
  the Company is not considered by local tax authorities to be doing business
  in China; therefore, the Company&#146;s activities in China have not been subject
  to local taxes. The BFDC is responsible for paying its own taxes incurred as
  a result of its operations under the BFDC Agreements. There can be no assurances,
  however, that the Company will not be subject to such taxes in the future. If
  China did impose a tax upon the Company, the tax could materially adversely
  affect the Company&#146;s business and results of
  operations. See Note 3 of Consolidated Financial Statements for additional information
  on taxation. </FONT></P>
<P align="center">
<FONT face="serif">- 5 </FONT>
</P>

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<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I><FONT face="serif">Dependence on Single China Factory Complex</FONT></I><FONT face="serif">.  All of the Company&#146;s products are currently manufactured at a single factory complex located in Long Hua, Shenzhen in
southern China.  The Company currently maintains fire, casualty and theft insurance aggregating approximately $18,000,000 covering various of its stock in trade goods and merchandize, furniture and equipment in China. The proceeds of this insurance
may not be sufficient to cover material damage to, or, the loss of, all or material portions of the factory complex due to fire, severe weather, flood, or other act of God or cause, and such damage or loss would have a material adverse effect on the
Company&#146;s financial condition, business and prospects.</FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I><FONT face="serif">Recent Turbulent Relations with the United States</FONT></I><FONT face="serif">. Relations between the U.S. and China have during the past few years been strained as a result of numerous events,
including China&#146;s opposition to the U.S. war in Iraq in 2003, the strained relations between the U.S. and North Korea (a neighbor of China), the U.S. Navy reconnaissance plane that was downed on Hainan Island in China in April 2001, allegations
by the U.S. that certain thermonuclear military technology of the U.S. has been stolen by China&#146;s spies, the bombing by NATO forces of the Chinese embassy in Belgrade, Yugoslavia in 1999, the continuous support by the U.S. of Taiwan, and the
continuous allegations by the U.S. of human rights abuses in China. In addition, the U.S. and China have recently been involved in controversies over the protection in China of intellectual property rights that threatened a trade war between the
countries. These strains on U.S./China relations could affect the ability of companies operating in China, such as the Company, from engaging in business with, or selling to the U.S. or U.S. companies.  Any disruption of the current trade relations
with the U.S. could have a material adverse effect on the Company&#146;s business. No assurance can be given that these and any other future controversies will not change the status quo involving peaceful trade relations between the U.S. and China,
or that the Company&#146;s business and operations in China will not be materially and adversely affected.  Even if trade relations between the U.S. and China are not affected by political difficulties between the two countries, such political
friction could adversely affect the prevailing market price for the Company&#146;s Common Shares.</FONT><B><FONT face="serif"> </FONT></B>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I><FONT face="serif">Labor Shortages</FONT></I><FONT face="serif">. The Company has been affected by cyclical trends and other shortages in labor supply. For approximately two months each year, there are labor
shortages in China as a result of the Chinese New Year during which time the Company follows the customary practice at its factory complex of temporarily discontinuing operations. In addition, the availability of labor is also restricted during the
harvest periods of the year. There is also a large turnover of employees in China each year, particularly following the Chinese New Year holiday.  The Company has experienced labor shortages in the past as a result of road and weather conditions and
natural disasters. Notwithstanding such temporary shortages, the Company has to date been able to fill its labor requirements because of the large pool of available employees. However, the pool of available employees is increasingly becoming limited
because (i) of the increased demand for labor due to the growth in China&#146;s economy and (ii) the population limiting effects of the &#147;one child&#148; policy of the Chinese government.  Any material or prolonged shortage of labor would have a
material adverse effect on the Company&#146;s results of operations.</FONT>
</P>
<P align="center">
<FONT face="serif">- 6 </FONT>
</P>

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<A name="page_9"></A>

<P>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT face="serif">Risks Associated with Major Customers </FONT></I>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Historically, a substantial percentage of the Company&#146;s sales has been to small number of customers. During the years ended March 31, 2002, 2003 and 2004, the Company&#146;s sales to its three
largest customers for such periods accounted for approximately 36.3%, 40.6% and 46% of net sales respectively. See &#147;Business&#151;Major Customers.&#148; In addition, as a result of a recently announced shift in strategy, the Company will
further attempt to limit the number of smaller customer orders it received for its metal manufacturing operations, thereby further increasing its dependence on a smaller number of larger customers. The Company&#146;s success will depend to a
significant extent on maintaining its major customers and on the success achieved by its major customers. The Company could be materially adversely affected if it loses any major customers or if the business and operations of its major customers
decreases. While the Company has in the past been able to replace major customers, no assurance can be given that the Company will be able to do so in the future. The Company&#146;s sales transactions with all of its customers are based on purchase
orders received by the Company from time to time. While the Company is a party to certain longer term manufacturing agreements with certain of its customer that delineate the procedural arrangements between the parties, these agreements do not
contain any fixed or minimum purchase requirements, and the Company is dependent upon purchase orders, if and when placed under these agreements, for future sales. As a result, the Company has no written agreements with its customers for future
production or sales, and the amount of sales to any of its customers may fluctuate from time to time. The loss of any one or more of its major customers or a substantial reduction in orders from any of them would have a material adverse effect on
the Company&#146;s business unless and until the Company was able to replace the customer or order with one or more of comparable size.</FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">A substantial portion of the Company&#146;s sales to its major customers are made on credit, which exposes the Company to the risk of significant revenue loss if a major customer is unable to honor
its credit obligations to the Company. While the Company has not, to date, experienced any material difficulty in being paid by its largest customers, the Company could be adversely affected if a major customer were unable to pay for the
Company&#146;s products or services. During the fiscal years ended March 31, 2003 and 2004, accounts receivable from the five customers with the largest receivable balances at year-end represented 49.0% and 61.5% of the total outstanding
receivables, and one customer&#146;s accounts receivable represented 36.5% of the Company&#146;s total receivables as of March 31, 2004.</FONT>
</P>
<P>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT face="serif">Significant Worldwide Political, Economic, Legal And Other Risks Related To International Operations.</FONT></I>
</P>
<P> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company is incorporated
  in the British Virgin Islands and has active subsidiaries incorporated in Hong
  Kong and Germany. The Company&#146;s executive and administrative offices are
  located in Hong Kong. All of the Company&#146;s products are manufactured in
  China, and almost all of its net book value of its total fixed assets is located
  in China. The Company sells its products to customers in Hong Kong, North America,
  Europe, and Japan. As a result, its international operations are subject to
  significant political and economic risks and legal uncertainties, including
  changes in international and domestic customs regulations, changes in tariffs,
  trade restrictions, trade agreements and taxation, changes in economic and political
  conditions and in governmental policies, difficulties in managing or overseeing
  foreign operations, and wars, civil unrest, acts of
  terrorism and other conflicts. The occurrence or consequences of any of these
  factors may restrict the Company&#146;s ability to operate in the affected region
  and decrease the profitability of our operations in that region. </FONT> </P>
<P> <I><FONT face="serif"></FONT></I></P>
<P align="center">
<FONT face="serif">- 7 </FONT>
</P>

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<A name="page_10"></A>

<P>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT face="serif">Risks Relating to Hong Kong </FONT></I> </P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I><FONT face="serif">Political and Economic Developments Affecting Hong Kong</FONT></I><FONT face="serif">. The Company&#146;s registered offices and sales offices and several of its principal customers and suppliers
are located in Hong Kong.  Accordingly, the Company may be materially adversely affected by factors affecting Hong Kong&#146;s political situation and its economy or its international, political and economic relations.  Pursuant to a Joint
Declaration (the &#147;Joint Declaration&#148;) signed between the governments of China and Britain on December 19, 1984, China recovered sovereignty over Hong Kong on July 1, 1997. The Joint Declaration provides Hong Kong with a high degree of
legislative, judicial and economic autonomy (except in foreign and defense affairs) and the laws currently in force in Hong Kong have remained basically unchanged (the Joint Declaration contemplates that the policies expressed therein will remain in
effect for a period of at least fifty (50) years from July 1, 1997), there can be no assurance as to the continued stability of political, economic or commercial conditions in Hong Kong and that the Company&#146;s financial conditions and results of
operations will not be adversely affected as a consequence of these events. </FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I><FONT face="serif">Hong Kong Currency</FONT></I><FONT face="serif">. A substantial portion of the Company&#146;s net sales and expenses are denominated in the Hong Kong monetary unit, the Hong Kong dollar. Since
1983, the exchange rate between Hong Kong dollar and the U.S. dollar has been fixed at approximately HK$7.80 to $1.00. However, due to the currency turmoil that has affected many countries in Southeast Asia, there has been pressure to devalue the
Hong Kong dollar. All dollar amounts (&#147;$&#148;) set forth in this Annual Report are in U.S. dollars. There can be no assurance that the exchange rate of the Hong Kong dollar will not fluctuate in the future and that such fluctuations will not
have a materially adverse effect on the Company&#146;s business and results of operations.</FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I><FONT face="serif">Asian Financial Problems</FONT></I><FONT face="serif">. The Asian financial markets have experienced considerable turmoil over the past few years with significant currency fluctuations, stock
market volatility and instability at banking and financial institutions, major corporations and foreign governments. These factors could result in changes in the relative value of the currencies of Asian countries, which changes could affect the
Company&#146;s financial condition and competitiveness. The peg of the Hong Kong dollar to the U.S. dollar has remained and been defended by the Hong Kong Special Administrative Region Government.  Although China has refused to devalue its currency,
international pressure to permit its currency rates to fluctuate has been increasing and may cause China to permit its currency rate to change.  In addition, while the Hong Kong Government has indicated that it has no plans to break the peg with the
U.S. dollars, no assurances can be given that this will remain so in the future. The Company incurs its major expenses in Hong Kong dollars and renminbi and generates its revenue&#146;s primarily in U.S. dollars and would therefore benefit from
depreciation of the Hong Kong dollar or renminbi. However, an appreciation of the renminbi or Hong Kong dollar against the U.S. dollar would increase the expenses of the Company when translated into U.S. dollars and could adversely affect profit
margins. </FONT>
</P>
<P align="center">
<FONT face="serif">- 8 </FONT>
</P>

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<A name="page_11"></A>

<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The depreciation of the currencies of certain South East Asian countries has made these markets more competitive with China for manufacturing. The Company believes these countries will continue to
compete strongly with Hong Kong/China for manufacturing business over the next year.</FONT>
</P>
<P>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT face="serif">Need to Continuously Modify and Upgrade Operations</FONT></I><FONT face="serif"> </FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">In order to remain competitive and viable, the Company must continuously revise and improve its operations, acquire new equipment, and anticipate and react to market forces. The failure to anticipate,
detect or react to market changes can have severe adverse affects on the Company&#146;s operations.  During the past few years, the Company has identified a number of changes in the markets in which it operates and has attempted to react to these
changes. The Company&#146;s actions have included entering into a licensing and distribution arrangement with a newly formed German distributor, the establishment of a facility in Bulgaria, the consolidation of certain of its subsidiaries, changes
in its marketing activities, the development of new products, and changes in its target customers. These prior changes, as well as changes that the Company anticipates making during the current year, require significant financial and personnel
resources. The failure to correctly react to changes in the market could, therefore, result in a significantly drain on the Company&#146;s resources and could adversely affect the Company&#146;s future operations. No assurance can be given that the
Company will be able to detect and correctly react to changes in its principal markets, or that its investments in anticipation of such changes will result in the anticipated return. For example, while the Company was successful in anticipating the
glut of low-cost quartz clocks that severely reduced the profitability of the manufacture of quartz clocks by developing a new line of radio controlled clocks, its establishment of a facility in Bulgaria did not met the Company&#146;s expectations,
and the Bulgarian operations were closed during the fiscal year ended March 31, 2004. In addition, while the Company correctly determined that it could commercially exploit its &#147;Kienzle&#148; brandname in Europe, its licensing and distribution
agreement with its German distributor has not met expectations. The Company anticipates that it will invest a significant amount of its financial resources during the current year to acquire new equipment, renovate some of its existing facilities,
and to otherwise change its operating strategy, primarily with respect to the manufacture of cameras. The proliferation of digital cameras and the photographic capabilities of mobile telephones has reduced the demand for the Company&#146;s
film-based cameras, a trend that the Company believes will accelerate as the number of digital cameras and mobile telephones equipped with cameras increases. Accordingly, the Company is currently exploring new markets that it can enter based on its
manufacturing expertise and capabilities. Should the Company err in its allocation of its resources to these new endeavors, its business, operations and financial condition would be adversely affected.</FONT><I><FONT face="serif">
</FONT></I><B><FONT face="serif"> </FONT></B>
</P>
<P>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT face="serif">Certain Legal Consequences of Incorporation in the British Virgin Islands </FONT></I>
</P>
<P> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company is incorporated
  under the laws of the British Virgin Islands, and its corporate affairs are
  governed by its Memorandum of Association and Articles of Association and by
  the International Business Companies Act of the British Virgin Islands. Principles
  of law relating to such matters as the validity of corporate procedures, the
  fiduciary duties of the Company&#146;s management, directors and controlling
  shareholders and the rights of the Company&#146;s shareholders differ from those
  that would apply if the Company were incorporated in a jurisdiction within the
  U.S. Further, the rights of shareholders under British Virgin Islands law are not as clearly established as the rights of shareholders
  under legislation or judicial precedent in existence in most U.S. jurisdictions.
  Thus, the public shareholders of the Company may have more difficulty in protecting
  their interests in the face of actions of the management, directors or controlling
  shareholders than they might have as shareholders of a corporation incorporated
  in a U.S. jurisdiction. In addition, there is doubt that the courts of the British
  Virgin Islands would enforce, either in original action or in an action for
  enforcement of judgments of U.S. courts, liabilities that are predicated upon
  the securities laws of the U.S.</FONT></P>
<P align="center">
<FONT face="serif">- 9 </FONT>
</P>

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<A name="page_12"></A>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Further, pursuant to the Company&#146;s Memorandum and Articles of Association and pursuant to the laws of the British Virgin Islands, the Company Memorandum and Article of Association may be amended
by the board of directors without shareholder approval (provided that a majority of the Company&#146;s independent directors do not vote against such amendment). Until successors are elected, the Company&#146;s independent directors consist of
Benson Lee, Terrence A. Noonan, David Tamir and Dirk Hermann. Amendments which may be made by the board of directors without shareholder approval include amendments increasing or reducing the authorized capital stock of the Company and increasing or
reducing the par value of its securities. </FONT>
</P>
<P>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT face="serif">Fluctuation in Foreign Currency Exchange Rates </FONT></I>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Because the Company engages in international trade, the Company is subject to the risks of foreign currency exchange rate fluctuations.  In prior years, the Company&#146;s exposure to currency
fluctuations was limited because most of its sales were denominated in either U.S. or Hong Kong dollars. However, as a result of its increasing unit sales of its clocks and cameras in Germany and increases in metal manufacturing for European
customers, which sales are paid in euros, the Company is increasingly becoming exposed to the risks associated with possible foreign currency controls, currency exchange rate fluctuations or devaluations. In addition, the Company&#146;s exposure to
exchange rate fluctuations is expected to increase if the Company&#146; efforts to increase sales in Europe of its Kienzle branded products, directly or through its new marketing arrangement with a German distributor, are successful. </FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company&#146;s financial results have, from time to time, been affected by currency fluctuations. For example, during the fiscal years ended March 31, 2003 and 2004, the Company recognized net
foreign currency exchange gains of $344,000 and $278,000, respectively. However, foreign currency exchange rates can also result in material losses, such as in the fiscal year ended March 31, 2001 during which the Company recognized a net foreign
currency exchange loss for $216,000.  Notwithstanding these currency transaction fluctuations, the Company does not attempt to hedge its currency exchange risks and, therefore, will continue to experience gains or losses due to changes in foreign
currency exchange rates. However, even if the Company were to engage in currency hedging transactions, no assurance can be given that the Company will not suffer future losses as a result of either currency fluctuations or as a result of such
hedging transactions. </FONT>
</P>
<P>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT face="serif">Competition </FONT></I>
</P>
<P> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company competes against
  numerous manufacturers for all of its current products. Such competition exist
  because of third party manufacturers such as the Company as well as from
  the in&#150;house manufacturing capabilities of existing customers. To a large
  extent, the Company competes in its metal manufacturing business on the basis
  of quality, price, service, and the ability to deliver products on a reliable
  basis. Due to intense price competition, the Company has during the past few
  years had to reduce its price and its operating margins in all three of its
  business units. This has led to lower sales, lower gross margins, and lower
  net profits. During the past few years, the Company has at times refused certain
  purchase orders of manufacturing contracts because of pricing pressures, which
  has lowered the Company&#146;s net sales and lowered its market share. Unless
  the Company can increase its gross margins, the Company will continue to operate
  at very narrow profit margins, which will negatively affect the Company&#146;s
  financial position and its stock price. To date, the Company has been able to
  compete based on cost because of the cost structure of its operations in Shenzhen,
  China. However, numerous other manufacturers have now established facilities
  in Shenzhen, and the Company&#146;s competitive advantage has been significantly
  diminished. As a result of the increasing competition in certain of the Company&#146;s
  product markets, the Company has been forced to change its products and its
  operating strategy. No assurance can be given that the Company will be able
  to compete with it revised operations. </FONT></P>
<P align="center">
<FONT face="serif">- 10 </FONT>
</P>

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<A name="page_13"></A>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company also has experienced significant competition in the camera and clock manufacturing industries. Although the Company&#146;s camera sales increased during the past fiscal year, competition
has caused the Company to maintain narrow gross margins on its products, which pricing pressure has impacted the profitability of its camera operations. In addition, low quality, extremely inexpensive quartz clocks have recently flooded the clock
market and reduced the demand for the more expensive and higher quality clocks manufactured by the Company and its principal original equipment manufacturer clients.</FONT>
</P>
<P>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT face="serif">Volatility Of Market Price Of Company&#146;s Securities </FONT></I>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The markets for equity securities have been volatile and the price of the Company&#146;s Common Shares has been and could continue to be subject to material fluctuations in response to quarter to
quarter variations in operating results, news announcements, trading volume, sales of Common Shares by officers, directors and principal shareholders of the Company, news issued from competing companies, customers, suppliers or other publicly traded
companies, general market trends both domestically and internationally, currency movements and interest rate fluctuations.  Certain events, such as the issuance of Common Shares upon the exercise of outstanding stock options of the Company could
also adversely affect the prevailing market prices of the Company&#146;s securities. </FONT>
</P>
<P>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT face="serif">Exemptions Under The Exchange Act As A Foreign Private Issuer </FONT></I>
</P>
<P> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company is a foreign
  private issuer within the meaning of rules promulgated under the U.S. Securities
  Exchange Act of 1934 (the &#147;Exchange Act&#148;). As such, and though its
  Common Shares are registered under Section 12(g) of the Exchange Act, it is
  exempt from certain provisions of the Exchange Act applicable to United States
  public companies including: the rules under the Exchange Act requiring the filing
  with the Commission of quarterly reports on Form 10-Q or current reports on
  Form 8-K; the sections of the Exchange Act regulating the solicitation of proxies,
  consents or authorizations with respect to a security registered under the Exchange
  Act; the sections of the Exchange Act requiring insiders to file public reports
  of their stock ownership and trading activities and
  establishing insider liability for profits realized from any &#147;short-swing&#148;
  trading transaction (i.e., a purchase and sale, or sale and purchase, of the
  issuer&#146;s equity securities within six months or less), and the provisions
  of Regulation FD aimed at preventing issuers from making selective disclosures
  of material information. In addition, certain provisions of the Sarbanes-Oxley
  Act of 2002 either do not apply to the Company or the implementation of the
  provisions has been deferred. Because of the exemptions under the Exchange Act
  and Sarbanes-Oxley Act applicable to foreign private issuers, shareholders of
  the Company are not afforded the same protections or information generally available
  to investors in public companies organized in the United States. </FONT></P>
<P align="center">
<FONT face="serif">- 11 </FONT>
</P>

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<A name="page_14"></A>

<P>&nbsp; </P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">While the Company has been exempted from some of the recently enacted regulations under the Sarbanes-Oxley Act of 2002, the Company will eventually become subject to the most of regulations. Most U.S.
public companies already have had to adopt and implement most of the new Sarbanes-Oxley regulations. However, because the Company is a foreign private issuer, the Company has been able to defer the implementation of many of the remaining
Sarbanes-Oxley regulations until later this year or the next year. Accordingly, the Company has not yet had to incur all of the additional financial and administrative burdens imposed on public companies by the Sarbanes-Oxley Act. The Company
anticipates that its administrative expenses, particularly its accounting, auditing and legal fees and expenses, will significantly increase in the near future as the Sarbanes-Oxley regulations are implemented and could negatively impact the
Company&#146;s operations and profitability.</FONT>
</P>
<P>
<B><FONT face="serif">Item 4. Information on the Company </FONT></B>
</P>
<P>
<B><FONT face="serif">History and Development of the Company. </FONT></B>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Highway Holdings Limited is a holding corporation incorporated on July 20, 1990 as a limited liability International Business Company under the laws of the British Virgin Islands. The Company&#146;s
corporate administrative matters are conducted in the British Virgin Islands through its registered agent: HWR Services Limited, P.O. Box 71, Craigmuir Chambers, Road Town, Tortola, British Virgin Islands. The Company&#146;s principal executive
offices are located in Hong Kong at Suite No. 810, Level 8, Landmark North, Sheung Shui, New Territories, Hong Kong. Highway Holdings Limited operates through various controlled subsidiaries.</FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Since its organization, the Company has been a manufacturer of high quality parts, components, subsystems and products for major Japanese and German original equipment manufacturers
(&#147;OEMs&#148;).  The Company currently also is a manufacturer of watches, clocks, clock movements, and single use and low-end 35 mm cameras. The cameras are manufactured for third parties for sale under various brand names. The clocks and
watches are manufactured for both third party distributors and for the Company&#146;s own account. The clocks and watches that it manufactures for its own account are marketed primarily in Europe under the Company&#146;s &#147;Kienzle&#148; brand
name. During the past few years, the Company has also licensed the &#147;Kienzle&#148; mark for use on various products in Europe, which products were manufactured by others. The Company believes that the market for certain of its camera and clock
products is diminishing and, as a result, has been exploring alternative products that it can manufacture and market. </FONT>
</P>
<P align="center">
<FONT face="serif">- 12 </FONT>
</P>

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<A name="page_15"></A>

<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company began its operations in 1990 as a metal stamping company based and incorporated in Hong Kong.  The Company transferred the metal stamping operations to a factory in Long Hua, Shenzhen,
China, where the metal stamping and the Company&#146;s other operations are conducted pursuant to agreements entered into between certain China companies set up by the local government and the Shenzhen City Baoan District Foreign Economic
Development Head Company and its designees (collectively, the &#147;BFDC&#148;) (the agreements, collectively the &#147;BFDC Agreements&#148;). As a result of the BFDC, the Company is provided with manufacturing facilities and labor by affiliates of
local government instrumentalities and is to pay management fees, based on a negotiated sum per factory worker, and other charges, as well as rent for the factory complex.  The Company has also been in the camera manufacturing business since
1991.</FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">On February 28, 1997 the Company entered into an agreement to purchase substantially all the assets of Kienzle Uhrenfabrik GmbH (&#147;Kienzle Uhren&#148;), a Germany-based clock manufacturer,
including the minority interest in Kienzle Time (H.K.) Ltd.  The purchase included all the equipment, machinery, tools, trademarks, patents and furniture and office equipment of Kienzle Uhren.  Subsequent to purchasing the equipment, the operations
for Kienzle Uhren were discontinued and the assets were dismantled, packed and shipped to the Company&#146;s facilities in China. </FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company&#146;s OEM manufacturing business has historically been directed primarily at manufacturing and assembling metal parts used in subsystems or other products. As part of its business
strategy to capture more of the revenues related to the manufacture of end-products, the Company has recently been attempting to leverage its complete manufacturing capabilities to the manufacture of the subsystems, subassemblies, larger components,
and even completed end-products for its clients. In addition, the Company is attempting to diversify the types of products that it manufactures, and, in that context, now manufactures a wide variety of parts and components for its European OEM
customers, including electrical connectors, coils for induction motors, ballasts casings for lighting fixtures, and friction clutch assemblies.</FONT>
</P>
<P> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company&#146;s business
  strategy has been to be a low-cost manufacturer of parts, components, subsystems
  and end-products. In order to maintain its competitive advantage, the Company
  established and currently maintains its primary manufacturing operations in
  Shenzhen, China in order to take advantage of lower costs and competitive labor
  rates while having access to Hong Kong&#146;s port and communications and banking
  infrastructure. Recently, however, many other manufacturers have established
  their facilities in Shenzhen, China, which has resulted in increased competition.
  As a result, the Company has considered replicating its formula for establishing
  manufacturing or marketing and distribution facilities in low-cost locations
  that are near its target markets. As part of this business strategy, the Company
  in 2001 established another, significantly smaller, manufacturing and distribution
  facility in Bulgaria. However, the market for some of the Bulgarian products
  changed, and Bulgarian operations did not provide the operating and logistical
  benefits the Company had anticipated. As a result, the Bulgarian operations
  were closed during the fiscal year ended March 31, 2004 pending the Company&#146;s
  reevaluation of an alternate use of the Bulgaria subsidiaries. The Company may
  still consider establishing other facilities outside of China in the future.
  For example, in August 2003 the Company acquired a 50% interest in a Panamanian
  marketing and distribution company that is engaged
  in the business of assembling, packaging and/or marketing photographic products,
  such as film, batteries and certain cameras. </FONT> </P>
<P align="center">
<FONT face="serif">- 13 </FONT>
</P>

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<A name="page_16"></A>

<P> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company regularly investigates
  the strategic and opportunistic acquisition of other operations and may, in
  the future, acquire other businesses or product lines. However, no such acquisitions
  are currently pending.</FONT> </P>
<P>
<B><FONT face="serif">Business Overview </FONT></B>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company is primarily an integrated manufacturer of high quality parts and components, clocks and clock movements, and cameras for major Japanese, German and United States OEMs and contract
manufacturers. The Company also manufactures clocks for its own account under its own &#147;Kienzle&#148; brandname. Because of the name recognition of the &#147;Kienzle&#148; name in Europe, the Company during the fiscal year ended March 31, 2002
commenced selling watches and other products in Europe under the Kienzle brandname, which products the Company purchased from other manufacturers. In January 2003, the Company also entered into a supply and licensing agreement with a newly formed
German distributor for the distribution of &#147;Kienzle&#148; branded watches, clocks and other products in Germany and other European countries. The Company expects to increase this &#147;Kienzle&#148; product trading business in Europe. Although
the licensing and distribution agreement with the German distributor generated $1,665,000 of revenues for the Company in the fiscal year ended March 31, 2004, the Company has terminated that agreement and is considering restructuring the arrangement
with the German distributor. As of the date of this Annual Report, pending the final resolution of the restructuring of the agreement, if such restructuring occurs, the German distributor is still distributing Kienzle branded products in
Europe.</FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">All of the Company&#146;s manufacturing activities are currently conducted at a factory complex located in China, which the Company occupies pursuant to an arrangement with affiliates of the local
government. During the past fiscal year, the Company closed a smaller manufacturing and packaging facility in Bulgaria it had established to produce cameras for sale in Europe. The Company&#146;s goal in establishing the Bulgarian facility was to
operate a low-cost facility that can quickly supply products for the European market.  However, the Bulgarian operations were closed in December 2003 due to the failure to achieve the operating and logistical goals established by the Company.
</FONT>
</P>
<P> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">To date, the Company&#146;s
  largest revenue source has been from its metal parts manufacturing operations.
  The Company manufactures and supplies a wide variety of high quality metal parts
  and components which are used by the Company&#146;s customers in the manufacturing
  of such products as photocopiers, laser printers, compact disc players, laser
  disc players, cassette players, computer equipment, electronic components, electrical
  connectors, cameras, clocks, automobiles, vacuum cleaners, light fixtures and
  car audio and other audio equipment. As part of its manufacturing operations
  in China, the Company assists customers in the design and development of the
  tooling used in the metal stamping process and provides a broad array of other
  manufacturing services, including spray painting, screen printing, plastic injecting
  molding, pad printing and assembly services. By providing these services, which
  complement the Company&#146;s core metal stamping operations and eliminate the
  need to outsource these needed functions, the Company is better able to assure
  product quality, control overall manufacturing costs
  and provide timely product delivery, all of which management believes is essential
  to maintaining, expanding and increasing the Company&#146;s customer base. The
  Company believes its historical success as a supplier to respected multi-national
  companies is due in large part to: (i) its international management structure
  which includes Japanese, German and Chinese nationals; (ii) its low labor and
  operating costs resulting from locating its manufacturing operations in China;
  (iii) its ability to manufacture the type of high quality metal parts required
  by the Company&#146;s targeted customers; (iv) its expertise in manufacturing
  these parts in the required quality at a reasonable cost; and (v) the breadth
  of its manufacturing capabilities. </FONT> </P>
<P align="center">
<FONT face="serif">- 14 </FONT>
</P>

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<A name="page_17"></A>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Earlier in 2003, the Company announced a strategic shift in its manufacturing operations. During the past few years, a number of competing metal stamping operations have been established in Shenzhen
that are also able to produce high-quality, low cost metal parts. As a result, the manufacture of many metal parts has become a commodity operation that competes primarily based on price. In order to distinguish itself from these other stamping
operations, the Company has adopted and is now implementing a plan in which it has shifted its focus from smaller, simple metal stamping projects for which the Company competes solely on price to the manufacture of parts, components and entire
products that utilize more of the Company&#146;s vertically integrated technologies. Since the Company has the ability to design, manufacture and assemble complete components, and not just metal stamped parts, the Company will focus on manufacturing
larger orders of customized products for global companies.  By shifting to the manufacturing of larger, customized products that utilize more of the Company&#146;s vertically integrated capabilities, the Company believes that it will be able to
increase its gross margins and reduce the costs associated with setting up and manufacturing small run, metal stamping parts. The Company is initially focusing its marketing efforts at European OEMs.  The Company believes that its restructured
strategy is working and has recently announced new manufacturing agreements with OSRAM, a subsidiary of Siemens AG, and with Berger Lahr GmbH, a subsidiary of Schneider Electric.  The Company has also received manufacturing orders from major German
companies such as Miele &amp; Cie. KG.</FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Utilizing the skills, expertise and capabilities developed from its metal manufacturing operations, the Company also manufactures (i) clocks and watches for its own Kienzle branded line of timepieces,
and (ii) clocks and clock components on an OEM basis for internationally known clock companies. The Company currently manufactures high quality quartz clocks at a low cost for both its own internationally recognized brandname line of clocks and for
other internationally known companies, primarily Braun of Germany, and Casio of Japan. However, the international market for quartz clocks has, during the past few years, been stagnant, and the growth in sales that the Company had anticipated has
not materialized. In addition, a number of other companies, including some companies that are believed to be receiving government subsidies, have recently duplicated the quartz manufacturing process and are now manufacturing quartz clocks in such
volumes and at such low prices, that the manufacture of many lines of quartz clocks is no longer feasible. As a result, sales of certain lines of clocks (primarily quartz clocks) previously manufactured by the Company have decreased.  In order to
address these issues, the Company has taken the following actions:</FONT>
</P>
<UL>
  <LI><FONT face="serif">The Company has commenced manufacturing and selling clocks
    that set themselves with radio signals broadcast from atomic clock stations.
    During the fiscal year ended March 31, 2004, sales of radio signal clocks
    were only approximately $500,000. However, the Company
    recently received an order from Braun GmbH to establish tooling and manufacturing
    capabilities for two lines of radio signal clocks. The Company has also received
    orders from Casio for the development of a radio-controlled LCD alarm clock,
    as well a receiving interest in its line of analog/digital radio-controlled
    clock movements, which utilizes the Company&#146;s patent-pending one and
    four stepping design.</FONT> <BR>
  </LI>
</UL>
<P align="center">
<FONT face="serif">- 15</FONT>
</P>

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<A name="page_18"></A>
<UL>
<LI><FONT face="serif">The Company has supplemented sales of Kienzle clocks with clocks, wrist watches and other timekeeping products that are manufactured by others and then marketed by the Company under the Kienzle brandname. Because the Kienzle
name is recognized throughout Europe, and particularly in Germany, the Company is able to generate sales from watches and other products that it does not manufacture.</FONT><BR></LI>
<LI><FONT face="serif">In 2002 the Company commenced manufacturing and selling wrist watches under the Kienzle name. In addition to constituting a new source of manufacturing revenues, the Company believes that the manufacture of watches is
important in Europe for the image of &#147;Kienzle&#148; as a historic watch manufacturing company. The Company believes that being a wrist watch manufacturer both enhances its ability to offer a more complete line of timekeeping products and
supports the sales of its other Kienzle products. During the fiscal year ended March 31, 2004, the Company generated approximately $260,000 of sales from Kienzle watches that it manufactured.</FONT><BR></LI>
</UL>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company&#146;s third existing line of operations is the manufacture of low cost cameras for OEMs in the United States, Japan and Europe. Until June of 1999, the United States had been the largest
market for single use (disposable) cameras. In 1999, in response by an action initiated by Fuji Film against a number of camera importers, the United States International Trade Commission (ITC) issued an order that effectively barred the
Company&#146;s OEMs from importing recycled one-time-use cameras into the United States. In response to the ITC order, the Company increased its sales into Europe and Asia, increased its manufacturing and sales of low-end 35mm cameras that are not
subject to the order, and developed and commenced marketing other camera products (such as a new line underwater photographic products). As a result of the foregoing actions, the Company&#146;s camera revenues in fiscal 2004 increased by $1,080,000,
or 22%, over camera sales in fiscal 2003. In addition, the Company has developed and patented a new reusable lens fitted film package that the Company believes does not infringe on the cameras that are subject to the ITC order. The package is
integral to the Company&#146;s preloaded camera.  The patent applies alternative photographic cameras that can compete in the market place with single-use cameras.  Because the action regarding the ITC order is being appealed by Fuji, the Company
has not yet, however, attempted to market its new camera in the United States. While sales of the Company&#146;s single-use cameras and low-end 35mm cameras remain strong in Europe, the Company anticipates that the market for these cameras will
decrease in the near future as digital cameras replace the traditional film cameras. In addition, the proliferation of mobile telephones that have the ability to take and transmit pictures also is expected to reduce the demand for the Company&#146;s
film-based camera products. As a result, the Company expects camera sales of single-use and low cost film cameras to decrease in the future. </FONT>
</P>
<P align="center">
<FONT face="serif">- 16 </FONT>
</P>

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<A name="page_19"></A>

<P>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT face="serif">Industry Overview </FONT></I>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Management believes that the third-party manufacturing industry has experienced major increases over the past decade as manufacturers increasingly outsource the manufacture of some or all of their
component and/or product requirements to independent manufacturers.  The benefits to OEMs of using contract manufacturers include: access to manufacturers in regions with low labor and overhead cost, reduced time to market, reduced capital
investment, improved inventory management, improved purchasing power and improved product quality. The metal products manufacturing business of the Company represented approximately 58.3% of the Company&#146;s gross revenues in the fiscal year ended
March 31, 2004 and has historically been the largest segment of the Company&#146;s business.</FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company first commenced its metal stamping operations in China in 1990. At that time, the Company gained a significant cost and logistical advantage over other manufacturers by basing its
manufacturing facilities in Long Hua, Shenzhen, China, less than 30 miles from Hong Kong. During the past few years, however, many other manufacturers have located their facilities in Shenzhen and in other similar low-cost areas in China and Asia.
As a result, the Company now faces significantly more competition as a manufacturer of OEM parts.  The Company has responded to the increased competition by restructuring its operations and by trying to move from manufacturing low margin, low-cost
individual parts to manufacturing higher margin, more expensive components, subassemblies and even complete units for its OEM customers. The Company&#146;s metal manufacturing business also was primarily directed at OEMs located in Asia, primarily
in China and Japan. As part of its new strategy, the Company has also attempted to increase its sales to European customers.</FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Historically, the Company has manufactured high-quality metal parts, mostly for Japanese customers. The Company did not engage in any active marketing efforts to develop its business for its metal
manufacturing operations.  Recently, however, because of all of the competition that has developed, in Shenzhen and elsewhere, for low cost metal stamping, the Company has changed its customer focus, its manufacturing goals, and its marketing
efforts. As part of its business strategy to capture more of the revenues related to the manufacture of end-products, the Company has recently been attempting to leverage its complete manufacturing capabilities to the manufacture of the subsystems,
subassemblies, larger components, and even completed end-products for its clients. In addition, the Company is attempting to diversify the types of products that it manufactures. The Company has also increased its marketing efforts and now attends
trade shows and engages in direct marketing efforts. In order to upgrade its technical manufacturing abilities, the Company in 2002 received its ISO 9001 certification and has been improving its manufacturing facilities. The Company&#146;s landlord
has rebuilt one of the Company&#146;s metal stamping buildings, and is currently refurbishing another existing building in anticipation of material orders for light fixtures from one of the Company&#146;s German customers. The Company currently
expects the light fixture manufacturing operations to commence at the refurbished facility during the summer of 2004. In total, the Company currently anticipates that it may spend between $1,500,000 and $3,000,000 this fiscal year on capital
expenditures for its metal and other manufacturing operations in order to upgrade its current facilities and equipment.</FONT>
</P>
<P align="center">
<FONT face="serif">- 17 </FONT>
</P>

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<A name="page_20"></A>

<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Having acquired all of the manufacturing equipment of the German Kienzle Uhren company in 1997, the Company has the capability to manufacture clocks for both third parties and for its own account.
 In addition, as a result of the Kienzle acquisition, the Company owns the &#147;Kienzle&#148; trademark, a name that is a household name in Germany and a famous name throughout Europe. As a result, the
Company is able to compete on a name recognition basis as well as on a cost and quality basis. Although the Company does not have any definitive data regarding worldwide clock manufacturing and sales, the Company believes that there is an
industry-wide consolidation underway, and that companies that cannot produce either high-quality, brandname clocks at a competitive price, or low-end clocks at extremely low prices, are being driven out of business.  The Company believes that sales
of the sort of clocks that are manufactured by the Company have been stagnant worldwide during the past few years for the following reasons: (i) Higher quality clocks have a long useful life and, therefore, are not replaced frequently. Consequently,
unlike other consumer products, replacement sales are less frequent.  (ii) The market has been flooded by inexpensive quartz clocks manufactured by companies owned or subsidized by governments that have often been sold, in the opinion of the
Company, at prices that are below the manufacturing costs of such clocks. Until recently, the Company believed that it could overcome some of these market forces by lowering its manufacturing costs and increasing its marketing efforts.  Accordingly,
while the Company continues to control its costs and increase its marketing efforts, the Company has decreased its emphasis on quartz clocks and has commenced manufacturing other timekeeping pieces.  For example, the Company has commenced
manufacturing watches that are sold under the &#147;Kienzle&#148; brandname and has commenced manufacturing clocks that set themselves by radio signals broadcast from atomic clock stations. These radio clocks are particularly popular in Europe and
Japan and constitute a significant portion of total clock sales in Europe and Japan. During the fiscal year ended March 31, 2004, revenues from and radio controlled clock sales were approximately $500,000.</FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company&#146;s camera operations consist of manufacturing low cost cameras and selling the Company&#146;s own line of niche camera products. Sales of singe-use cameras have remained consistent in
Europe, while the Company has experienced sales growth in the U.S. during the past two fiscal years for its low-end reusable 35 mm cameras as vendors have attempted to market camera products that are an alternative to the single-use camera. In order
to increase its presence in the low-end camera market, the Company has developed its own patented reusable lens-fitted film package camera. However, to date, no material amount of cameras based on this patented film package have been manufactured or
sold. The Company has also been developing and marketing other niche-market products, such as its line of underwater camera products. The Company, however, believes that the market for film-based cameras, such as the Company&#146;s products, have
been negatively impacted and will further decline as the market transitions from the traditional film camera to the digital cameras. The growing use and availability of digital photography with mobile telephones is expected to further contribute to
the future decrease in demand for the Company&#146;s cameras.</FONT>
</P>
<P>
<B><FONT face="serif">The Company&#146;s Strategy </FONT></B>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Management believes that the Company&#146;s future growth and profitability depend on its ability to maintain product quality, control production costs, increase production capacity, commercially
exploit the recognition of the Kienzle trademark and reputation, improve its marketing/distribution channels, increase its product offerings, and to effectively react to market changes. </FONT>
</P>
<P align="center">
<FONT face="serif">- 18 </FONT>
</P>

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<A name="page_21"></A>

<P>
<I><FONT face="serif">Capitalize on its manufacturing cost structure and logistical advantages: </FONT></I><FONT face="serif">By locating the Company&#146;s principal manufacturing facility in Long Hua, Shenzhen, China, less than 30 miles from Hong
Kong, the Company is able to take advantage of the low overhead costs and inexpensive labor available in China. The close proximity of the factory complex to Hong Kong facilitates transportation of the Company&#146;s products out of China to
customers in Hong Kong and beyond through the port of Hong Kong.  Management believes that there has been an increase in the number of Japanese and German OEMs establishing factories or using contract manufacturers in southern China and this
provides the Company with a large customer base within close proximity to the Company&#146;s operations in China.</FONT>
</P>
<P>
<I><FONT face="serif">Capitalize on, and leverage its manufacturing strength</FONT></I><FONT face="serif">: Unlike many of its metal part manufacturing competitors, primarily those in Shenzhen, China, the Company has a vertically integrated
manufacturing facility that can design, manufacture and assemble more complex components and subassemblies. The Company recently revised its metal manufacturing strategy to focus on manufacturing more complex products for larger customers. As the
Company expands its manufacturing capabilities into new and varied products, the Company has commenced promoting the use of its assembly facilities to manufacture more of the end-product than just some parts or components by emphasizing the
efficiencies of assembling the products by one manufacturer. Management believes that the Company&#146;s close relationships with its customers can increase the number of parts and services the Company provides to its customers. In addition, as more
German and other European companies establish their product manufacturing facilities in China, the Company will seek to provide component and subassembly manufacturing services to these new companies. </FONT>
</P>
<P>
<I><FONT face="serif">Capitalize on its Kienzle trademark</FONT></I><FONT face="serif">: The Company believes that its &#147;Kienzle&#148; trademark is widely recognized in Europe, and particularly in Germany, and represents high quality,
affordable, products.  As a result, the Company believes that it can capitalize on that trademark by (i) distinguishing its own Kienzle clocks and watches from many of its competitors in the crowded timepiece marketplace, (ii) offering and selling
other high quality timekeeping and related products that are manufactured by others under that name, and (iii) offering and selling in Europe other electronic and household products that are manufactured by others under the Kienzle name. By
marketing products, even those that the Company does not manufacture, under the Kienzle name, the Company is able to realize a name recognition premium over other similar products. </FONT>
</P>
<P> <I><FONT face="serif">Change its product line in response to market conditions</FONT></I><FONT face="serif">:
  The Company&#146; strategy is to respond to changes in market conditions by
  changing its product offerings. Recent examples of its ability to respond to
  market and other conditions include the development of a new line of underwater
  camera products and the development of a clock that sets itself based on radio
  signal broadcasts. The Company has also been exploring manufacturing other products,
  such as LCD monitors and LCD televisions. The Company is in the early stages
  of exploring a cooperation arrangement with a Taiwanese manufacturer of LCD
  televisions and monitors in which the Company would purchase semi-knock-down
  kits, and then assemble and sell the completed monitors and televisions. To
  date the Company has only manufactured sample products for marketing purposes, and it is unclear that the Company will be able
  to develop a viable business plan regarding LCD monitors and LCD televisions
  or compete in this market. </FONT> </P>
<P align="center">
<FONT face="serif">- 19 </FONT>
</P>

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<A name="page_22"></A>

<P>
<I><FONT face="serif">Expansion by acquisition, merger and other means</FONT></I><FONT face="serif">:  The Company believes it has the opportunity to expand its business through acquisitions and through the establishment of additional manufacturing
facilities.  The Company has previously been successful at purchasing supplier companies and transferring the manufacturing operations to its facility in China to take advantage of the low labor and operating costs associated with manufacturing in
China. Management may seek similar opportunities in Europe, Japan and the United States.  No assurances can be given that the Company will identify acquisition prospects or that such prospects, if identified, will result in an acquisition. </FONT>
</P>
<P>
<FONT face="serif">In addition to expanding its manufacturing capabilities through acquisition, merger, etc., the Company may also establish additional manufacturing facilities in other countries that offer benefits similar to those available in
China. The Company believes that there are other countries that offer low labor and operating costs and locations close to the Company&#146;s customers. For example, in 2001, the Company established a manufacturing facility in Bulgaria, a location
that is near the Company&#146;s European customers, has both low wage rates, low operating costs, and favorable transportation arrangements for delivery of its products to European markets.  While the Bulgaria facilities were not successful and were
closed during the past fiscal year, the Company may also consider opening other smaller facilities in other locations in Europe, Asia or Central/South America. However, no such other locations have been identified, and no assurance can be given that
the Company will be able to duplicate its China business in other countries. </FONT>
</P>
<P>
<I><FONT face="serif">Maintain production quality</FONT></I><FONT face="serif">: Management believes that maintaining close relations with the Company&#146;s customers is important to the success of the Company&#146;s business. Understanding each
customer&#146;s needs and efficiently and quickly addressing its needs is vital to maintaining a competitive advantage. Certain Japanese and German companies have built the goodwill associated with their products and tradenames on a high level of
perceived quality.  By employing the type of high quality management standards, production standards and quality control standards historically utilized by many leading Japanese and German companies, the Company has been able to satisfy the
stringent requirements of its customers which ordinarily cannot be written into a specification or contract. Management believes that the Company&#146;s commitment to high level service, attention to detail and quality has the effect of providing
customers with a sense of confidence and security that their product requirement will be met and their products will be delivered on time and a competitive price.</FONT>
</P>
<P>
<FONT face="serif">The Company conducts most of its manufacturing operations in accordance with typical Japanese manufacturing standards, paying particular attention to cleanliness, incoming material control, in process quality control, finished
goods quality control and final quality audit.  In 2002, the metal manufacturing facilities at the Company&#146;s factory complex received ISO 9001 certification.  The Company&#146;s quality system helps to minimize defects and customer returns and
create a higher confidence level among customers. Management believes that these factors increase demand for the Company&#146;s services and products.</FONT>
</P>
<P align="center">
<FONT face="serif">- 20 </FONT>
</P>

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<A name="page_23"></A>

<P>
<B><FONT face="serif">Metal Manufacturing </FONT></B>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Metal manufacturing accounted for 61.8%, 57.4% and 58.3% of the Company&#146;s total sales during the years ended March 31, 2002, 2003 and 2004, respectively.  The Company&#146;s metal operations are
conducted at the Company&#146;s manufacturing facility in Long Hua, Shenzhen, China. </FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company&#146;s metal business consists of three stages: (i) tooling design and production; (ii) metal stamping; and (iii) finishing, packaging and shipping. </FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I><FONT face="serif">Tooling design and production</FONT></I><FONT face="serif">: The metal manufacturing process generally begins when a customer has completed the design of a new product and contacts the Company to
supply certain metal components to be used in the product. Generally, the Company must design and fabricate the tooling necessary to manufacture these components in its tooling workshop.  In some instances, however, the customer already possesses
the tooling necessary to manufacture the metal component and simply delivers the tools to the Company. Customer will sometimes also pay the Company to purchase and install the equipment necessary to manufacture the customer&#146;s products. The
Company uses computer-aided design and manufacturing equipment to produce a long lasting, high quality metal stamping tool designed to produce a high quality product in efficient manner. As many of the metal parts manufactured by the Company make
use of progressive, multi-stage stamping techniques, tools and machines must be precisely fine tuned and aligned to achieve the required quality standard and maximum efficiency. </FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The tool making process generally takes between 14 to 45 working days depending on the size and complexity of the tool. Customers typically bear the cost of producing the tools and, as is customary in
the industry, the customers hold title to the tooling. However, the Company maintains and stores the tools at its factory for use in production and the Company usually does not make tooling for customers unless they permit the Company to store the
tools on site and manufacture the related parts.</FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I><FONT face="serif">Metal Stamping</FONT></I><FONT face="serif">:  Following the completion of the tooling, the metal required for the specific product is selected and purchased.  See &#147;Raw Material, Components
Parts and Suppliers.&#148;  Often the customer specifies the metal to be used as well as the supplier.  The completed tooling is fitted to the metal press which is selected for its size, pressing force and the complexity of the number of tooling
stages.</FONT>
</P>
<P> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Using separate shifts, metal
  stamping can be conducted 24 hours a day, seven days per week other than during
  normal down time periods required for maintenance and changing of tools and
  during the traditional Chinese New Year holidays. Due to the strict quality
  requirements of customers, each machine is subject to stringent in-process quality
  controls; the Company&#146;s quality control personnel inspect the products
  produced each hour and update in-process logs at each pressing machine in which
  they record the quantity produced, defect rate and product dimensions and specifications.
  When defects are found during production, the Company&#146;s maintenance personnel
  inspect the tooling and the machine to determine which is responsible. If the
  tooling is the cause of the defect, it will be immediately removed from the
  machine and serviced or repaired by a team of technicians from the Company&#146;s
  tooling maintenance department. If the machine is the source of the defect,
  the machine is serviced immediately by the Company&#146;s
  technicians and engineers. In a continuous effort to assure quality, all stages
  of the production process are closely monitored so that all equipment and tools
  can be well maintained. The Company&#146;s wholly owned subsidiary Nissin Precision
  Metal Manufacturing Limited, has been registered for ISO 9001 certification.</FONT></P>
<P align="center">
<FONT face="serif">- 21 </FONT>
</P>

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<A name="page_24"></A>

<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I><FONT face="serif">Finishing, Packaging and Shipping</FONT></I><FONT face="serif">:  After pressing, the metal parts are degreased, inspected for defects and checked with custom-built test gauges.  Some components
are then sprayed in the Company&#146;s dedicated spray-paint facilities.  After being painted, the parts are baked at high temperatures in drying ovens before final inspection and packaging. Some parts are also screen printed by the Company. In
addition, for certain metal products, the Company assembles metal components and these parts are delivered to the assembly department for spot welding, threading, riveting other sub-assembly processed.  Each of the metal parts is then inspected,
packaged to the customer&#146;s specific requirement and delivered to the final quality audit department for final quality inspection which is conducted on a random sample basis. All parts and components are shipped by truck directly from the
factory to the customer&#146;s factory in China or elsewhere through the port of Hong Kong.</FONT>
</P>
<P>
<B><FONT face="serif">Clock and Watch Manufacturing </FONT></B>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company has been manufacturing clocks and clock components since June 1995. Prior to April 1997, the Company manufactured clocks for Kienzle Uhren GmbH, a clock manufacturer established over 180
years ago in Germany. In April 1997, the Company acquired the &#147;Kienzle&#148; trademark and substantially all of the assets of the clock manufacturer.  The equipment and parts that the Company acquired were located in Germany. In order to avail
itself of its low-cost, high-quality manufacturing capabilities in China, the Company packed and shipped all of the equipment to the Company&#146;s facilities in China and assembled.  Most of equipment has been operating at the Company&#146;s
facilities since the March 31, 1999 fiscal year, and the Company is currently manufacturing finished clocks, alarm clocks and clock movements with these assets. In addition to acquiring the Kienzle assets, the Company has also increased its
plastic-injection capacity, and its dial printing and established a new auto lathe operation for round metal parts to handle the Company&#146;s additional manufacturing needs.</FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company&#146;s clock business is divided into the manufacture and sale of clock movements and finished alarm and wall clocks.  During the past fiscal year, the Company manufactured clocks for
Braun and other OEMs. Approximately 30% of its clock manufacturing (measured in terms of dollars of sales) were clocks that Company sold under its Kienzle trademark, and 70% of this clock manufacturing was for its OEM clients.</FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The &#147;Kienzle&#148; name is a registered trademark in approximately 50 countries world-wide including major markets of the United States, U.K., Germany and Japan. The Company believes that the
&#147;Kienzle&#148; brand is regarded as a quality manufacturer of clocks and watches.  The Company also believes that the reputation of the Kienzle name can be carried over to other high quality products, particularly in Germany. The Company is
building on the Kienzle brand name, the Kienzle product range and the Kienzle equipment to sell and produce alarm and wall clocks, other branded clocks, clock movements and OEM clock manufacturing.</FONT>
</P>
<P align="center">
<FONT face="serif">- 22 </FONT>
</P>

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<A name="page_25"></A>

<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Since the Kienzle trademark is so well regarding in the time-keeping industry, the Company has recently also commenced manufacturing wrist watches under the Kienzle brandname.</FONT>
<FONT face="serif"> Revenues from watch manufacturing increased from $140,000 in fiscal 2003 to $260,000 in fiscal 2004.  The Company has supplemented its distribution of Kienzle wrist watches that it manufactures with
wrist watches manufactured by other manufacturers, which watches are branded and sold under the Kienzle name. During fiscal 2004 sales of third party manufactured watches sold under the Kienzle name represented $1,638,000 in sales. </FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">In addition to the clocks traditionally manufactured and sold under Kienzle name, the Company is attempting to increase the line of clock products it offers.  The principal new product that the
Company recently introduced is a line of clocks that are synchronized with radio signals broadcast from atomic clock transmitters. These radio synchronized clocks automatically set themselves with split second accuracy and adjust for daylight saving
time and leap year. The radio synchronized clocks have not been widely adopted in the U.S. because there is only one broadcast station in the U.S. that can be used to adjust the clocks (the U.S. Atomic Clock located in Boulder Colorado).  However,
the clocks are very popular in Europe (where there are two atomic clock broadcast stations) and are growing in popularity in Japan. The Company has been selling its radio controlled clocks to Japan and Europe and recently received a new OEM order
from Braun GmbH for the development of two new radio-controlled clock products to be sold under Braun&#146;s name. The Company believes that there are still some growth opportunities in the radio synchronized clock market in Germany.  The Company
has filed several patent applications for aspects of its own radio controllable clocks in Europe, Hong Kong, Germany and the U.S.</FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">For the fiscal year ended March 31, 2004, the Company&#146;s clock and watch revenues (including revenues generated from selling third party watches and other products under the Kienzle trademark)
increased over the prior fiscal year, but decreased slightly as a percentage of total revenues, from 18.5% of total revenues in fiscal 2003 to 18.1% in fiscal 2004, due to the proportionately larger increases in the Company&#146;s other product
segments. </FONT>
</P>
<P>
<B><FONT face="serif">Camera Assembly </FONT></B>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company currently manufactures and assembles cameras in its Shenzhen, China manufacturing factory complex. During the past two years, the Company also operated a small camera assembly plant in
Bulgaria. The Bulgarian plant was closed during the past fiscal year. The camera products that the Company manufactures consist of (i) reusable 35mm cameras, (ii) lens-fitted film packages, commonly referred to as single-use cameras, and (iii) niche
camera products, such as the Company&#146;s underwater camera and other accessories for underwater cameras. Camera sales during the three years ended March 31,2004, 2003 and 2002 accounted for 23.6%, 24.1% and 23.4% of net sales, respectively.  The
Company&#146;s cameras are sold worldwide through various distributors.</FONT>
</P>
<P> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Prior to the fiscal year
  ended March 31, 1999, most of the Company&#146;s camera revenues were derived
  from the sale of single-use lens-fitted film package cameras that the Company
  recycled. Approximately one-third of such sales had been to re-sellers who distributed
  the recycled cameras in the United States. In June 1999, in response to an action
  filed by Fuji Photo Film Co., the United States International Trade Commission
  (ITC) issued a general exclusion order that effectively
  bars the importation into the United States of recycled single-use lens-fitted
  film package cameras. Although the ITC proceedings were not directed at the
  Company and the order did not mention the Company, the bar on the importation
  of the recycled cameras prevented the Company from selling those cameras in
  the United States.</FONT></P>
<P align="center">
<FONT face="serif">- 23 </FONT>
</P>

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<A name="page_26"></A>

<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">In order to develop potential new markets for re-usable cameras, the Company developed a new reusable lens-fitted film package, a camera that has a different design and functional mechanism from that
utilized in the single-use lens-fitted film package cameras currently on the market. The Company&#146;s reusable lens fitted film package can, however, also be sold in the same market as the single-use lens-fitted film package.  In November 2000,
the Company received approval from the U.S. Customs office for the importation of its new cameras in the United States.  The Company also recently was granted a patent in the United States, U.S. Patent Number 6,522,835 B2, that covers the
Company&#146;s &#147;photographic film package&#148; with a detachable cartridge. However, in June 2001, the Fuji Photo Film Co. filed a complaint for enforcement proceedings with the United States International Trade Commission (&#147;ITC&#148;)
against 20 companies alleging that those companies violated Fuji&#146;s patents.  The ITC action has effectively prevented the Company from marketing its film product in the United States. As a result of the proceedings before the ITC, the Company
has not commenced marketing its new camera in the United States and currently has not set a date on which it will commence distributing its new camera in the United States. </FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">In order to expand its camera product offerings, the Company has also developed a low cost, fully automatic, compact 35mm camera with flash lighting and waterproof housing, which allows the camera to
take photographs underwater in depths of up to 60 feet. In addition, the Company also manufactures a variety of underwater camera accessories.</FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company fabricates many of the components used in its camera internally. Other key components such as the lens, printed circuit board, integrated circuits, carrying cases and packaging are
purchased from outside vendors in Hong Kong, China, Taiwan and Japan.</FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company believes that its use of in-process quality control and a final quality audit process, together with low cost labor and overhead at its China facilities, enable it to manufacture cameras
at a competitive price. Nevertheless, because of strong competition in the low cost camera markets, the Company&#146;s gross margins on camera sales are very narrow. In addition, the Company believes that demand for its film camera products has
started to decrease, and will continue to decrease, as a result of the proliferation of digital cameras and mobile telephones with photographic capabilities, all of which reduce the market for the Company&#146;s film-based cameras. </FONT>
</P>
<P>
<B><FONT face="serif">Raw Material, Component Parts and Suppliers </FONT></B>
</P>
<P> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I><FONT face="serif">Metal Parts</FONT></I><FONT face="serif">.
  The primary raw materials used by the Company to manufacture its metal stamped
  parts are various types of steel including pre-painted steel sheet, electrolytic
  zinc plated steel sheet, PVC laminated steel sheet and cold roll steel sheet.
  The Company selects suppliers based on the price they charge and the quality
  and availability of their materials. Often, the customer requires the Company
  to use specific suppliers. Most of the Company&#146;s suppliers of steel
  operate through Hong Kong or China-based companies which deliver the materials
  directly to the site of the Company&#146;s operations in China.</FONT><FONT size=5 face="serif">
  </FONT> </P>
<P align="center">
<FONT face="serif">- 24 </FONT>
</P>

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<A name="page_27"></A>

<P> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">In 1999-2000, the Company&#146;s
  ability to import sheet metal was adversely affected due, in part, to China&#146;s
  institution of a &#147;Customs License Deposit&#148; for the import of &#147;sensitive
  materials,&#148; which category includes sheet metals. The deposit requirement
  severely limited the amount of materials the Company could import and adversely
  affected the Company&#146;s metal stamping operations. The Company currently
  is exempt from these deposit requirements. However, some of these stringent
  and burdensome governmental licensing and deposit requirements are still in
  effect, and the Company&#146;s exemption may lapse or be lifted in the future.</FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I><FONT face="serif">Finished Products</FONT></I><FONT face="serif">. Camera and clock manufacturing primarily involves the production of plastic injected and metal stamped components as well as integrated circuits,
lenses, crystals, magnets and paper packaging products. While these materials are subject to price fluctuations, the Company has not been materially adversely affected by price increases or shortages of supply. The recycling of single-use cameras
requires empty camera shells purchased mainly from Japanese and German agents for recycling in the factory complex in China. The supply of quality shells can be limited at times based on overall market use of single-use cameras; however, the supply
of shells is typically only restricted by the purchase price for such shells.</FONT>
</P>
<P>
<B><FONT face="serif">Transportation </FONT></B>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company transports components and finished products to customers in China and to and from Hong Kong and China by truck. Generally, the Company sells its products &#147;free-on-forwarder&#148;
(&#147;F.O.F.&#148;) Hong Kong or &#147;free-on-board&#148; (F.O.B.) Hong Kong. To date the Company has not been materially affected by any transportation problems as it uses subcontract trucking services which have been readily available in the
past. Similarly, recent improvements in the roads and freeways in China have facilitated intra-China transportation. The Hong Kong and China customs departments have opened additional border crossings, extended their operating hours, and have been
working continually to improve the flow of cross-border goods. </FONT>
</P>
<P>
<B><FONT face="serif">Customers and Marketing </FONT></B>
</P>
<P> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company&#146;s sales
  are generated from sales in Hong Kong/China, Europe, the United States, and
  other Asian countries. Net sales to customers by geographic area are determined
  by reference to the shipping destinations specified by the Company&#146;s customers
  (except for sales to China). For example, if the products are delivered to the
  customer in China, the sales are recorded as generated in Hong Kong; if the
  customer directs the Company to ship its products to Europe, the sales are recorded
  as sold in Europe. Payments are paid in Hong Kong dollars, United States dollars
  and European euros. Net sales as a percentage of net sales to customers by geographic area consisted of the following for the years
  ended March 31, 2002, 2003 and 2004:</FONT> </P>
<P align="center">
<FONT face="serif">- 25</FONT>
</P>

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<A name="page_28"></A>
<TABLE border=0 cellspacing=0 cellpadding=0 width="100%">
  <TR>
    <TD width="60%">&nbsp;</TD>
    <TD align="center" colspan=6><FONT face="serif">&nbsp;&nbsp;&nbsp;&nbsp;<U>Year Ended March 31</U></FONT></TD>
  </TR>
  <TR>
    <TD width="60%">&nbsp;</TD>
    <TD colspan="2" align="right"><DIV align="right"><FONT face="serif"><U>2002</U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></DIV></TD>
    <TD colspan="2" align="right"><DIV align="right"><FONT face="serif"><U>2003</U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></DIV></TD>
    <TD colspan="2" align="right"><DIV align="right"><FONT face="serif"><U>2004</U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></DIV></TD>
  </TR>
  <TR>
    <TD width="60%"><U><FONT face="serif">GEOGRAPHIC AREAS</FONT></U><FONT face="serif">:</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="60%">&nbsp;&nbsp;&nbsp;<FONT face="serif">Hong Kong &amp; China</FONT></TD>
    <TD align="right"><FONT face="serif">60.5</FONT></TD>
    <TD><FONT face="serif">%</FONT></TD>
    <TD align="right"><FONT face="serif">63.7</FONT></TD>
    <TD><FONT face="serif">%</FONT></TD>
    <TD align="right"><FONT face="serif">66.1</FONT></TD>
    <TD><FONT face="serif">%</FONT></TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="60%">&nbsp;&nbsp;&nbsp;<FONT face="serif">Europe</FONT></TD>
    <TD align="right"><FONT face="serif">31.4</FONT></TD>
    <TD><FONT face="serif">%</FONT></TD>
    <TD align="right"><FONT face="serif">25.7</FONT></TD>
    <TD><FONT face="serif">%</FONT></TD>
    <TD align="right"><FONT face="serif">23.7</FONT></TD>
    <TD><FONT face="serif">%</FONT></TD>
  </TR>
  <TR>
    <TD width="60%">&nbsp;&nbsp;&nbsp;<FONT face="serif">Other Asian countries</FONT></TD>
    <TD align="right"><FONT face="serif">1.7</FONT></TD>
    <TD><FONT face="serif">%</FONT></TD>
    <TD align="right"><FONT face="serif">1.3</FONT></TD>
    <TD><FONT face="serif">%</FONT></TD>
    <TD align="right"><FONT face="serif">2.4</FONT></TD>
    <TD><FONT face="serif">%</FONT></TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="60%">&nbsp;&nbsp;&nbsp;<FONT face="serif">United States</FONT></TD>
    <TD align="right"><FONT face="serif">5.5</FONT></TD>
    <TD><FONT face="serif">%</FONT></TD>
    <TD align="right"><FONT face="serif">7.5</FONT></TD>
    <TD><FONT face="serif">%</FONT></TD>
    <TD align="right"><FONT face="serif">2.4</FONT></TD>
    <TD><FONT face="serif">%</FONT></TD>
  </TR>
  <TR>
    <TD width="60%"><FONT face="serif">Others</FONT></TD>
    <TD align="right"><FONT face="serif">0.9</FONT></TD>
    <TD><FONT face="serif">%</FONT></TD>
    <TD align="right"><FONT face="serif">1.8</FONT></TD>
    <TD><FONT face="serif">%</FONT></TD>
    <TD align="right"><FONT face="serif">5.4</FONT></TD>
    <TD><FONT face="serif">%</FONT></TD>
  </TR>
</TABLE>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company&#146;s customers for its metal stamping products are OEMs and contract manufacturers. While the Company sells its products in Hong Kong (which includes sales made to China which are
recorded as sales in Hong Kong because the purchase orders are issued by the Hong Kong offices of the China factories), Europe (primarily Germany), the United States, and other Asian countries (predominantly Japan and Malaysia), the Company&#146;s
products are sold primarily to Japanese and German owned companies with OEM or contract manufacturers in China. </FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Until recently, the Company has marketed its metal stamping products and services to existing customers primarily through direct contact with the Company&#146;s management and senior purchasing
officers of the customers.  Metal pressing sales were primarily conducted by the managing director of the metal stamping company, Nissin, Mr. Satoru Saito, a Japanese national, and Mr. Roland Kohl, a German national, who serves as the Chief
Executive Officer, using existing contacts, word-of-mouth referrals and references from associated companies of the customers. Due to the international nature of senior management, the Company has been able to set itself apart from its competitions
and bridge the cultural, language and quality gaps that most Japanese and German companies fear when dealing in China.  In connection with the recent realignment of its operations, shift in manufacturing strategy, and its increased focus on
increasing overall sales of higher quality components for global customers, the Company has initiated a more direct and active marketing strategy, including advertising in trade publications, attending trade shows/exhibitions and using the internet
and its webpages as marketing tools. </FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company&#146;s customers for its non-Kienzle branded clocks include internationally recognized clock manufacturers such as Braun and Casio. The ultimate customers of the Kienzle branded clocks
consist of importers, wholesalers and large retailers, primarily in Europe where the Kienzle brand name has strong brand recognition. The Company also markets it watches and clocks through its marketing office located in Germany. Until January,
2004, the Company also marketed its clocks and watches in Europe through Kienzle AG, a third party distributor under a licensing and supply agreement that the Company entered into with Kienzle AG in January 2003. The Company has terminated that
agreement and now markets Kienzle branded watches (other than watches sold in the promotional marketplace) and clocks exclusively in-house through its Germany offices.</FONT>
</P>
<P> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Camera sales are conducted
  primarily through existing importers and distributors who market the cameras
  under their own brands. Previously, the Company limited its direct marketing
  or advertising activities in order not to compete with its distributors. However,
  the Company has now increased its marketing, advertising
  and exhibition activities to stimulate the demand for, and to promote its camera
  products.</FONT> </P>
<P> <B><FONT face="serif"></FONT></B></P>
<P align="center">
<FONT face="serif">- 26 </FONT>
</P>

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<A name="page_29"></A>

<P> <B><FONT face="serif">Major Customers </FONT></B> </P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">For the fiscal year ended March 31, 2004, two customers each accounted for more than 10% of the Company&#146;s gross revenues (or 39.5% collectively of the Company&#146;s net sales). No other
customers individually accounted for more than 10% of the Company&#146;s gross revenues during this recent past fiscal year. During the past few years, the Company has relied to a large extent on a few larger customers and on many smaller customers.
 As part of its recently announced shift in its policy of handling smaller customers in its metal manufacturing operations, the Company believes that it will decrease the number of smaller customers. If the Company loses any of its major customers
who account for a material portion of total net sales, or if any of these customer&#146;s order decrease substantially, the Company&#146;s results of operations and financial position would be materially and adversely affected if the Company is
unable to replace any of its major customers.</FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Customers place metal manufacturing orders with the Company in the form of purchase orders which are supported by a delivery schedule covering up to three months of orders. Customers usually do not
provide long term contracts for their purchases and are able to cancel or amend their orders at any time without penalty.  In addition, certain customers enter into agreements with the Company in which the parties agree upon their purchase and sale
procedures, but such agreements do not contain any specific purchase orders or purchase requirements.  Orders from such customers are thereafter received from time to time by customers based on the customers needs, not on contractually fixed amounts
or time periods. Accordingly, backlog has not been meaningful to the Company&#146;s business.  Except for these purchase orders, the Company normally has no written agreements with its customers. Sales of metal parts are primarily on credit terms of
up to 45 to 90 days with payment in Hong Kong dollars while the sale of cameras and clocks is through letters of credit, wire transfer advance payment and, for older established accounts, some open accounts payable within 30 to 90 days of shipment
in United States dollars.  Management constantly communicates with its credit sale customers and closely monitors the status of payment in an effort to keep its default rate low. However, as a result of the concentration of sales among a few of the
Company&#146;s larger customers, the Company is required to bear significant credit risk with respect to these customers. Typically, metal part orders are spread over a three-month period and the Company is able to withhold delivery or slow down
shipments in the event of any delinquency in payment for past shipments. Parts are generally shipped 30-40 days after an order has been placed unless the Company is required to manufacture new tools which requires approximately 14-45 days to
complete prior to commencing manufacturing. While the Company has not experienced material difficulty in securing payment from its major customers, there can be no assurance that the Company&#146;s favorable collection experience will continue. As a
result, the Company has increased its allowances for doubtful account this year. The Company could be adversely affected if a major customer was unable to pay for the Company&#146;s products or services. </FONT>
</P>
<P align="center">
<FONT face="serif">- 27</FONT>
</P>

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<A name="page_30"></A>

<P>
<B><FONT face="serif">Patents, Licenses and Trademarks </FONT></B>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">In November 1998, the Company acquired the worldwide rights (other than in Italy) to the &#147;Kienzle&#148; trade name and trademark for use with clocks, watches and certain other timekeeping
instruments.  The trademark currently also covers certain other products such as electronic products, household products, and textiles for certain European countries. The trade name and trademark is registered in approximately 50 countries,
including Germany, the United States, the UK and Japan. The Company believes that the trade name and trademark enable the Company to market its own products, and products that it acquires for the purpose of reselling as &#147;Kienzle&#148; products,
at a higher price and with larger gross margins than similar products that it manufactures for others on an OEM basis. </FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company has received one patent, and has applied for two other patents relating to its clock business. The patent, U.S. Patent Number 6,466,517 B1, covers technology concerning the company&#146;s
&#147;global clock,&#148; a LCD timepiece that provides simultaneous analog and digital display of 24 time zones, which are divided into work, leisure and sleep categories, along with a calendar week scheduler. The global clock is designed for use
by international travelers. Two patent applications relate to the Company&#146;s Radio Controllable Clock. These patent applications were filed in the United States, Europe Hong Kong and/or Germany.</FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company has also been attempting to develop new camera technologies. In connection with its new technologies, the Company was issued a patent in the United States, U.S. Patent Number 6,522,835 B2,
that covers the Company&#146;s &#147;photographic film package&#148; with a detachable cartridge.  The package is integral to the Company&#146;s  pre-loaded camera, and the patent applies specifically to alternative photographic cameras that can
compete in the market place with single-use cameras.  Applications relating to this U.S. patent application are still pending in Europe, Japan, China and Hong Kong. The Company also has applied for patents in the United States for its camera
cassette assembly apparatus and method.</FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">As a manufacturer of parts, components and finished products for OEMs and contract manufacturers, the Company has no patents, licenses, franchises, concessions or royalty agreements which it considers
material to its OEM manufacturing business.</FONT>
</P>
<P>
<B><FONT face="serif">Competition </FONT></B>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company competes against numerous manufacturers of clocks, metal components and cameras as well as in&#150;house manufacturing capabilities of existing customers. Management believes that firms
which are smaller than the Company make up the largest segment of the metal manufacturing industry although it is not aware of any empirical data defining the metal manufacturing industry in China.  The metal stamping industry is characterized by a
large number of small metal stamping work shops.  Customers evaluate competitor&#146;s capabilities against each other and against the merits of in-house production.  Some of the Company&#146;s competitors have substantially greater manufacturing,
financial and marketing resources than the Company.  The Company believes that the significant competitive factors are quality, price, service, and the ability to deliver products on a reliable basis. </FONT>
</P>
<P align="center">
<FONT face="serif">- 28 </FONT>
</P>

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<A name="page_31"></A>

<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The camera and clock manufacturing industry traditionally has been highly competitive and fragmented.  However, the Company believes that the market for traditional clocks is undergoing a
consolidation and that the market may soon be dominated by a few major manufacturers/distributors. The Company believes that its Kienzle brandname and its low-cost manufacturing provide it with the ability to compete in this market. Nevertheless,
most major brands of clocks and watches have significantly greater marketing and distribution capabilities and financial resources than the Company. In the single-use camera market, customers generally are attracted to manufacturers based on the
price of the product and timely delivery.  The Company is able to compete by providing good quality products at a competitive prices with reliable delivery and service. </FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Certain of the new product markets that the Company is considering entering into also are extremely competitive and are dominated by well-capitalized, international companies.  For example, the
Company is considering manufacturing LCD monitor and flat panel televisions. There are numerous large, multi-national companies that currently compete in these markets.</FONT>
</P>
<P>
<B><FONT face="serif">Other Activities </FONT></B>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The markets in which the Company operates are continuously changing, and the Company regularly seeks both (i) new or alternate products that it can manufacture and sell, and (ii) new methods of
operating that may enhance its business.  Certain of changes in the Company&#146;s products and operations evolve from its existing business and carry a low chance of failure.  For example, the Company&#146;s quartz clock manufacturing has evolved
into the manufacture of radio-controlled clocks and wrist watches.  In addition, the manufacture of single-use cameras and low-end 35mm cameras has spawned the Company&#146;s underwater camera product line. Certain other actions deviate
significantly from the Company&#146;s existing manner of operations and are, as a result, subject to greater uncertainties. The following are some of the other actions that the Company has taken, and is taking: </FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">A.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company owns the worldwide rights (other than in Italy) to the name &#147;Kienzle&#148; for clocks, watches and certain other timekeeping instruments. The Company believes that the Kienzle
name is associated with quality and prestige in Europe, particularly in Germany. Although the Kienzle name is traditionally associated with watches and clocks, the Company believes that the reputation of the name can also be used to market other
high quality products, such as electronic and household products. As a result, during the past two years, the Company has attempted to market products manufactured by others under the Kienzle name in Europe. In order to maximize its distribution
capabilities of Kienzle branded products, the Company in January 2003 associated a professional marketing and distribution company in Germany to exploit the &#147;Kienzle&#148; trademark. </FONT>
</P>
<P> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">B.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company is exploring
  the possible manufacture and distribution of liquid crystal display (LCD) products,
  such as flat panel televisions and computer monitors. The Company is working
  with a Taiwanese manufacturer of LCD panels and electronic components to develop
  LCD based products that can be competitively priced. Under the current arrangement,
  the Company purchases the LCD monitor and required electronic components from
  the Taiwanese company. The Company manufactures the chassis and stand for the
  final product and then assembles the final product. To date, sales of these
  LCD products by the Company have been limited to sales
  made for test marketing purposes and have insignificant. The parties are still
  determining how best to cooperatively exploit this potential opportunity, and
  no assurance can be given that the Company will be able to establish a commercially
  reasonable relationship with the Taiwanese company or that it will otherwise
  become a manufacturer of LCD products. </FONT> </P>
<P align="center">
<FONT face="serif">- 29 </FONT>
</P>

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<A name="page_32"></A>

<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">C.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In August 2003, the Company acquired a 50% interest in Kayser Photo (Overseas) Corp., a new corporation established in Panama to distribute film, cameras, batteries and single-use cameras in
Central and South America. Under its agreement with Kayser Photo (Overseas) Corp., the Company will sell certain products to that company and will receive one-half of the company&#146;s profits. The products marketed by Kayser Photo (Overseas) Corp.
are sold under the &#147;Kayser&#148; brandname. Sales to date from this new venture were only approximately $90,000 during the past fiscal year, and no assurance can be given that the Company will determine that these operations will be further
developed or will eventually become a viable business. Because of its contacts in the camera market, the Company also is exploring becoming a third party distributor of digital cameras and possibly other products that the Company currently handles
(such as watches and LCD monitors).</FONT>
</P>
<P>
<B><FONT face="serif">Organizational Structure </FONT></B>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Highway Holdings Limited is a holding company that operates through its subsidiaries. As of March 31, 2004, Highway Holdings Limited owned eleven subsidiaries, ten of which were wholly-owned by
Highway Holdings Limited.  However, the Company currently conducts is business primarily through eight of these subsidiaries, six of which are incorporated in Hong Kong, one that is incorporated in Germany, and one that is organized in Bulgaria. For
details regarding the names of these subsidiaries, the principal activities of subsidiaries, the country of their incorporation, and the dates of their organization, see Note 1 to the Consolidated Financial Statements appearing in Item 18 of this
Annual Report.</FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company also is a 50% equity owner of a Panamanian company that it and an unrelated third party established in August 2003 to engage in film, battery and camera trading activities, a 50% equity
owner in a dormant U.S. entity established to market Kienzle branded clocks in the U.S.A., and a 20% interest in Kienzle AG, a German distributor.</FONT>
</P>
<P>
<B><FONT face="serif">Property, Plants and Equipment </FONT></B>
</P>
<P>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT face="serif">British Virgin Islands </FONT></I>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Registered Office of the Company is located at Craigmuir Chambers, Road Town, Tortola British Virgin Islands.  Only corporate administrative matters are conducted at these offices, through the
Company&#146;s registered agent, HWR Service Ltd.  The Company does not own or lease any property in the British Virgin Islands. </FONT>
</P>
<P>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT face="serif">Hong Kong </FONT></I>
</P>
<P> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company leases Suite
  810, Level 8, Landmark North, 39 Lung Sum Avenue, Sheung Shui, New Territories,
  Hong Kong as its executive offices. These premises are leased under a lease that expires in July 2006. The Company believes that
  suitable alternative facilities are available if the Company cannot extend the
  lease on satisfactory terms. </FONT> </P>
<P align="center">
<FONT face="serif">- 30 </FONT>
</P>

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<A name="page_33"></A>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company also rents an approximately 5,000 sq. ft. warehouse in Hong Kong at a rental cost of $1,500 per month under an agreement that expires in January 2006.</FONT><B><FONT face="serif">
</FONT></B>
</P>
<P>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT face="serif">China </FONT></I>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company currently leases a total of approximately 450,000 square feet of space at the site of its factory complex located at Long Hua, Shenzhen, China from the Shenzhen Land &amp; Sun Industrial
&amp; Trade Co., Ltd. pursuant to five related leases. The leased space consists of 378,000 square feet of manufacturing space, with the balance representing dormitories for the Company&#146;s employees.  This space is used predominately for the
Company&#146;s metal manufacturing, camera and clock manufacturing, spray painting, screen printing, plastic injection, tooling workshop and warehouse operations. There are also offices for management and administration on the premises. The term of
the leases expires on February 28, 2009. In addition to the existing facilities, the Company&#146;s landlord is also constructing a new office building for the Company on the premises, which new building is expected to be completed during the
current fiscal year.  The Company estimates that, depending on the Company&#146;s operations, the utilization rate of these facilities during the fiscal year ended March 31, 2004 fluctuated between an estimated 50% and 80% of its maximum capacity.
Accordingly, the Company is currently not in need of additional manufacturing space, and its current facilities will continue to satisfy the Company&#146;s needs in the near future. However, should the Company need additional space, it has an option
to lease additional facilities from its current landlord. </FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company also obtains materials and assets under its three BFDC Agreements which expire March 31, 2006 unless renewed. The BFDC is the local government of Long Hua, the town in which the factory
complex is located. Pursuant to the BFDC Agreements, the BFDC is the party responsible for providing manufacturing facilities and supplying workers to the Company. The Company is responsible for paying a management fee, and certain other charges to
the BFDC.</FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">As is common in southern China, the factory complex has dormitory facilities to accommodate factory workers. The Company has leased approximately 72,000 square feet of space at Long Hua, Shenzhen,
China which is used as dormitories for factory workers.</FONT>
</P>
<P>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT face="serif">Germany</FONT></I><FONT face="serif"> </FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company leases a 152 square meter marketing office and a 1,080 square meter warehouse in Germany, related to sales of Kienzle branded products in Germany. The lease for this facility expires in
October 2004. </FONT>
</P>
<P>
<B><FONT face="serif">Item 5. Operating and Financial Review and Prospects </FONT></B>
</P>
<P>
<B><FONT face="serif">Overview </FONT></B>
</P>
<P> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company&#146;s net sales
  are derived primarily from the manufacture and sale of clocks, metal parts/components
  and cameras. During the past fiscal year, the Company conducted its manufacturing
  operations in facilities in China and, until the facilities were closed in December,
  2003, in Bulgaria.</FONT> </P>
<P align="center">
<FONT face="serif">- 31 </FONT>
</P>

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<A name="page_34"></A>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The metal manufacturing operations currently account for the largest portion of the Company&#146;s net sales and income. The gross profit margin on metal stamping is generally higher than that of
camera and clock manufacturing, but it is typically more affected by fluctuations in raw material prices, particularly prices of rolled steel.</FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The location of the Company&#146;s executive offices in Hong Kong enables the Company to pay low rates of income tax due to Hong Kong&#146;s tax structure. The Company has historically benefited from
favorable overall income tax rates, the tax rate applicable to the Company for the fiscal year ended March 31, 2004 was 9.2%. (The Company&#146;s income tax rate for the fiscal year ended March 31, 2003 was 9.3%.)  The Company&#146;s income arising
from its Hong Kong operations or derived from its operations within Hong Kong is subject to Hong Kong income tax. The Company has successfully claimed a tax benefit from the Hong Kong Inland Revenue Department by providing support for its position
that more than half of its income is derived from its activities outside of Hong Kong, namely in China. The statutory tax rate in Hong Kong currently is 17.5%, and there are no taxes on dividends or capital gains. </FONT><B><FONT face="serif">
</FONT></B>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Unlike companies which have wholly-owned subsidiaries located in China or operate under joint venture agreements in China, under the BFDC Agreements pursuant to which it operates in China, the Company
does not pay taxes in China because it is not considered to be doing business in China under current China law. The BFDC is responsible for paying its own taxes incurred as a result of its operations under the BFDC Agreements. Arrangements such as
the BFDC Agreements under which the Company operates in China are one of the most common types of arrangements in southern China for Hong Kong manufacturers. Management believes the Company will continue to benefit from a low overall effective tax
rate in the future, barring unforeseen changes in tax laws.</FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Net sales to customers by geographic area are generally determined by the shipping destinations specified by the customers.  In China, however, net sales are always recorded as generated in Hong Kong
because the purchase orders are issued by Hong Kong-based companies. For example, if a customer directs the Company to ship a product to the U.S. (or any other overseas market), the sale is recorded as a sale to the U.S. (or the specified market).
However, if a product is delivered to a customer in China, the sales will be recorded as generated in Hong Kong.</FONT><B><FONT face="serif"> </FONT></B>
</P>
<P>
<B><FONT face="serif">Results of Operations </FONT></B>
</P>
<P>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT face="serif">General </FONT></I>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">During the past three years discussed below, the Company&#146;s revenues have been derived primarily from the manufacture and sale of (i) OEM manufacture of metal parts and components (ii) clocks and
clock movements and (iii) cameras. The Company also sells watches and other products that it did not manufacture under the &#147;Kienzle&#148; name.</FONT>
</P>
<P align="center">
<FONT face="serif">- 32</FONT>
</P>

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<A name="page_35"></A>

<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The following table sets forth the percentages of net sales of certain income and expense items of the Company for each of the three most recent fiscal years. </FONT>
</P>
<TABLE border=0 cellspacing=0 cellpadding=0 width="100%">
  <TR>
    <TD width="60%">&nbsp;</TD>
    <TD colspan=8 align="center"><hr noshade size="1"></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="60%">&nbsp;</TD>
    <TD colspan=8 align="center"><FONT face="serif">&nbsp;&nbsp;&nbsp;Year Ended March 31,</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="60%">&nbsp;</TD>
    <TD colspan="8" align="right"><hr noshade size="1"></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="60%">&nbsp;</TD>
    <TD colspan="2" align="right"><DIV align="right"><FONT face="serif">2002&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></DIV></TD>
    <TD align="right"><DIV align="center"></DIV></TD>
    <TD colspan="2" align="right"><DIV align="right"><FONT face="serif">2003&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></DIV></TD>
    <TD align="center"><DIV align="center"></DIV></TD>
    <TD colspan="2" align="center"><DIV align="right"><FONT face="serif">2004&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></DIV></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="60%">&nbsp;</TD>
    <TD colspan="2"><HR noshade size=1></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD colspan="2"><HR noshade size=1></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD colspan="2"><HR noshade size=1></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
  </TR>
  <TR>
    <TD width="60%">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="60%"><FONT face="serif">Net Sales</FONT></TD>
    <TD align="right"><FONT face="serif">100</FONT></TD>
    <TD><FONT face="serif">%</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">100</FONT></TD>
    <TD><FONT face="serif">%</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">100</FONT></TD>
    <TD><FONT face="serif">%</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="60%"><FONT face="serif">Cost of sales</FONT></TD>
    <TD align="right"><FONT face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;82.6</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;80.9</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;79.9</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="60%">&nbsp;</TD>
    <TD colspan="2"><HR noshade size=1></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD colspan="2"><HR noshade size=1></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD colspan="2"><HR noshade size=1></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
  </TR>
  <TR>
    <TD width="60%"><FONT face="serif">Gross profit</FONT></TD>
    <TD align="right"><FONT face="serif">17.4</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">19.1</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">20.1</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="60%"><FONT face="serif">Selling, general and administrative expenses</FONT></TD>
    <TD align="right"><FONT face="serif">18.6</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">18.3</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">16.6</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="60%">&nbsp;</TD>
    <TD colspan="2"><HR noshade size=1></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD colspan="2"><HR noshade size=1></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD colspan="2"><HR noshade size=1></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
  </TR>
  <TR>
    <TD width="60%"><FONT face="serif">Operating income/(loss)</FONT></TD>
    <TD align="right"><FONT face="serif">(1.2</FONT></TD>
    <TD><FONT face="serif">)</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">0.8</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">3.5</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="60%"><FONT face="serif">Interest expense</FONT></TD>
    <TD align="right"><FONT face="serif">(0.1</FONT></TD>
    <TD><FONT face="serif">)</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">(0.2</FONT></TD>
    <TD><FONT face="serif">)</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">(0.3</FONT></TD>
    <TD><FONT face="serif">)</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="60%"><FONT face="serif">Other income</FONT></TD>
    <TD align="right"><FONT face="serif">0.4</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">2.1</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">1.5</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="60%"><FONT face="serif">Impairment of investment in an affiliate</FONT></TD>
    <TD align="right"><FONT face="serif">0</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">0</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">(0.4</FONT></TD>
    <TD><FONT face="serif">)</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="60%"><FONT face="serif">Share of affiliate (loss)</FONT></TD>
    <TD align="right"><FONT face="serif">0</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">0</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">0</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="60%">&nbsp;</TD>
    <TD colspan="2"><HR noshade size=1></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD colspan="2"><HR noshade size=1></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD colspan="2"><HR noshade size=1></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="60%"><FONT face="serif">Income/(loss) before income taxes</FONT></TD>
    <TD align="right"><FONT face="serif">(0.9</FONT></TD>
    <TD><FONT face="serif">)</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">2.7</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">4.3</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="60%"><FONT face="serif">Income taxes</FONT></TD>
    <TD align="right"><FONT face="serif">(0.3</FONT></TD>
    <TD><FONT face="serif">)</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">(0.3</FONT></TD>
    <TD><FONT face="serif">)</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">(0.4</FONT></TD>
    <TD><FONT face="serif">)</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="60%">&nbsp;</TD>
    <TD colspan="2"><HR noshade size=1></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD colspan="2"><HR noshade size=1></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD colspan="2"><HR noshade size=1></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="60%"><FONT face="serif">Income/(loss) before minority interest</FONT></TD>
    <TD align="right"><FONT face="serif">(1.2</FONT></TD>
    <TD><FONT face="serif">)</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">2.4</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">3.9</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="60%"><FONT face="serif">Minority interest</FONT></TD>
    <TD align="right"><FONT face="serif">0</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">0</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">0</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="60%">&nbsp;</TD>
    <TD colspan="2"><HR noshade size=1></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD colspan="2"><HR noshade size=1></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD colspan="2"><HR noshade size=1></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="60%"><FONT face="serif">Net income/(loss)</FONT></TD>
    <TD align="right"><FONT face="serif">(1.2</FONT></TD>
    <TD><FONT face="serif">%)</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">2.4</FONT></TD>
    <TD><FONT face="serif">%</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">3.9</FONT></TD>
    <TD><FONT face="serif">%</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="60%">&nbsp;</TD>
    <TD colspan="2"><HR noshade size=3></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD colspan="2"><HR noshade size=3></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD colspan="2"><HR noshade size=3></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
  </TR>
</TABLE>
<P>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><U><FONT face="serif">Year Ended March 31, 2004 Compared to Year Ended March 31, 2003</FONT></U></I><I><FONT face="serif"> </FONT></I>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Net sales for the year ended March 31, 2004 (&#147;fiscal 2004&#148;) increased by $4,986,000, or 24.5%, from the year ended March 31, 2003 (&#147;fiscal 2003&#148;). The increase in net sales was due
to an increase in sales of all of the Company&#146;s product segments compared to the prior fiscal year.</FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Sales of metal manufactured parts and components for the year ended March 31, 2004 experienced the largest increase both in dollar amount and as a percentage. Metal manufacturing sales increased by
$3,098,000, or 26.5%, as compared to the year ended March 31, 2003, and represented 58.3% of the Company&#146;s total sales. Net sales from the metal stamping segment for the year ended March 31, 2003 represented 57.4% of the Company&#146;s net
sales. The increase in sales of OEM manufactured products was primarily due to the increase in sales to Germany customers and by an increase in sales to Hong Kong/China.</FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Net sales of cameras increased in fiscal 2004 in each of the Company&#146;s principal geographic markets for the Company&#146;s cameras, other than sales in the U.S.A, which decreased by $1,062,000.
The decrease in sales to the U.S.A. was due to the loss of the Company&#146;s principal U.S. customer. While net sales of cameras increased by $1,080,000, or 22%, in fiscal 2004, cameras constituted 23.6% of the Company&#146;s net sales, compared to
24.1% in the prior year due to the relatively larger increase in the Company&#146;s overall net sales. </FONT>
</P>
<P> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Sales of clocks and watches
  for the year ended March 31, 2004 increased by $808,000, or 21.4% as compared
  to the year ended March 31, 2003, and represented 18.1%, of the Company&#146;s
  March 31, 2004 fiscal year sales compared to 18.5% of the Company&#146;s net
  sales for the year ended March 31, 2003. In January 2003, the Company entered
  into a license and distribution agreement with Kienzle AG, a German distribution
  company, to sell watches, clocks and other</FONT> <FONT face="serif">products
  manufactured by other makers in Europe under its own &#147;Kienzle&#148; trademark.
  Sales under this agreement generated approximately $521,000 of revenues in fiscal
  2003 (the three months from January through March, 2003) and $1,665,000 of revenues
  in fiscal 2004. Since the amount of sales made in calendar 2003 by Kienzle AG
  under the distribution agreement did not meet the minimum established under
  the distribution agreement, the Company terminated the distribution agreement
  with Kienzle AG. Although the distribution agreement was terminated in 2004,
  both parties are still conducting business with each other in substantially
  the same manner as before (except with respect to clocks and watches), and the
  parties are considering restructuring that distribution agreement to exclude
  watches and clocks (the rights to which the Company would retain). The termination
  of the distribution agreement may negatively affect the Company&#146;s Kienzle
  branded sales in Europe during the current fiscal year. Sales of the Company&#146;s
  principal clock products, quartz clocks, continued to decline in fiscal 2004.
  In order to offset decreased sales in traditional quartz clocks, the Company
  has developed and has commenced selling a new line of radio controlled clocks.</FONT>
</P>
<P align="center">
<FONT face="serif">- 33 </FONT>
</P>

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<A name="page_36"></A>

<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company&#146;s gross profits as a percentage of its net sales increased from 19.1% in the year ended March 31, 2003 to 20.1% in the year ended March 31, 2004.  Cost of sales as a percentage of net
sales decreased from 80.9% to 79.9% despite a one-time $640,000 write-off of inventory for the fiscal year ended March 31, 2004.  The Company periodically writes down inventory for estimated obsolete or unmarketable inventory equal to the difference
between the costs of inventory and estimated market value, based upon assumptions about future demand and market conditions. In fiscal 2003, the Company wrote off only $52,000 of obsolete inventory. The Company attributes the large, one-time
increase in the amount of inventory written off during fiscal 2004 to recent changes in accounting policies and not to an increase obsolete inventory. The reasons for the 1% increase in gross margins in fiscal 2004 include the higher margins the
Company has realized in its metal manufacturing because of the increasing emphasis on manufacturing subassemblies and components, and the on-going benefits of the company-wide cost reduction efforts that were initiated during fiscal 2003. Although
the Company&#146;s gross profits as a percentage of its net sales increased during the past year, the percentage is still below the levels the Company has previously achieved. The Company attributes the lower gross profits to the loss of its
competitive advantage that it used to have due to its operations in China. Since many other manufacturers have now also established facilities in China, prices for manufactured products have been decreasing and competition has been
increasing.</FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Selling, general and administrative expenses for the year ended March 31, 2004 increased by $496,000, or 13.3%, over fiscal 2003 but decreased as a percentage of total net sales from 18.3% to 16.6%.
The decrease in selling, general and administrative expenses as a percentage of net sales was due to the 24.5% increase in net sales.    The increase in selling, general and administrative expenses is due in part to a $142,000 bad debt expense that
the Company recognized during fiscal 2004.  Selling, general and administrative expenses for both years included expenses related to the Bulgaria that the Company closed in December 2003. Unless the Company re-opens the Bulgaria operations, the
Company will not bear the costs of the Bulgaria facilities in the future. </FONT>
</P>
<P> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">In connection with the licensing
  and distribution agreement the Company entered into with Kienzle AG in January
  2003, the Company also agreed to acquire a minority equity interest in Kienzle
  AG. The amount that the Company has invested to date is $109,000. As a result
  of</FONT> <FONT face="serif">Kienzle AG&#146;s failure to meet its minimum purchase
  commitment for the year ended December 31, 2003, the Company terminated the
  distribution agreement and wrote off its $109,000 investment in Kienzle AG.
  The Company and Kienzle AG are currently still conducting business with each
  other and are considering restructuring their prior agreement. </FONT></P>
<P align="center">
<FONT face="serif">- 34 </FONT>
</P>

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<A name="page_37"></A>

<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">During the fiscal year ended March 31, 2004, the Company realized a $278,000 gain due to currency exchange rate fluctuations. The Company realized a currency exchange rate gain of $344,000 in fiscal
2003. The gains were the result of the strength of the euro compared to the U.S. dollar, which increased the value of payments the Company received in euros from it sales in Europe.  Since the Company does not undertake any currency hedging
transactions, its financial results will continue to be impacted by the fluctuations of currencies. </FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company&#146;s interest expenses increased slightly for the fiscal year ended March 31, 2004 from the prior fiscal year, while the Company&#146;s interest income for the most recent fiscal year
decreased from the prior fiscal year ended March 31, 2003. The minor changes reflect the increase in the Company&#146;s cash balances and the increase in the amounts borrowed under its line of credit.</FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">As a result of increased sales and an improved gross profit as a percentage of net sales, the Company&#146;s net income increased from $485,000 for the March 31, 2003 fiscal year to net income of
$982,000 in the most recently completed fiscal year. </FONT>
</P>
<P>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><U><FONT face="serif">Year Ended March 31, 2003 Compared to Year Ended March 31, 2002</FONT></U></I><I><FONT face="serif"> </FONT></I>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Net sales for the year ended March 31, 2003 increased by $938,000, or 4.8% from the year ended March 31, 2002 (&#147;fiscal 2002&#148;) as a result of increases in net sales in the Company&#146;s
camera and clock businesses. Sales in metal manufacturing decreased by $336,000 during fiscal 2003.</FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Net sales of clocks and watches registered the largest increase in net sales during the fiscal year ended March 31, 2003. Sales of clocks and watches increased by $905,000, or by 31.6%, from the prior
year to $3,772,000 as a result of (i) the sale Kienzle branded products sold in Europe under a new trading program, (ii) the sale of watches manufactured by the Company, and (iii) to a lesser extent, the manufacture of radio controlled clocks.
During fiscal 2003, sales of clocks and watches represented 18.5% of the Company&#146;s total net sales, compared to 14.8% in fiscal 2002. Prior to fiscal 2003, the Company did not manufacture watches. Sales of quartz clocks, which historically have
represented the majority of the Company&#146;s clock sales, continued to decrease in fiscal 2003 as the Company faced stiff price competition from numerous new manufacturers of low-cost, low quality quartz clocks.</FONT>
</P>
<P> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Camera sales increased by
  $369,000 during fiscal 2003 over fiscal 2002 from $4,541,000 to $4,910,000.
  For fiscal 2003, camera sales represented 24.1% of the Company&#146;s net sales,
  compared to 23.4% in fiscal 2002. The increase in sales in cameras was due primarily
  to increased sales of single-use cameras to Hong Kong trading companies. Camera
  sales from the Company&#146;s Bulgaria division constituted $1,563,000 in fiscal
  2003 compared to $764,000 in fiscal 2002. As a result of significant competition
  for the low cost cameras that constitute a majority of the Company&#146;s camera
  sales, the Company&#146;s gross margins on most camera sales are</FONT> <FONT face="serif">very
  low. Accordingly, increases in sales of these cameras do not materially increase
  the Company&#146;s profitability.</FONT> </P>
<P> </P>
<P align="center">
<FONT face="serif">- 35 </FONT>
</P>

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<A name="page_38"></A>

<P> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Sales of metal manufactured
  products decreased in fiscal 2003 by $336,000, or 2.8%, from fiscal 2002, due
  to a decrease in orders from the Company&#146;s Japanese clients. Sales of metal
  manufactured parts represented 57.4% of the Company net sales during fiscal
  2003 compared to 61.8% of net sales in fiscal 2002. During the past few years,
  the Company&#146;s Japanese clients have shifted the manufacturing of their
  standard, simple parts to other low-cost manufacturers, many of whom were recently
  established near the Company&#146;s manufacturing facilities in Shenzhen. In
  order to avoid competing with these other low-cost manufacturers based solely
  on price, the Company shifted its focus from these low margin metal stamping
  projects to the manufacture of parts, components and products that utilize more
  of the Company&#146;s vertically integrated technologies. While sales of metal
  manufactured products have decreased slightly and faced increased competition,
  the metal manufacturing operations of the Company continued to be the most profitable
  segment for the Company during fiscal 2003.</FONT> </P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company&#146;s gross profits as a percentage of its net sales increased to 19.1% in fiscal 2003 from 17.4% in fiscal 2002.  The increase was primarily due to an increase in the Company&#146;s
production efficiency and to the benefits of its cost-cutting program.</FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Selling, general and administrative expenses for fiscal 2003 increased by $98,000, or 2.7%, but decreased slightly as a percentage of total net sales from 18.6% in fiscal 2002 to 18.3% in fiscal 2003
due to the greater increase in net sales in fiscal 2003.  The increase in selling, general and administrative expenses is due to higher insurance cost, increased marketing activities, an increase in professional fees (due in part to the additional
compliance procedures imposed by the U.S. Sarbanes-Oxley Act of 2002 and related regulations), and increased transportation costs. </FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The combination of increased sales, improved gross margins as a percentage of sales, and moderated selling, general and administrative expenses resulted in the Company generating operating income of
$159,000. The Company had a loss from operations of $241,000 in fiscal 2002. </FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">In fiscal 2003, the Company recognized a net currency exchange gain of $344,000 due to the weakening U.S. dollar exchange rate.  Since the Company&#146;s accounts are stated in U.S. dollars, sales
made in euros and other foreign currencies were converted into U.S. dollars at favorable rates.</FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company&#146;s interest expense and interest income both decreased during fiscal 2003 compared to fiscal 2002 due primarily to the decrease in interest rates. </FONT>
</P>
<P>
<B><FONT face="serif">Liquidity and Capital Resources </FONT></B>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">At March 31, 2004, the Company had a working capital of $8,774,000, compared to working capital of $7,753,000 at March 31, 2003. </FONT>
</P>
<P> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company had historically
  generated sufficient funds from its operating activities to finance its operations
  and there had been little need for external financing other than capital</FONT>
  <FONT face="serif">leases which are used to finance equipment acquisitions.
  During the fiscal year ended March 31, 2004, the Company generated $1,475,000
  of cash from its operating activities. After deducting cash expended in investment
  activities (consisting mostly of purchases of new equipment) and cash expended
  to repay indebtedness, the Company&#146;s cash and cash equivalent position
  increased to $4,158,000 from $3,148,000 at March 31, 2003.</FONT> </P>
<P> </P>
<P align="center">
<FONT face="serif">- 36 </FONT>
</P>

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<A name="page_39"></A>

<P> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Because of the Company&#146;s
  international operations, the Company&#146;s banking facilities provide the
  Company with credit facilities for letters of credit and import loans. In addition,
  in order to fund certain of the Company&#146;s capital requirements, also has
  borrowed funds from its banks to finance some of its machinery and equipment
  purchases and some of its building costs. The foregoing banking facilities are
  currently being provided to the Company through a credit facility with the Hong
  Kong and Shanghai Banking Corporation Limited (HSBC) and a credit facility with
  DBS Bank (Hong Kong) Limited.</FONT> </P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The HSBC credit facility is in favor of the Company&#146;s camera and metal manufacturing subsidiaries and, as of the date of this Annual Report, provides for a maximum credit facility of $1,285,000
(subject to various sub-limits). The HSBC credit facility consists of an import loan facility that bears interest at 2.0% over the banks&#146; best lending rate as in effect in Hong Kong from time to time, and is secured by a charge on certain time
deposits the Company maintains at the bank and cross guarantees and indemnities.</FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The DBS facility is in favor of the Company&#146;s metal, clock and camera subsidiaries and provides for a maximum letter or credit/trust receipt facility of $1,928,000 and for an aggregate of
$1,024,000 for capital expenditure/equipment loans. The interest rates under the DBS letter of credit facility is 1% over the best lending rate quoted by the bank from time to time for Hong Kong dollar credits, and the bank&#146;s standard bills
rate for U.S. dollar credits. The DBS capital expenditure loans are repayable in monthly installments ranging from 16 months to 36 months. Interest rates under the DBS capital expenditure facility vary from 0.25% below the prime rate quoted by the
bank from time to time, to 1.5% over the prime rate quoted from time to time. The DBS facility is also secured by a charge on various accounts maintained by the Company at that bank and by cross guarantees indemnities by Highway Holdings Limited and
the various borrowing subsidiaries.  As of March 31, 2004, the Company had borrowings of a total of $1,933,000 outstanding under its credit facilities and had a total of $895,000 of available credit remaining under the two credit facilities.</FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company currently carries only a small amount of long-term debt ($385,000 as of March 31, 2004).  As a result, of its currently available working capital and its internal projections for the next
year, the Company expects that its working capital requirements and capital needs for at least the next 12 months can be funded through a combination of internally generated funds and existing facilities. </FONT>
</P>
<P> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company has previously
  entered into an agreement with the law firm that handled the Fuji litigation
  before the ITC (see, &#147;Item 8. Financial Information&#151;Legal Proceedings&#148;).
  In the event that the litigation is resolved favorably to the Company, the law
  firm will be entitled to receive (i) an option to purchase 100,000 shares of
  the Company&#146;s common stock at an exercise price of $1.00 per shares, and
  (ii) one-third of the net profits that the Company derives from the world-wide
  sale of its new camera. The total maximum that the firm could receive is</FONT>
  <FONT face="serif">$1,000,000. As a result of this fee arrangement, if the Company
  starts to sell this new camera, the amount of profit it will generate from the
  sale of this camera will, therefore, be reduced. While the portion of the legal
  proceedings in which the law firm was involved has been concluded, the right
  of the law firm to receive the forgoing contingent compensation has not yet
  been established, and the option has not been issued.</FONT> </P>
<P align="center">
<FONT face="serif">- 37 </FONT>
</P>

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<A name="page_40"></A>

<P> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">During the current fiscal
  year (ending March 31, 2005), the Company anticipates that, company-wide, it
  will spend between $1,500,000 and $3,000,000 on capital expenditures, most of
  which will be used for its metal manufacturing operations. These expenditures
  include the refurbishment of one of the metal manufacturing buildings to accommodate
  the manufacture of light fixtures for the Company&#146;s German lighting customer,
  acquire equipment for the potential LCD monitor and television assembly operations,
  furnish and decorate the new office building that the Company&#146;s landlord
  intends to construct for the Company, and generally upgrade its other equipment.
  A portion of the capital expenditures will purchased from the Company&#146;s
  existing funds, some equipment purchases will be funded by borrowings under
  the Company&#146;s existing banking facilities, and some equipment will be acquired
  under capital leases.</FONT> </P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company is not a party to off-balance sheet arrangements and does not engage in trading activities involving non-exchange traded contracts.  In addition, the Company has no financial guarantees,
debt or lease agreements or  other arrangements that could trigger a requirement for an early payment or that could change the value of the Company&#146;s assets. </FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The following is a summary of the Company&#146;s contractual obligations as of March 31, 2004 is as follows:</FONT>
</P>
<TABLE border=0 cellspacing=0 cellpadding=0 width="100%">
  <TR>
    <TD width="60%">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" colspan=17><B><FONT size=2 face="serif">Payment due by
      Year Ended March 31,</FONT></B></TD>
    <TD align="center">&nbsp;</TD>
  </TR>
  <TR>
    <TD width="60%">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" colspan=17><HR noshade size=1></TD>
    <TD align="center">&nbsp;</TD>
  </TR>
  <TR>
    <TD width="60%">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center" colspan=2><B><FONT size=2 face="serif">2009 and</FONT></B></TD>
    <TD align="center">&nbsp;</TD>
  </TR>
  <TR>
    <TD width="60%" align="center" nowrap><DIV align="left"><B><FONT size=2 face="serif">Contractual
        Obligations</FONT></B></DIV></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center" colspan=2><B><FONT size=2 face="serif">Total</FONT></B></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center" colspan=2><B><FONT size=2 face="serif">2005</FONT></B></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center" colspan=2><B><FONT size=2 face="serif">2006</FONT></B></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center" colspan=2><B><FONT size=2 face="serif">2007</FONT></B></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center" colspan=2><B><FONT size=2 face="serif">2008</FONT></B></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center" colspan=2><B><FONT size=2 face="serif">thereafter</FONT></B></TD>
    <TD align="center">&nbsp;</TD>
  </TR>
  <TR>
    <TD width="60%" nowrap><HR align="left" width="200" size=1 noshade></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
  </TR>
  <TR>
    <TD width="60%" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" colspan=2><B><FONT size=2 face="serif">000&#146;s</FONT></B></TD>
    <TD align="center"><B></B></TD>
    <TD align="center" colspan=2><B><FONT size=2 face="serif">000&#146;s</FONT></B></TD>
    <TD align="center"><B></B></TD>
    <TD align="center" colspan=2><B><FONT size=2 face="serif">000&#146;s</FONT></B></TD>
    <TD align="center"><B></B></TD>
    <TD align="center" colspan=2><B><FONT size=2 face="serif">000&#146;s</FONT></B></TD>
    <TD align="center"><B></B></TD>
    <TD align="center" colspan=2><B><FONT size=2 face="serif">000&#146;s</FONT></B></TD>
    <TD align="center"><B></B></TD>
    <TD align="center" colspan=2><B><FONT size=2 face="serif">000&#146;s</FONT></B></TD>
    <TD align="center"><B></B></TD>
  </TR>
  <TR>
    <TD width="60%" nowrap><FONT size=2 face="serif">Facility Leases</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">3,875</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><DIV align="left"><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></DIV></TD>
    <TD align="right"><FONT size=2 face="serif">828</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><font size="2" face="serif">805</font></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">779</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">760</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">703</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="60%" nowrap><FONT size=2 face="serif">Finance Leases</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">385</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><DIV align="left"></DIV></TD>
    <TD align="right"><FONT size=2 face="serif">173</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">121</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">91</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV align="right">&#151;</DIV></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="60%" nowrap><FONT size=2 face="serif">Purchase obligations</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">2,160</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><DIV align="left"></DIV></TD>
    <TD align="right"><FONT size=2 face="serif">2,160</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV align="right">&#151;</DIV></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="60%" nowrap><FONT size=2 face="serif">Short term borrowing</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">1,933</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><DIV align="left"></DIV></TD>
    <TD align="right"><FONT size=2 face="serif">1,933</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV align="right">&#151;</DIV></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="60%" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><HR noshade size=1></TD>
    <TD><HR noshade size=1></TD>
    <TD><HR noshade size=1></TD>
    <TD><HR align="left" size=1 noshade></TD>
    <TD><HR noshade size=1></TD>
    <TD><HR noshade size=1></TD>
    <TD><HR noshade size=1></TD>
    <TD><HR noshade size=1></TD>
    <TD><HR noshade size=1></TD>
    <TD><HR noshade size=1></TD>
    <TD><HR noshade size=1></TD>
    <TD><HR noshade size=1></TD>
    <TD><HR noshade size=1></TD>
    <TD><HR noshade size=1></TD>
    <TD><HR noshade size=1></TD>
    <TD><HR noshade size=1></TD>
    <TD><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="60%" nowrap><FONT size=2 face="serif">Total</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">8,353</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><DIV align="left"><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></DIV></TD>
    <TD align="right"><FONT size=2 face="serif">5,094</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><font size="2" face="serif">926</font></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">870</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">760</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif">$</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">703</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="60%" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><HR noshade size=3></TD>
    <TD><HR noshade size=3></TD>
    <TD><HR noshade size=3></TD>
    <TD><HR noshade size=3></TD>
    <TD><HR noshade size=3></TD>
    <TD><HR noshade size=3></TD>
    <TD><HR noshade size=3></TD>
    <TD><HR noshade size=3></TD>
    <TD><HR noshade size=3></TD>
    <TD><HR noshade size=3></TD>
    <TD><HR noshade size=3></TD>
    <TD><HR noshade size=3></TD>
    <TD> <HR noshade size=3></TD>
    <TD><HR noshade size=3></TD>
    <TD><HR noshade size=3></TD>
    <TD><HR noshade size=3></TD>
    <TD><HR noshade size=3></TD>
    <TD>&nbsp;</TD>
  </TR>
</TABLE>
<P>
<B><FONT face="serif">Impact of Inflation </FONT></B>
</P>
<P>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT face="serif">The Company believes that inflation has not had a material effect on its business. </FONT>
</P>
<P>
<B><FONT face="serif">Seasonality </FONT></B>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The first calendar quarter (the last quarter of the Company&#146;s March 31 fiscal year) is typically the Company&#146;s lowest sales period because, as is customary in China, the Company&#146;s
manufacturing facilities in China are closed for two weeks for the Chinese New Year holidays. The Company does not experience any other significant seasonal fluctuations.  The Company does not consider any issues with respect to seasonality to be
material. </FONT>
</P>
<P align="center">
<FONT face="serif">- 38 </FONT>
</P>

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<A name="page_41"></A>

<P>
<B><FONT face="serif">Exchange Rates </FONT></B>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company transacts its business with its vendors and customers primarily in U.S. dollars, Hong Kong dollars and euros. In addition, all of the payments the Company is required to make under the
BFDC Agreements for its manufacturing facilities, its factory workers, as management fees and other operating charges are based on the Hong Kong dollar. The exchange rate between the U.S. dollar and the Hong Kong dollar has been fixed since 1983 at
approximately HK $7.80 to US $1.00.  Accordingly, the Company has not been subject to material currency fluctuations with respect to these aspects of its operations. However, since the Company&#146;s clock, camera and other sales in Europe are
denominated in euros, the Company is subject to the risks of exchange rate fluctuations. During the fiscal year ended March 31, 2003 and 2004, the Company experienced net currency exchange gains of 278,000 and $344,000, respectively. The recent
exchange rate gains are due to the improved exchange rate between the euro and the U.S. dollar and the increasing amount of sales denominated in euros. However, as the Company increases its European operations, the Company will in the future
continue to be subject to the risk of rate fluctuations, and such fluctuations may result in losses as well as gains. The Company does not utilize any form of financial hedging or option instruments to limit its exposure to exchange rate or material
price fluctuations and has no current intentions to engage in such activities in the future. Accordingly, material fluctuations in the exchange rates between the U.S. dollar and other currencies, the euro in particular, could have a material impact
on the Company&#146;s future earnings/losses. </FONT>
</P>
<P>
<B><FONT face="serif">Critical Accounting Policies </FONT></B>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements
requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and
expenses during the reporting period. On an on-going basis, the Company evaluates its estimates and judgments, including those related to bad and doubtful debts, inventories, income taxes, impairment of assets, intangible assets and litigation.  The
Company bases its estimates and judgments on historical experience and on various other factors that the Company believes are reasonable.  Actual results may differ from these estimates under different assumptions or conditions. </FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The following critical accounting policies affect the more significant judgments and estimates used in the preparation of the Company&#146;s consolidated financial statements. </FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Bad and doubtful debts &#150; The Company maintains allowances for its bad and doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the
financial condition of its customers changed, changes to these allowances may be required, which would impact the Company&#146;s future operating results. </FONT>
</P>
<P> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Inventories &#150; Inventories,
  consisting of finished goods, raw materials and packaging materials, are stated
  at the lower of cost or market with cost determined using the first-in, first-out
  method. The Company makes certain obsolescence and other assumptions to adjust</FONT>
  <FONT face="serif">inventory based on historical experience and current information.
  The Company writes down inventory for estimated obsolete or unmarketable inventory
  equal to the difference between the costs of inventory and estimated market
  value, based upon assumptions about future demand and market conditions. These
  assumptions, although consistently applied, can have a significant impact on
  current and future operating results and financial position. </FONT> </P>
<P align="center">
<FONT face="serif">- 39 </FONT>
</P>

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<A name="page_42"></A>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Income taxes &#150; The Company records a valuation allowance to reduce its deferred tax assets to the amount that the Company believes is more likely than not to be realized. In the event the Company
was to determine that it would be able to realize its deferred tax assets in the future in excess of its recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Likewise, should the
Company determine that it would not be able to realize all or part of its net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made. </FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Impairment of assets &#150; The Company's long-lived assets principally include property, plant and equipment and intangible assets.  In assessing the impairment of these assets, the Company has made
assumptions regarding the estimated future cash flows and other factors to determine the fair value of the respective assets. If these estimates or the related assumptions change in the future, the Company may be required to record impairment
charges for these assets. For the year ended March 31, 2004, the Company wrote off its $109,000 investment in Kienzle AG. </FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Litigation &#150; The Company records contingent liabilities relating to litigation or other loss contingencies when it believes that the likelihood of loss is probable and the amount of the loss can
reasonably be estimated.  Changes in judgments of outcome and estimated losses are recorded, as necessary, in the period such changes are determined or become known.  Any changes in estimates would impact its future operating results. Significant
contingent liabilities, which the Company believes are at least possible, are disclosed in the Notes to the Consolidated Financial Statements. </FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Industrial property rights &#150; Industrial property rights represent the patents, technology and the rights relating to the name &#147;Kienzle&#148; and are stated at cost. Amortization is provided
on a straight-line basis over a period of 10 years which is the estimated useful lives of these assets. </FONT>
</P>
<P align="center">
<FONT face="serif">- 40</FONT>
</P>

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<A name="page_43"></A>

<P>
<B><FONT face="serif">Item 6. Directors, Senior Management and Employees </FONT></B>
</P>
<P>
<B><FONT face="serif">Directors and Executive Officers </FONT></B>
</P>
<P>
<FONT face="serif">The Directors and executive officers of the Company as of June 18, 2004 are as follows:</FONT>
</P>
<TABLE width="100%" border=0 cellspacing=0 cellpadding=0>
  <TR>
    <TD><FONT face="serif">Name</FONT></TD>
    <TD align="center" width="5%"><FONT face="serif">Age</FONT></TD>
    <TD width="60%"><FONT face="serif">Positions</FONT></TD>
  </TR>
  <TR>
    <TD><HR noshade size=1></TD>
    <TD><HR noshade size=1></TD>
    <TD><HR noshade size=1></TD>
  </TR>
  <TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD><FONT face="serif">Roland W. Kohl</FONT></TD>
    <TD align="center" width="5%"><FONT face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;55&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD width="60%" rowspan="1"><FONT face="serif">Chief Executive Officer, Director,
      Chairman &nbsp; </FONT><FONT face="serif">of the Board</FONT></TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD><FONT face="serif">Satoru Saito</FONT></TD>
    <TD width="5%" align="center"><FONT face="serif">55</FONT></TD>
    <TD width="60%" rowspan="1"><FONT face="serif">Sales Director, Metal Stamping
      Operations,&nbsp;</FONT><FONT face="serif">Director</FONT></TD>
  </TR>
  <TR>
    <TD><FONT face="serif">Fong Po Shan</FONT></TD>
    <TD align="center" width="5%"><FONT face="serif">38</FONT></TD>
    <TD width="60%"><FONT face="serif">Chief Financial Officer, Secretary</FONT></TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD><FONT face="serif">May Tsang Shu Mui</FONT></TD>
    <TD width="5%" align="center"><FONT face="serif">44</FONT></TD>
    <TD width="60%"><FONT face="serif">Administration Manager, Director</FONT></TD>
  </TR>
  <TR>
    <TD><FONT face="serif">Quan Vinh Can (Joseph)</FONT></TD>
    <TD align="center" width="5%"><FONT face="serif">55</FONT></TD>
    <TD width="60%"><FONT face="serif">Factory Manager, Metal Stamping Operations</FONT></TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD><FONT face="serif">Tiko Aharonov</FONT></TD>
    <TD width="5%" align="center"><FONT face="serif">57</FONT></TD>
    <TD width="60%"><FONT face="serif">Director</FONT></TD>
  </TR>
  <TR>
    <TD><FONT face="serif">Benson Lee </FONT><SUP><FONT face="serif">(1) (2)</FONT></SUP></TD>
    <TD align="center" width="5%"><FONT face="serif">62</FONT></TD>
    <TD width="60%"><FONT face="serif">Director</FONT></TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD><FONT face="serif">David Tamir </FONT><SUP><FONT face="serif">(1) (2)</FONT></SUP></TD>
    <TD width="5%" align="center"><FONT face="serif">68</FONT></TD>
    <TD width="60%"><FONT face="serif">Director</FONT></TD>
  </TR>
  <TR>
    <TD><FONT face="serif">Terrence A. Noonan </FONT><SUP><FONT face="serif">(1)
      (2)</FONT></SUP></TD>
    <TD align="center" width="5%"><FONT face="serif">66</FONT></TD>
    <TD width="60%"><FONT face="serif">Director</FONT></TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD><FONT face="serif">Dirk Hermann </FONT><SUP><FONT face="serif">(1)</FONT></SUP></TD>
    <TD width="5%" align="center"><FONT face="serif">40</FONT></TD>
    <TD width="60%"><FONT face="serif">Director</FONT></TD>
  </TR>
</TABLE>
<P>
<hr align="left" width="15%" size="1" noshade>
<DIV align="left"><FONT size=2 face="serif">(1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Member
  of Audit Committee.</FONT><BR>
  <FONT size=2 face="serif">(2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Member of Compensation
  Committee</FONT><BR></DIV>

<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><FONT face="serif">Roland W. Kohl</FONT></B><FONT face="serif">.  Mr. Kohl was the founder of the Company and has been its Chief Executive Officer since its inception in 1990.  He has been a Director of the Company
since March 1, 1995. He has overall responsibility for the day-to-day operations of the Company and its subsidiaries.  Prior to forming the Company, Mr. Kohl was the Managing Director of Dialbright Company Limited, a camera manufacturer located in
China.  Mr. Kohl received a degree in mechanical engineering and has over twenty year&#146;s experience in managing factories and manufacturing operations in China.  Mr. Kohl is a German national and resides in Hong Kong. </FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><FONT face="serif">Satoru Saito</FONT></B><FONT face="serif">. Mr. Saito has been employed by the Company since its inception and has been a Director since September 14, 1996. Mr. Saito&#146;s responsibilities
include supervision of sales and marketing in the metal manufacturing division. Mr. Saito has extensive experience in working with Japanese companies in Japan and China.  Mr. Saito is a Japanese national and resides in Hong Kong. </FONT>
</P>
<P> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><FONT face="serif">Fong Po Shan</FONT></B><FONT face="serif">.
  Ms. Fong was employed as a Chief Financial Officer and Secretary of the Company
  in January 1998. Ms. Fong&#146;s responsibilities include planning financial
  development and setting up the internal systems. From 1995-1997, Ms. Fong worked
  at Philips Hong Kong Limited and KONE Elevator (HK) Limited as a Management
  Accountant and Financial Control and Supply Manager, respectively. From 1991-1994
  Ms. Fong was employed as an Accounting Manager of the Company. She is a member
  of Australian Society of Certified Practicing Accountants and Hong Kong Society
  of Accountants. She graduated from Simon </FONT> <FONT face="serif">Fraser University
  with a Bachelor Degree in Business Administration in Canada in 1990 and received
  a Masters in Accounting from the Charles Stuart University in 1994. </FONT>
</P>
<P align="center">
<FONT face="serif">- 41 </FONT>
</P>


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<A name="page_44"></A>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><FONT face="serif">Tiko Aharonov</FONT></B><FONT face="serif">. Mr. Aharonov has been a Director of the Company since its inception in 1990 and was a General Manager of the Company&#146;s camera operations from 1998
to 2004. Until the closing of the Company&#146;s Bulgarian facility in 2004, Mr. Aharonov acted as the General Manager of the Bulgarian operations. Mr. Aharonov currently is a consultant to the Company and is also a Director of several Israeli
companies. He was a bank manager for a leading Israeli commercial and retail bank in the past five years has operated his own real estate and investment company for high net worth individuals desiring to invest in real estate in Israel.</FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><FONT face="serif">May Tsang Shu Mui</FONT></B><FONT face="serif">. Ms. Tsang has been the Company&#146;s Factory Manager in charge of camera manufacturing and a Director of the Company since 1990. In 2001, Ms. Tsang
became the Company&#146;s Administration Manager. Ms. Tsang is a Chinese national and resides in Hong Kong. </FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><FONT face="serif">Quan Vinh Can (Joseph)</FONT></B><FONT face="serif">.  Mr. Quan has been employed as the Company&#146;s Factory Manager since 1994. He is responsible for all of the Company&#146;s manufacturing
operations. Mr. Quan joined the Company&#146;s metal stamping operations in 1990 as an assistant Production Manager.  He graduated from the national Taiwan University with a Bachelor Degree in Electrical Engineering in 1974.</FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><FONT face="serif">Benson Lee</FONT></B><FONT face="serif">. Mr. Lee was the founder of Hi-Lite Camera Company has been a director of the Company since 1991. Mr. Lee has been involved in property investment and
development in Hong Kong, China and the U.S. over the past five years and has more than 30 years of manufacturing and business experience. </FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><FONT face="serif">David Tamir</FONT></B><FONT face="serif">.  Mr. Tamir has been a Director of the Company since its inception in 1990. He has been a Director of Delta United Holdings, a property development
company, since 1984.  He has over thirty years experience in a wide range businesses including building, property development, and retailing. For the past ten years, Mr. Tamir has owned and operated petroleum retail outlets. </FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><FONT face="serif">Terrence A. Noonan. </FONT></B><FONT face="serif">Mr. Noonan has been a director of the Company since July 1999. He has most recently served as president and chief operating officer of Furon
Company, a publicly traded manufacturer of polymer based materials.  He also held a variety of other management positions at Furon, which he joined in 1987. Prior to his Furon Company tenure, Mr. Noonan held management positions with other
manufacturing companies, including the Eaton Corporation, Samuel Moore &amp; Company and Lamson &amp; Sessions Co.</FONT>
</P>
<P> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><FONT face="serif">Dirk Hermann. </FONT></B><FONT face="serif">Dr.
  Hermann was appointed to the Board of Directors in January 2003. Dr. Hermann
  currently serves as the regional marketing manager for the southwestern region
  of Germany for Allianz Versicherungs-AG. He joined Allianz, the German insurance
  firm, in 1994 as a marketing executive assistant based in Munich. Prior, he
  held a marketing position with MSU Management Consulting GmbH. He began his
  marketing career with Gruber, Titze and Blank GmbH, a management consulting
  firm based in Germany. Dr. Hermann graduated from the University of Konstanz
  in Germany with a bachelor&#146;s degree in business administration. He</FONT>
  <FONT face="serif">also holds a master&#146;s degree in business administration
  from the University of St. Gallen in Switzerland. He earned a Ph.D. degree in
  business administration from the University of Leipzig, in Germany.</FONT></P>
<P align="center">
<FONT face="serif">- 42 </FONT>
</P>

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<A name="page_45"></A>

<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Dr. Hermann is the brother-in-law of Roland Kohl. Other than the foregoing relationship, there is no family relationship between any of the above-named officers, directors or employees. To the
Company&#146;s knowledge, no arrangement or understanding exists between any such director and executive officer and any major shareholder, customer, supplier or other party pursuant to which any director or executive officer was elected as a
director or executive officer of the Company.</FONT>
</P>
<P>
<B><FONT face="serif">Board Compensation </FONT></B>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">During the past fiscal year, the Company paid each non-executive director Messrs. Lee, Tamir and Noonan) a director&#146;s fee of $6,000, and Mr. Hermann a fee of $1,500, and reimbursed them for their
reasonable expenses incurred in connection with their services as directors. Messrs. Lee, Tamir, Noonan and Hermann are outside, non-executive directors.  In addition, during fiscal 2004, the Company granted the following stock options to the
outside directors: (i) in June 2003, Mr. Herman was granted an option to purchase 2,000 Common Shares, and Messrs Benson, Tamir and Noonan each were granted options to purchase 3,000 Common Shares, which options are exercisable at $1.47 per share,
the closing price of the Company&#146;s common stock on the date of grant; and (ii) in October 2003, Mr. Herman was granted an option to purchase 4,000 shares of common stock, and Messrs Benson, Tamir and Noonan each were granted options to purchase
6,000 shares of common stock, which options are exercisable at $3.17 per share, the closing price of the Company&#146;s common stock on the date of grant. The options granted to the Directors do vest one year after the date of grant and are
therefore not exercisable until the first anniversary of the date of grant. </FONT>
</P>
<P>
<B><FONT face="serif">Board Practices </FONT></B>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Directors of the Company are elected each year at the Company&#146;s annual meeting of shareholders and serve until their successors take office, or until their death, resignation or removal. The
Company generally holds its annual meeting of shareholders within 90 days after the filing of its Annual Report on Form 20-F with the Commission. Executive officers serve at the pleasure of the Board of Directors of the Company. As of the date of
this Annual Report, there are no agreements with any of the Directors that would provide the Directors with any benefits upon termination of employment.</FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The members of the both the Audit Committee of the Board of Directors currently are Benson Lee, David Tamir, Terrence A. Noonan and Dirk Hermann.  The Audit Committee reviews, acts on and reports to
the Board of Directors on various auditing and accounting matters, including the selection of the Company&#146;s auditors, the scope of the annual audits, fees to be paid to the auditors, the performance of the independent auditors, any additional
services to be provided by the auditors, and the Company&#146;s accounting practices.</FONT>
</P>
<P> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Compensation Committee
  of the Board of Directors currently consists of Benson Lee, David Tamir and
  Terrence A. Noonan. The Compensation Committee administers the</FONT> <FONT face="serif">Company&#146;s
  1996 Stock Option Plan and provides recommendations for the salaries and incentive
  compensation of the executive officers of the Company, which compensation levels
  are then approved by the Board of Directors.</FONT> </P>
<P align="center">
<FONT face="serif">- 43 </FONT>
</P>

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<A name="page_46"></A>

<P>
<B><FONT face="serif">Employees </FONT></B>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">As of March 31, 2004, the Company employed a total of 1,598 full-time employees. Of these employees, 15 were engaged in the administration of the Company, 1,481 were engaged in manufacturing
(including research and development, design, engineering, quality control, and shipping), 22 were engaged in marketing, and the balance (80 employees) were engaged in miscellaneous other supporting functions. Of the foregoing employees, 1,559 were
employed in China, 32 in Hong Kong, and six in Germany.  The employees in Germany are principally engaged in marketing. The Company requires most of its Hong Kong staff to regularly visit the Company&#146;s China facilities to oversee local
management and provide technical assistance. </FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The employees working at the Company&#146;s facilities in China are employed by BFDC pursuant to the BFDC Agreements. The number of workers employed by the BFDC fluctuates largely due to the
availability of workers and the time of year. The seasonality is also dependent, to a lesser extent, on orders held by the Company. The Company has experienced temporary and minor shortages of labor in China and has taken action to attract
additional workers from other provinces of China to its factory complex in Long Hua, Shenzhen.  From time to time, labor supply has been adversely affected primarily due to transportation difficulties in bringing workers to Shenzhen due to flooding
or other natural disasters as well as seasonal demands on labor such as harvesting when the mainly rural-based laborers are required to return to their village. Although the Company experiences high turnover of employees annually, to date it has not
experienced significant difficulty in obtaining employees. As a result of its agreement with the BFDC, the Company can increase or decrease the number of its employees on short notice without much difficulty or expense.</FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company&#146;s employees are not parties to any labor union or collective bargaining agreement, and the Company has, to date, not experienced any material labor stoppages. The Company believes
that its relations with employees are good.</FONT>
</P>
<P align="center">
<FONT face="serif">- 44</FONT>
</P>

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<A name="page_47"></A>

<P>
<B><FONT face="serif">Options of Directors and Senior Management</FONT></B>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The following table sets forth the number of Common Shares that each Director and executive officer of the Company could purchase as of June 18, 2004, together with the exercise price of such options
and the expiration date of the options.</FONT>
</P>
<TABLE border=0 cellspacing=0 cellpadding=0 width="100%">
  <TR>
    <TD nowrap>&nbsp;&nbsp;&nbsp;<FONT face="serif">Name of Beneficial
      Owner</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><DIV align="center"><FONT face="serif">Number
        of</FONT></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Or Identity
      of Group</FONT></TD>
    <TD align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><DIV align="center"><FONT face="serif">Common
        Shares</FONT></DIV></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="center" nowrap><FONT face="serif">Expiration Date</FONT></TD>
    <TD align="center">&nbsp;</TD>
    <TD colspan=2 align="center" nowrap><FONT face="serif">Exercise Price</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD nowrap><HR noshade size=1></TD>
    <TD><HR noshade size=1></TD>
    <TD colspan="2"><HR noshade size=1></TD>
    <TD><HR noshade size=1></TD>
    <TD nowrap><HR noshade size=1></TD>
    <TD><HR noshade size=1></TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD><HR noshade size=1></TD>
  </TR>
  <TR>
    <TD nowrap><FONT face="serif">Roland W. Kohl</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">100,000</FONT></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap><DIV align="left"><FONT face="serif">June 2, 2008</FONT></DIV></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="center"><DIV align="right"><FONT face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;$</FONT></DIV></TD>
    <TD><FONT face="serif">1.55</FONT></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
  </TR>
  <TR>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap><DIV align="left"></DIV></TD>
    <TD>&nbsp;</TD>
    <TD><DIV align="right"></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD nowrap><FONT face="serif">Tiko Aharonov</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">32,781</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap><DIV align="left"><FONT face="serif">August 31, 2004</FONT></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD><FONT face="serif">2.22</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD nowrap>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">10,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><DIV align="left"><FONT face="serif">May 7,
        2005</FONT></DIV></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD><FONT face="serif">1.1875</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD nowrap>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">3,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap><DIV align="left"><FONT face="serif">June 2, 2008</FONT></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD><FONT face="serif">1.47</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD nowrap>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">6,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap><DIV align="left"><FONT face="serif">October 27, 2008</FONT></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD><FONT face="serif">3.17</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap><DIV align="left"></DIV></TD>
    <TD>&nbsp;</TD>
    <TD><DIV align="right"></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD nowrap><FONT face="serif">May Tsang Shu Mui</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">10,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><DIV align="left"><FONT face="serif">May 7,
        2005</FONT></DIV></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD><FONT face="serif">1.1875</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD nowrap>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">3,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap><DIV align="left"><FONT face="serif">June 2, 2008</FONT></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD><FONT face="serif">1.47</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD nowrap>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">6,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap><DIV align="left"><FONT face="serif">October 27, 2008</FONT></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD><FONT face="serif">3.17</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap><DIV align="left"></DIV></TD>
    <TD>&nbsp;</TD>
    <TD><DIV align="right"></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD nowrap><FONT face="serif">Lee Benson</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">3,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap><DIV align="left"><FONT face="serif">June 2, 2008</FONT></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD><FONT face="serif">1.47</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD nowrap>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">6,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap><DIV align="left"><FONT face="serif">October 27, 2008</FONT></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD><FONT face="serif">3.17</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap><DIV align="left"></DIV></TD>
    <TD>&nbsp;</TD>
    <TD><DIV align="right"></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD nowrap><FONT face="serif">David Tamir</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">10,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><DIV align="left"><FONT face="serif">May 7,
        2005</FONT></DIV></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD><FONT face="serif">1.1875</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD nowrap>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">3,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap><DIV align="left"><FONT face="serif">June 2, 2008</FONT></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD><FONT face="serif">1.47</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD nowrap>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">6,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap><DIV align="left"><FONT face="serif">October 27, 2008</FONT></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD><FONT face="serif">3.17</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap><DIV align="left"></DIV></TD>
    <TD>&nbsp;</TD>
    <TD><DIV align="right"></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD nowrap><FONT face="serif">Terrence A. Noonan</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">10,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><DIV align="left"><FONT face="serif">May 7,
        2005</FONT></DIV></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD><FONT face="serif">1.1875</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD nowrap>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">3,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap><DIV align="left"><FONT face="serif">June 2, 2008</FONT></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD><FONT face="serif">1.47</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD nowrap>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">6,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap><DIV align="left"><FONT face="serif">October 27, 2008</FONT></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD><FONT face="serif">3.17</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap><DIV align="left"></DIV></TD>
    <TD>&nbsp;</TD>
    <TD><DIV align="right"></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD nowrap><FONT face="serif">Satoru Saito</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">3,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap><DIV align="left"><FONT face="serif">June 2, 2008</FONT></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD><FONT face="serif">1.47</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD nowrap>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">6,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap><DIV align="left"><FONT face="serif">October 27, 2008</FONT></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD><FONT face="serif">3.17</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap><DIV align="left"></DIV></TD>
    <TD>&nbsp;</TD>
    <TD><DIV align="right"></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD nowrap><FONT face="serif">Dirk Hermann</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">2,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap><DIV align="left"><FONT face="serif">June 2, 2008</FONT></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD><FONT face="serif">1.47</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD nowrap>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">4,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap><DIV align="left"><FONT face="serif">October 27, 2008</FONT></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD><FONT face="serif">3.17</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap><DIV align="left"></DIV></TD>
    <TD>&nbsp;</TD>
    <TD><DIV align="right"></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD nowrap><FONT face="serif">Fong Po Shan</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">20,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap><DIV align="left"><FONT face="serif">June 2, 2008</FONT></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD><FONT face="serif">1.47</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap><DIV align="left"></DIV></TD>
    <TD>&nbsp;</TD>
    <TD><DIV align="right"></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD nowrap><FONT face="serif">Quan Vinh Can (Joseph)</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">3,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap><DIV align="left"><FONT face="serif">June 2, 2008</FONT></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD><FONT face="serif">1.47</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD nowrap>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT face="serif">6,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap><DIV align="left"><FONT face="serif">October 27, 2008</FONT></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD><FONT face="serif">3.17</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
</TABLE>
<P align="center">
<FONT face="serif">- 45</FONT>
</P>

<HR noshade align="center" width="100%" size=1 style="PAGE-BREAK-AFTER: ALWAYS" color="#66FF99">




<A name="page_48"></A>

<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">For additional information regarding the share ownership in the Company by the Company&#146;s directors, executive officers, and principal shareholders is set forth in Item 7, &#147;Major Shareholders
and Related Party Transactions,&#148; below. </FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company has adopted the 1996 Stock Option Plan (the &#147;Option Plan&#148;) that currently covers 400,000 shares of the Common Shares. The Option Plan provides for the grant of options to
purchase Common Shares to employees, officers, directors and consultants of the Company. The Option Plan is administered by the Compensation Committee appointed by the Board, which determines the terms of the options granted, including the exercise
price (provided, however, that the option price shall not be less than the fair market value or less than the par value per share on the date the options granted), the number of Common Shares subject to the option and the option&#146;s
exercisability.  As of March 31, 2004, options granted under the Option Plan to purchase a total of 308,500 Common Shares were still outstanding.  The maximum term of options granted under the Option Plan is five years. The average weighted exercise
price of all options outstanding on March 31, 2004 was $2.02. </FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">In addition to the options that can be granted under the Option Plan, the Company also granted Common Share purchase rights to certain of the directors and key employees prior to its December 1996
initial public offering, of which rights to purchase a total of 132,781 of Common Shares were still outstanding as of June 18, 2004 (the 132,781 option shares include replacement rights for the purchase of 100,000 Common Shares that were granted to
Mr. Kohl in June 2003 to replace 100,000 share purchase rights that were granted to him in 1996 and which rights expired in January 2003). The average weighted exercise price of the Common Share purchase rights outstanding on March 31, 2004 was
$1.72.</FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">As of June 18, 2004 the Company had outstanding stock options and Common Share purchase rights for an aggregate total of 336,281 Common Shares. </FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">As part of the compensation that the Company has agreed to pay Mr. Kohl, the Company&#146;s Chief Executive Officer, commencing on April 1, 2005 and continuing annually thereafter, Mr. Kohl will be
issued 29,154 Common Shares.  The foregoing shares are to be issued to compensate Mr. Kohl for the reduced salary that Mr. Kohl accepted during certain prior years. </FONT>
</P>
<P>
<B><FONT face="serif">Item 7. Major Shareholders and Related Party Transactions</FONT></B><FONT face="serif"> </FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U><FONT face="serif">Major Shareholders</FONT></U><FONT face="serif">. The Company is not directly or indirectly owned or controlled by any other corporation or any foreign government. The following table sets forth,
as of June 11, 2004, certain information with respect to the beneficial ownership of the Company&#146;s Common Shares by each person (i) who is an executive officer or director of the Company, or (ii) known by the Company to own beneficially more
than 5% of the outstanding Common Shares outstanding as of such date.</FONT>
</P>
<P align="center">
<FONT face="serif">- 46</FONT>
</P>

<HR noshade align="center" width="100%" size=1 style="PAGE-BREAK-AFTER: ALWAYS" color="#66FF99">




<A name="page_49"></A>

<TABLE border=0 cellspacing=0 cellpadding=0 width="100%">
  <TR>
    <TD nowrap>&nbsp;&nbsp;&nbsp;<FONT face="serif">Name of Beneficial Owner or</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center"><FONT face="serif">Number of Common Shares</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2"><DIV align="center"><FONT face="serif">Percent Beneficially</FONT></DIV></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Identity of Group</FONT><SUP><FONT face="serif">(1)</FONT></SUP></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD colspan="2" align="center"><FONT face="serif">Beneficially Owned</FONT></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD colspan="2"><DIV align="center"><FONT face="serif">&nbsp;&nbsp;&nbsp;Owned</FONT><SUP><FONT face="serif">(**)</FONT></SUP></DIV></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
  </TR>
  <TR>
    <TD><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2"><HR noshade size=1></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD colspan="2"><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD><FONT face="serif">Roland W. Kohl</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="serif">424,797</FONT></TD>
    <TD><FONT face="serif"><SUP>(2)</SUP>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="serif">12.95</FONT></TD>
    <TD><FONT face="serif">%&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD><FONT face="serif">D</FONT><FONT face="serif">avid Tamir</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="serif">13,000</FONT></TD>
    <TD><SUP><FONT face="serif">(3)</FONT></SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="serif">*</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD><FONT face="serif">B</FONT><FONT face="serif">enson Lee</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="serif">353,830</FONT></TD>
    <TD><SUP><FONT face="serif">(4)</FONT></SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="serif">11.12</FONT></TD>
    <TD><FONT face="serif">%</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD><FONT face="serif">Tiko Aharonov</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="serif">274,900</FONT></TD>
    <TD><SUP><FONT face="serif">(5)</FONT></SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="serif">8.52</FONT></TD>
    <TD><FONT face="serif">%</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD><FONT face="serif">D</FONT><FONT face="serif">irk Hermann</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="serif">2,000</FONT></TD>
    <TD><SUP><FONT face="serif">(3)</FONT></SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="serif">*</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD><FONT face="serif">S</FONT><FONT face="serif">atoru Saito</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="serif">352,980</FONT></TD>
    <TD><SUP><FONT face="serif">(4)</FONT></SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="serif">11.09</FONT></TD>
    <TD><FONT face="serif">%</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD><FONT face="serif">May Tsang Shu Mui</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="serif">63,171</FONT></TD>
    <TD><SUP><FONT face="serif">(6)</FONT></SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="serif">1.98</FONT></TD>
    <TD><FONT face="serif">%</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD><FONT face="serif">Cartwright Investments Limited</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="serif">346,830</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="serif">10.91</FONT></TD>
    <TD><FONT face="serif">%</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD><FONT face="serif">Terrence A. Noonan</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="serif">13,000</FONT></TD>
    <TD><SUP><FONT face="serif">(3)</FONT></SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="serif">*</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD><FONT face="serif">Fong Po Shan</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="serif">21,283</FONT></TD>
    <TD><SUP><FONT face="serif">(7)</FONT></SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="serif">*</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD><FONT face="serif">Quan Vinh Can</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="serif">27,665</FONT></TD>
    <TD><SUP><FONT face="serif">(4)</FONT></SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="serif">*</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
</TABLE>
<p></p>
  <TABLE width="100%" border="0" cellspacing="0" cellpadding="0">
    <TR valign="top">
      <TD width="4%"><FONT size=2 face="serif">*&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
      <TD width="96%"><FONT size=2 face="serif">Less than 1%.</FONT></TD>
    </TR>
    <TR valign="top">
      <TD><FONT size=2 face="serif">**</FONT></TD>
      <TD><FONT size=2 face="serif">Under the rules of the Securities and Exchange
        Commission, shares of Common Shares that an individual or group has a
        right to acquire within 60 days pursuant to the exercise of options or
        warrants are deemed to be outstanding for the purpose of computing the
        percentage ownership of such individual or group, but are not deemed to
        be outstanding for the purpose of computing the percentage ownership of
        any other person shown in the table.</FONT></TD>
    </TR>
    <TR valign="top">
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR valign="top">
      <TD><FONT size=1 face="serif">(1) </FONT><FONT size=2 face="serif">&nbsp;</FONT></TD>
      <TD><FONT size=2 face="serif">The address of each of the named holders is
        c/o Highway Holdings Limited, Suite 810, Level 8, Landmark North, 39 Lung
        Sum Avenue, Sheung Shui New Territories Hong Kong.</FONT></TD>
    </TR>
    <TR valign="top">
      <TD><FONT size=1 face="serif">(2)</FONT></TD>
      <TD><FONT size=2 face="serif">Includes stock options to purchase 100,000
        Common Shares which are currently exercisable. </FONT></TD>
    </TR>
    <TR valign="top">
      <TD><FONT size=1
face="serif">(3)</FONT></TD>
      <TD><FONT size=2 face="serif">Represents currently exercisable
        stock options to purchase Common Shares.</FONT></TD>
    </TR>
    <TR valign="top">
      <TD><FONT size=1 face="serif">(4) </FONT><FONT size=2 face="serif">&nbsp;</FONT></TD>
      <TD><FONT size=2 face="serif">Includes stock options to purchase 3,000 Common
        Shares which are currently exercisable.</FONT></TD>
    </TR>
    <TR valign="top">
      <TD><FONT size=1 face="serif">(5)</FONT></TD>
      <TD><FONT size=2 face="serif">Includes stock options to purchase 45,781
        Common Shares which are currently exercisable.</FONT></TD>
    </TR>
    <TR valign="top">
      <TD><FONT size=1 face="serif">(6)</FONT></TD>
      <TD><FONT
size=2 face="serif">Includes stock options to purchase 13,000 Common Shares which
        are currently exercisable.</FONT></TD>
    </TR>
    <TR valign="top">
      <TD><FONT size=1 face="serif">(7) </FONT><FONT size=2 face="serif">&nbsp;</FONT></TD>
      <TD><FONT size=2 face="serif">Includes stock options to purchase 20,000
        Common Shares which are currently exercisable.</FONT></TD>
    </TR>
  </TABLE>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">There are no arrangements known to the Company, the operation of which may at a subsequent date result in a change in control of the Company.  All holders of the Common Shares have the same voting
rights, and the Company&#146;s major shareholders do not have different voting rights. </FONT>
</P>
<P>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<U><FONT face="serif">Related Party Transactions</FONT></U><FONT face="serif">.</FONT>
</P>
<P> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">In January 2003, the Company
  entered into a licensing and distribution agreement with Kienzle AG, a newly
  formed marketing company located in Germany. Under the license agreement, the
  Company granted to Kienzle AG a five-year exclusive, royalty-free license to
  use and display the Kienzle mark solely in conjunction with the promotion, marketing,
  sale, and distribution by Kienzle AG of branded products in Austria, Benelux,
  Denmark, Germany, Spain, Switzerland, Norway, Sweden, Denmark, Finland, Portugal,
  France, and the United Kingdom. The Company retained the right to market Kienzle
  products in all other markets and to manufacture and market clock movements
  under the Kienzle name. The Company also retained the internet rights to use
  the name in the foregoing European territories, although the two companies intend
  to jointly operate a Kienzle website. Under the license agreement, Kienzle AG
  was required to purchase all Kienzle branded products from the Company, and
  the Company is permitted to charge Kienzle AG its normal arms&#146; length price
  for those products. For products that the Company did not manufacture, such
  as, for example, audio systems, the Company was obligated to purchase those
  products and then sell those products to Kienzle AG at an agreed upon mark-up
  price. During the first year of the license, Kienzle AG purchased $1,952,000
  of products from the Company. Since this amount of revenues was less than required
  by the agreement and less than the Company had anticipated, the Company has
  terminated the license agreement. Although the agreement is no longer in effect,
  Kienzle AG is still purchasing products from the Company under the same terms
  as before. The parties are currently discussing restructuring their prior agreement
  to permit Kienzle AG to continue to market all Kienzle branded products other
  than clocks and watches; the rights to market Kienzle clocks and watches would
  be retained by the Company. In order to continue to commercially exploit the
  Kienzle brand in Europe, the Company has retained new marketing personnel in
  its Germany offices in order to more aggressively market &#147;Kienzle&#148;
  branded watches and clocks in Europe.</FONT> </P>
<P align="center">
<FONT face="serif">- 47 </FONT>
</P>

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<A name="page_50"></A>

<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Other than its transactions with Kienzle AG, the Company did not engage in any related party transactions during the fiscal year ended March 31, 2004.</FONT>
</P>
<P>
<B><FONT face="serif">Item 8. Financial Information.</FONT></B><FONT face="serif"> </FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company&#146;s consolidated financial statements for the three-year period ended March 31, 2004 are set forth under Item 18 &#147;Financial Statements.&#148; The Company&#146;s unaudited quarterly
financial information for the year ended March 31, 2004 and 2003 are set out below: </FONT>
</P>
<TABLE border=0 cellspacing=0 cellpadding=0 width="100%">
  <TR>
    <TD width="60%" nowrap>&nbsp;</TD>
    <TD nowrap>&nbsp;</TD>
    <TD align="center" colspan=3><B><FONT size=2 face="serif">1</FONT></B><B><SUP><FONT size=2 face="serif">st</FONT></SUP></B></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center" colspan=3><B><FONT size=2 face="serif">2</FONT></B><B><SUP><FONT size=2 face="serif">nd</FONT></SUP></B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" colspan=3><B><FONT size=2 face="serif">3</FONT></B><B><SUP><FONT size=2 face="serif">rd</FONT></SUP></B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" colspan=3><B><FONT size=2 face="serif">4</FONT></B><B><SUP><FONT size=2 face="serif">th</FONT></SUP></B></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="60%" nowrap>&nbsp;</TD>
    <TD nowrap>&nbsp;</TD>
    <TD align="center" colspan=3><B><FONT size=2 face="serif">Quarter</FONT></B></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center" colspan=3><B><FONT size=2 face="serif">Quarter</FONT></B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" colspan=3><B><FONT size=2 face="serif">Quarter</FONT></B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" colspan=3><B><FONT size=2 face="serif">Quarter</FONT></B></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="60%" nowrap>&nbsp;</TD>
    <TD nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD colspan=3><HR noshade size=1></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD colspan=3><HR noshade size=1></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD colspan=3><HR noshade size=1></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD colspan=3><HR noshade size=1></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
  </TR>
  <TR>
    <TD width="60%" nowrap><U><FONT size=2 face="serif">2004</FONT></U></TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="60%" nowrap><FONT size=2 face="serif">Net Sales</FONT></TD>
    <TD nowrap>&nbsp;</TD>
    <TD align="center"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;$</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">5,953</FONT></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;$</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">6,234</FONT></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;$</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">6,457</FONT></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;$</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">6,712</FONT></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="60%" nowrap><FONT size=2 face="serif">Gross profit</FONT></TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">1,139</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">1,128</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">1,198</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">1,629</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="60%" nowrap><FONT size=2 face="serif">Operating income (loss)</FONT></TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">78</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">209</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">76</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">511</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="60%" nowrap><FONT size=2 face="serif">Net income (loss)</FONT></TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">159</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">201</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">214</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">408</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="60%" nowrap><FONT size=2 face="serif">Earnings (loss) per share &#150; basic</FONT></TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">0.05</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">0.07</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">0.07</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">0.13</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="60%" nowrap><FONT size=2 face="serif">Earnings (loss) per share &#150; diluted</FONT></TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">0.05</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">0.06</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">0.07</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">0.12</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="60%" nowrap>&nbsp;</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="60%" nowrap><U><FONT size=2 face="serif">2003</FONT></U></TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="60%" nowrap><FONT size=2 face="serif">Net Sales</FONT></TD>
    <TD nowrap>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">$</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">4,544</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">$</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">5,092</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">$</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">5,349</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">$</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">5,385</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="60%" nowrap><FONT size=2 face="serif">Gross profit</FONT></TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">724</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">1,171</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">1,035</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">952</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="60%" nowrap><FONT size=2 face="serif">Operating income (loss)</FONT></TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">(145</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">183</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">83</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">38</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="60%" nowrap><FONT size=2 face="serif">Net income (loss)</FONT></TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">89</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">100</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">162</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">134</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="60%" nowrap><FONT size=2 face="serif">Earnings (loss) per share &#150; basic</FONT></TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">0.03</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">0.04</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">0.05</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">0.05</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="60%" nowrap><FONT size=2 face="serif">Earnings (loss) per share &#150; diluted</FONT></TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">0.03</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">0.04</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">0.05</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">0.05</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
</TABLE>
<P> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U><FONT face="serif">Dividend Policy</FONT></U><FONT face="serif">.
  On August 18, 2003, the Company paid a cash dividend of $0.08 per share to all
  holders of its common shares. Prior to the 2003 dividend, the Company had not
  paid a dividend since the fiscal year ended March 31, 2000 due to its operating
  losses. Since the Company has now returned to profitability, the Company is
  considering reinstating its policy of paying cash dividends annually. However,
  any future dividend will be paid at the discretion of the Board of Directors
  and will depend upon, among other things, the Company&#146;s net profit after
  taxes, the anticipated future earnings of the Company, the success of the Company&#146;s
  business activities, the Company&#146;s capital requirements, and the general
  financial conditions of the</FONT> <FONT face="serif">Company. Although it is
  the Company&#146;s intention to pay dividends during profitable fiscal years,
  no assurance can be given that the Company will pay, in fact, pay any dividends
  in the future even if its has a profitable year or is otherwise capable of doing
  so.</FONT></P>
<P align="center">
<FONT face="serif">- 48 </FONT>
</P>

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<A name="page_51"></A>

<P>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U><FONT face="serif">Legal Proceedings</FONT></U><FONT face="serif">.</FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U><FONT face="serif">In the Matter of Certain Lens-Fitted Film Packages</FONT></U><FONT face="serif">, Inv. No. 337-TA-406 Consolidated Enforcement and Advisory Opinion Proceeding. The International Trade Commission
(&#147;ITC&#148;) issued a &#147;Notice Of Institution Of Formal Enforcement And Advisory Opinion Proceedings&#148; on July 31, 2001.  The proceedings are directed to Lens-Fitted Film Packages which are inexpensive, single use cameras.  The Notice
named a number of parties to the Formal Enforcement proceedings and a number of parties to the Advisory Opinion proceedings. The Company was originally named as an Advisory Opinion respondent. The ITC referred the case to an Administrative Law Judge
(&#147;ALJ&#148;) to conduct a hearing and address other issues pertaining to the proceedings. Subsequent to the initial filing, a motion was filed with the ALJ to add the Company as an Enforcement respondent. This motion was granted by the
ALJ.</FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">On February 11-16, 2002, a hearing was conducted. On May, 2, 2002 the ALJ made an Initial Determination regarding the merits of the case. At issue for the Company were certain claims in four US
Patents assigned to Fuji Photo Film Co., Ltd.: US Patent No. 4,884,087 (&#147;the &#145;087Patent&#148;), US Patent No. 5,381,200 (&#147;the &#145;200 Patent&#148;), US Patent No. Re 34,168 (&#147;the &#145;168 Patent&#148;), and US Patent No.
4,972,649 (the &#145;649 Patent&#148;) and whether the Company&#146;s HL-1 model camera violated one or more of those patents. During the proceedings preparatory to the hearing, the Company sought to introduce its HL-2 camera into the proceedings.
The HL-2 camera was designed to be outside the scope of all patents at issue in the proceeding, and in particular the &#145;200 Patent and the &#145;649 Patent. Introduction of the HL-2 camera into the ITC proceeding was denied by the ALJ.</FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">In the Initial Determination regarding the Company, the ALJ found that the HL-1 camera did not infringe the &#145;087 Patent and the &#145;168 Patent. The ALJ also found that the HL-1 camera infringed
the &#145;200 Patent and the &#145;649 Patent. The ALJ did not assess any enforcement sanctions against the Company. </FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">On August 7, 2002, the ITC decided not to review any of the ALJ's findings concerning these five patent claims.  Nonetheless, due to further disputes between Fuji and other parties, additional
hearings to which the Company was not a party, were required. The ALJ made his determinations and the ITC adopted the ALJ's views and issued a final order on May 15, 2003. In its order, the ITC also adopted the ALJ's recommendations concerning
relief. As a result, the Company is subject only to a general exclusion order which is applicable to all companies importing products into the United States prohibiting them from importing items that infringe the patents at issue in the ITC
proceeding. The ITC rejected Fuji's request to issue a cease and desist order against the Company or to impose civil penalties upon it.</FONT>
</P>
<P> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">On October 7, 2002, while
  further proceedings between Fuji and other parties were taking place before
  the ALJ, Fuji filed a notice of appeal of the decision by the ITC on the Company&#146;s
  issues. The appeal identified the International Trade Commission as the respondent
  and was filed with the U.S. Court of Appeals for the Federal Circuit. On November
  26, 2002, the</FONT> <FONT face="serif">Court of Appeals granted the Company's
  motion to intervene in the appeal. The Court of Appeals subsequently stayed
  and suspended its review to allow the ITC to reach a final decision.</FONT></P>
<P align="center">
<FONT face="serif">- 49 </FONT>
</P>

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<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The ITC&#146;s decisions are final and complete. Nevertheless, the Court of Appeals has the authority to reverse any or all of the ITC's determinations, to impose monetary penalties against the
Company, and to return the matter to the ITC to rehear any or all of the case.</FONT>
</P>
<P>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT face="serif">The Company is not involved in any other material legal proceedings.</FONT>
</P>
<P>
<B><FONT face="serif">Item 9. The Listing </FONT></B>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company&#146;s Common Shares are currently traded on The Nasdaq SmallCap Market under the symbol &#147;HIHO&#148; and are not listed for trading in any trading market outside the United States.
On June 18, 2004, the last reported sale price of our common shares on The Nasdaq SmallCap Market was $5.00 per share. As of June 18, 2004, there were 54 holders of record of the Company&#146;s Common Shares. However, the Company believes that are a
significantly greater number of &#147;street name&#148; shareholders of the Common Shares. </FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The following table sets forth the high and low closing sale prices as reported by The Nasdaq Stock Market for years for each of the last five years ended March 31, 2004: </FONT>
</P>
<TABLE border=0 cellspacing=0 cellpadding=0 width="100%">
  <TR>
    <TD width="75%"><U><FONT face="serif">Year Ended</FONT></U></TD>
    <TD align="center" colspan=2><FONT face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>High</U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD colspan="2"><DIV align="center"><FONT face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Low</U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></DIV></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%"><FONT face="serif">March 31, 2004</FONT></TD>
    <TD align="center"><DIV align="right"><FONT face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;$</FONT></DIV></TD>
    <TD><FONT face="serif">7.39</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="center"><DIV align="right"><FONT face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;$</FONT></DIV></TD>
    <TD><FONT face="serif">1.40</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="75%"><FONT face="serif">March 31, 2003</FONT></TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD><FONT face="serif">2.00</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD><FONT face="serif">0.47</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%"><FONT face="serif">March 31, 2002</FONT></TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD><FONT face="serif">1.33</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD><FONT face="serif">0.60</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="75%"><FONT face="serif">March 31, 2001</FONT></TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD><FONT face="serif">1.625</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD><FONT face="serif">0.625</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%"><FONT face="serif">March 31, 2000</FONT></TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD><FONT face="serif">4.125</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD><FONT face="serif">0.813</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
</TABLE>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The following table sets forth the high and low closing sale prices of the Common Shares as reported by Nasdaq during each quarter of the two most recent fiscal years. </FONT>
</P>
<TABLE border=0 cellspacing=0 cellpadding=0 width="100%">
  <TR>
    <TD width="74%"><U><FONT face="serif">Quarter Ended</FONT></U></TD>
    <TD align="center" colspan=2><FONT face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>High</U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD width="2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD colspan="2"><DIV align="center"><FONT face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Low</U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></DIV></TD>
    <TD width="2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
  </TR>
  <TR>
    <TD width="74%"><FONT face="serif">March 31, 2004</FONT></TD>
    <TD width="5%" align="center"><DIV align="right"><FONT face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;$</FONT></DIV></TD>
    <TD width="7%" align="center"><DIV align="left"><FONT face="serif">7.39&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></DIV></TD>
    <TD>&nbsp;</TD>
    <TD width="4%" align="center"><DIV align="right"><FONT face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;$</FONT></DIV></TD>
    <TD width="6%" align="center"><DIV align="left"><FONT face="serif">4.72&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></DIV></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="74%"><FONT face="serif">December 31, 2003</FONT></TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD align="center"><DIV align="left"><FONT face="serif">3.91</FONT></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD align="center"><DIV align="left"><FONT face="serif">2.65</FONT></DIV></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="74%"><FONT face="serif">September 30, 2003</FONT></TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD align="center"><DIV align="left"><FONT face="serif">4.60</FONT></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD align="center"><DIV align="left"><FONT face="serif">1.99</FONT></DIV></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="74%"><FONT face="serif">June 30, 2003</FONT></TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD align="center"><DIV align="left"><FONT face="serif">2.10</FONT></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD align="center"><DIV align="left"><FONT face="serif">1.40</FONT></DIV></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="74%">&nbsp;</TD>
    <TD><DIV align="right"></DIV></TD>
    <TD><DIV align="left"></DIV></TD>
    <TD>&nbsp;</TD>
    <TD><DIV align="right"></DIV></TD>
    <TD><DIV align="left"></DIV></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="74%"><FONT face="serif">March 31, 2003</FONT></TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD align="center"><DIV align="left"><FONT face="serif">2.00</FONT></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD align="center"><DIV align="left"><FONT face="serif">0.60</FONT></DIV></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="74%"><FONT face="serif">December 31, 2002</FONT></TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD align="center"><DIV align="left"><FONT face="serif">0.80</FONT></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD align="center"><DIV align="left"><FONT face="serif">0.48</FONT></DIV></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="74%"><FONT face="serif">September 30, 2002</FONT></TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD align="center"><DIV align="left"><FONT face="serif">0.70</FONT></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD align="center"><DIV align="left"><FONT face="serif">0.47</FONT></DIV></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="74%"><FONT face="serif">June 30, 2002</FONT></TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD align="center"><DIV align="left"><FONT face="serif">0.79</FONT></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD align="center"><DIV align="left"><FONT face="serif">0.55</FONT></DIV></TD>
    <TD>&nbsp;</TD>
  </TR>
</TABLE>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The following table sets forth the high and low closing sale prices of the Company&#146;s Common Shares as reported by The Nasdaq Stock Market during each of the most recent six months. </FONT>
</P>
<P align="center">
<FONT face="serif">- 50</FONT>
</P>

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<TABLE border=0 cellspacing=0 cellpadding=0 width="100%">
  <TR>
    <TD width="73%"><U><FONT face="serif">Month Ended</FONT></U></TD>
    <TD align="center" colspan=2><FONT face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>High</U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD width="2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD colspan="2"><DIV align="center"><FONT face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Low</U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></DIV></TD>
    <TD width="3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
  </TR>
  <TR>
    <TD width="73%"><FONT face="serif">May 31, 2004</FONT></TD>
    <TD width="5%" align="center"><DIV align="right"><FONT face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;$</FONT></DIV></TD>
    <TD width="7%" align="center"><DIV align="left"><FONT face="serif">5.03&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></DIV></TD>
    <TD>&nbsp;</TD>
    <TD width="4%" align="center"><DIV align="right"><FONT face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;$</FONT></DIV></TD>
    <TD width="6%" align="center"><DIV align="left"><FONT face="serif">4.00&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></DIV></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="73%"><FONT face="serif">April 30, 2004</FONT></TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD align="center"><DIV align="left"><FONT face="serif">5.60</FONT></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD align="center"><DIV align="left"><FONT face="serif">4.74</FONT></DIV></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="73%"><FONT face="serif">March 31, 2004</FONT></TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD align="center"><DIV align="left"><FONT face="serif">5.50</FONT></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD align="center"><DIV align="left"><FONT face="serif">4.70</FONT></DIV></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="73%"><FONT face="serif">February 28, 2004</FONT></TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD align="center"><DIV align="left"><FONT face="serif">5.66</FONT></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD align="center"><DIV align="left"><FONT face="serif">4.75</FONT></DIV></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="73%"><FONT face="serif">January 31, 2004</FONT></TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD align="center"><DIV align="left"><FONT face="serif">7.39</FONT></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD align="center"><DIV align="left"><FONT face="serif">5.46</FONT></DIV></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="73%"><FONT face="serif">December 31, 2003</FONT></TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD align="center"><DIV align="left"><FONT face="serif">3.87</FONT></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center"><DIV align="right"><FONT face="serif">$</FONT></DIV></TD>
    <TD align="center"><DIV align="left"><FONT face="serif">2.95</FONT></DIV></TD>
    <TD>&nbsp;</TD>
  </TR>
</TABLE>
<P>
<B><FONT face="serif">Item 10. Additional Information </FONT></B>
</P>
<P>
<B><FONT face="serif">Share Capital </FONT></B>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company&#146;s authorized capital consists of 20,000,000 Common Shares, $0.01 par value per share. As of March 31, 2004 and June 18, 2004, there were 3,074,123 and 3,179,123 Common Shares,
respectively, outstanding, net of 37,800 treasury shares, all of which was fully paid. </FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The number of shares outstanding could increase by the shares issued upon the exercise of currently issued and outstanding options (see, &#147;Item 6, Share Ownership,&#148; above) and by an option to
purchase 100,000 shares of Common Shares that the Company has agreed to issue to the law firm that represents the Company in the Fuji proceedings currently pending before the ITC if the proceedings are resolved favorably to the Company (See, Item 8,
&#147;Financial Information--Legal Proceedings,&#148; above.) </FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">As of March 31, 2004, the Company no longer had any warrants to purchase Common Shares outstanding.  Prior to December 9, 2001, the Company had an aggregate of 1,155,000 warrants outstanding, which
warrants were exercisable for the purchase of 525,000 Common Shares at $6.45 per share until December 9, 2001. Pursuant to their terms, the warrants expired on December 9, 2001. </FONT>
</P>
<P>
<B><FONT face="serif">Memorandum And Articles Of Association </FONT></B>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Highway Holdings Limited  is registered at Craigmuir Chambers, P.O. Box 71, Road Town, Tortola, British Virgin Islands and has been assigned company number 32576.  The objectives or purposes of the
Company are to engage in any act or activity that is not prohibited under British Virgin Islands law as set forth in Clause 4 of the Memorandum of Association. The Company does not believe that there are any restrictions in its charter or under
British Virgin Island law that materially limit the Company&#146;s current or proposed operations. </FONT>
</P>
<P> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Regulation 60 of the Company&#146;s
  Articles of Association (the &#147;Articles&#148;) provides that a favorable
  vote of a majority of the Company&#146;s independent directors is required as
  to any related party transaction between the Company and any 5% or more members
  of the Company and/or officer or director of the Company. It also provides that
  the Company shall use its best efforts to at all times maintain at least 2 independent
  directors. However, a director may vote or consent with respect to any contract
  or arrangement in which the director is materially interested, if the material
  facts of the interest of each director in the agreement or transaction and his
  interest in or relationship to any other party to the agreement or transaction
  are disclosed in good faith or are</FONT> <FONT face="serif">known by the other
  directors. Regulation 88 of the Articles allows the directors to vote compensation
  to themselves in respect of services rendered to the Company. </FONT> </P>
<P align="center">
<FONT face="serif">- 51 </FONT>
</P>

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<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">There is no provision in the Articles for the mandatory retirement of directors. Directors are not required to own shares of the Company in order to serve as directors. </FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The authorized share capital of the Company is $200,000 divided into 20,000,000 Common Shares with par value of $0.01 each. Holders of our Common Shares are entitled to one vote for each whole share
on all matters to be voted upon by members, including the election of directors. Holders of our Common Shares do not have cumulative voting rights in the election of directors. All of our Common Shares are equal to each other with respect to
liquidation and dividend rights. Holders of our Common Shares are entitled to receive dividends if and when declared by our Board of Directors out of surplus in accordance with British Virgin Islands law. In the event of our liquidation, all assets
available for distribution to the holders of our Common Shares are distributable among them according to their respective holdings.  Holders of our Common Shares have no preemptive rights to purchase any additional, unissued Common Shares. </FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Regulation 17 provides that the Company may purchase, redeem or otherwise acquire and hold its own shares out of surplus or in exchange for newly issued shares of equal value. However, no purchase,
redemption or other acquisition shall be made unless, immediately after the purchase, redemption or other acquisition the Company will be able to satisfy its liabilities as they become due in the ordinary course of its business, and the Company will
not be insolvent.</FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Regulation 10 of the Articles provide that without prejudice to any special rights previously conferred on the holders of any existing shares, the unissued shares in the Company are at the disposal of
the directors who may offer, allot, grant options over or otherwise dispose of shares to such persons, at such times and upon such terms and conditions as the Company may by resolution of the directors determine. </FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Clause 10 of the Memorandum of Association provides that if at any time the authorized share capital is divided into different classes or series of shares, the rights attached to any class or series
may be varied with the consent in writing of the holders of not less than three fourths of the issued shares of that class or series and of the holders of not less than three fourths of any other class or series of shares which may be affected by
such variation. </FONT>
</P>
<P> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Clause 15 of the Memorandum
  of Association (which is subject to the provisions of regulation 60 of the Articles)
  provide that the Memorandum and Articles of Association of the Company may be
  amended by a resolution of members or a resolution of directors. Regulation
  60 of the Articles provides that any proposed change in the Memorandum and Articles
  of Association not otherwise approved by the majority vote of the shares held
  by the Company&#146;s non-management members shall be approved by a majority
  of the Company&#146;s directors and not disapproved by a majority of the Company&#146;s
  independent directors. Subject to the preceding sentence, our Board of Directors
  without shareholder approval may amend our Memorandum and Articles of Association.
  This includes amendments to increase or reduce our authorized capital stock.
  The Company&#146;s ability to amend its Memorandum and Articles of Association
  without shareholder approval could have the effect of delaying, deterring or
  preventing a change</FONT> <FONT face="serif">in control of the Company, including
  a tender offer to purchase our Common Shares at a premium over the then current
  market price. </FONT> </P>
<P align="center">
<FONT face="serif">- 52 </FONT>
</P>

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<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Provisions in respect of the holding of general meetings and extraordinary general meetings are set out in Regulations 38 to 58 of the Articles and under the International Business Companies Act. The
directors may convene meetings of the members of the Company at such times and in such manner and places as the directors consider necessary or desirable, and they shall convene such a meeting upon the written request of members holding 10 percent
or more of the outstanding voting shares in the Company. An annual meeting of members is held for the election of directors of the Company and in the manner provided in the Articles of Association. Any other proper business may be transacted at the
annual meeting. If the annual meeting for election of directors is not held on the date designated therefore, the directors shall cause the meeting to be held as soon thereafter as convenient. If the Company fails to hold the annual meeting for a
period of 30 days after the date designated for the annual meeting, or if no date has been designated for a period of 13 months after the Company&#146;s last annual meeting, a court of competent jurisdiction of the British Virgin Islands may
summarily order a meeting to be held upon the application of any member or director. </FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">British Virgin Islands law and the Company&#146;s Memorandum and Articles of Association impose no limitations on the right of nonresident or foreign owners to hold or vote such securities of the
Company. </FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">There are no provisions in the Memorandum of Association or Articles of Association governing the ownership threshold above which shareholder ownership must be disclosed. </FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The full text of the Articles and Memorandum of the Company are attached to this Annual Report on Form 20-F as Exhibit 1.1.</FONT>
</P>
<P>
<B><FONT face="serif">Material Contracts </FONT></B>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The following is a summary of each material contract, other than contracts entered into in the ordinary course of business, to which the Company or any member of the group is a party, for the two
years immediately preceding the filing of this Annual Report: </FONT>
</P>
<P> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Effective October 1, 2003,
  Nissin Precision Metal MFG, Ltd., the Company&#146;s metal stamping subsidiary,
  entered into that certain Purchase and Sales Agreement (worldwide FRAME) with
  OSRAM Gesellshaft mit beschraenkter Haftung (&#148;OSRAM&#148;), with OSRAM
  acting on its own behalf and on behalf of certain of its subsidiaries. The agreement
  establishes the procedures under which OSRAM or its listed subsidiaries can
  order and purchase electronic ballasts from the Company. Under the agreement,
  the Company has agreed to manufacture, package and ship these products for OSRAM
  and its subsidiaries under the terms and conditions, and at the fixed specified
  prices listed in the agreement. The agreement does not, however, require OSRAM
  or its subsidiaries to purchase any set or minimum amount from the Company.
  The Purchase and Sales Agreement shall remain in effect until September 30,
  2005, but may be extended by the parties for successive one-year periods by
  agreeing on a new price list for the following year. </FONT> </P>
<P align="center">
<FONT face="serif">- 53 </FONT>
</P>

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<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Effective October 15, 2003, Nissin Precision Metal MFG, Ltd. entered into that certain Long Term Sales and Purchase Agreement with OSRAM. Under the agreement, the Company agreed to manufacture various
lighting products for OSRAM at fixed specified prices.  The Company has agreed to manufacture an amount of such lighting products as OSRAM may, from time to time order. The agreement expires on December 31, 2004 but may be extended by the parties
for period of one year each by agreeing on a new price list for the following year. </FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">On April 29, 2004, Kayser Technik Ltd., the Company&#146;s metal manufacturing subsidiary, entered into that certain General Business Agreement with Berger Lahr GmbH &amp; Co. KG for the manufacture
by Kayser Technik Ltd. of motor coils and such other products as the parties may subsequently agree upon. The term of the agreement expires in December 2010.</FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company has not entered into any other material contracts other than in the ordinary course of business and other than those discussed in the Property, Plant and Equipment section under Item 4
&#147;Information on our Company&#148; and in the and the Liquidity and Capital Resources section under Item 5 &#147;Operating and Financial Review and Prospects&#148;. </FONT>
</P>
<P>
<B><FONT face="serif">Exchange Controls </FONT></B>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">There are no exchange control restrictions on payment of dividends on the Company&#146;s Common Shares or on the conduct of the Company&#146;s operations either in Hong Kong, where the Company&#146;s
principal executive officers are located, or the British Virgin Islands, where the Company is incorporated. Other jurisdictions in which the Company conducts operations may have various exchange controls. Taxation and repatriation of income
regarding the Company&#146;s China operations are regulated by Chinese laws and regulations. To date, these controls have not had and are not expected to have a material impact on the Company&#146;s financial results. There are no material British
Virgin Islands laws which impose foreign exchange controls on the Company or that affect the payment of dividends, interest or other payments to nonresident holders of the Company&#146;s securities.</FONT>
</P>
<P>
<B><FONT face="serif">Taxation </FONT></B>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">No reciprocal tax treaty regarding withholding tax exists between the U.S. and the British Virgin Islands. Under current British Virgin Islands law, dividends, interest or royalties paid by the
Company to individuals and gains realized on the sale or disposition of shares are not subject to tax as long as the recipient is not a resident of the British Virgin Islands. The Company is not obligated to withhold any tax for payments of
dividends and shareholders receive gross dividends irrespective of their residential or national status. </FONT>
</P>
<P>
<B><FONT face="serif">Documents On Display </FONT></B>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The documents concerning the Company which are referred to in this Annual Report may be inspected by shareholders of this Company at the offices of this Company in Hong Kong. </FONT>
</P>
<P>
<B><FONT face="serif">Item 11. Quantitative and Qualitative Disclosures About Market Risk. </FONT></B>
</P>
<P> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">We pay labor costs and overhead
  expenses in renminbi, the currency of China (the basic unit of which is the
  yuan). However, we sell most of our products in Hong Kong dollars, U.S.</FONT>
  <FONT face="serif">dollars, and in euros. The exchange rate between the U.S.
  dollar and Hong Kong dollar has remained stable. However, the exchange rate
  between the euro and the U.S. and Hong Kong dollars has fluctuated, resulting
  in currency exchange gains and losses. As a result of the increasing amount
  of transactions that are denominated in euros, the Company is increasingly subject
  to fluctuations in the rates of exchange between the dollar and the euro, which
  fluctuations will affect the Company&#146;s results of operations. An increase
  in the value of a particular currency (such as the euro) relative to the dollar
  will increase the dollar reporting value for transactions in that particular
  currency, and a decrease in the value of that currency relative to the dollar
  will decrease the dollar reporting value for those transactions. This effect
  on the dollar reporting value for transactions is generally only partially offset
  by the impact that currency fluctuations may have on costs. The Company has
  not engaged in currency hedging transactions to offset the risks associated
  with variations in currency exchange rates. Consequently, significant foreign
  currency fluctuations and other foreign exchange risks may have a material adverse
  effect on the Company&#146;s business, financial condition and results of operations.
  The Company does not currently own any market risk sensitive instruments. However,
  the Company may in the future undertake hedging or other transactions or invest
  in market risk sensitive instruments if it determines that such instruments
  can offset these risks is a sound and cost-efficient manner. </FONT> </P>
<P align="center">
<FONT face="serif">- 54 </FONT>
</P>

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<A name="page_57"></A>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company is also exposed to interest rate fluctuations as a result of the short-term investments that it makes and the borrowings it incurs. The Company maintains its excess cash in short-term
borrowings that are subject to interest rate fluctuations.  The Company had $1,933,000 of short-term borrowings that are subject to interest rate changes and $385,000 of long-term borrowings outstanding as of March 31, 2004.  However, taking into
consideration that the Company had cash and cash equivalents of $4,158,000 available as of March 31, 2004, the Company believes that its interest rate risk on these borrowing was acceptable. </FONT>
</P>
<P>
<B><FONT face="serif">Item 12. Description of Securities Other Than Equity Securities</FONT></B><FONT face="serif"> </FONT>
</P>
<P>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Not applicable. </FONT>
</P>
<P>
<B><FONT face="serif">PART II</FONT></B><FONT face="serif"> </FONT>
</P>
<P>
<B><FONT face="serif">Item 13. Defaults, Dividend Arrearages and Delinquencies. </FONT></B>
</P>
<P>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Not applicable. </FONT>
</P>
<P>
<B><FONT face="serif">Item 14. Material Modification to the Rights of Securities Holders and use of Proceeds.</FONT></B><FONT face="serif"> </FONT>
</P>
<P>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Not applicable. </FONT>
</P>
<P>
<B><FONT face="serif">Item 15. Controls and Procedures. </FONT></B>
</P>
<P> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">As required by Rule 13a-14
  under the Securities Exchange Act of 1934, as of March 31, 2004, the Company
  carried out an evaluation of the effectiveness of the design and operation of
  the Company&#146;s disclosure controls and procedures (as defined in Rules 13a-15(e)
  and 15(d)-15(e) of the Securities Exchange Act of 1934. This evaluation was
  carried out under the supervision and with the participation of the Company&#146;s
  Chief Executive Officer and Chief</FONT> <FONT face="serif">Financial Officer.
  The Company&#146;s controls and procedures are designed and provided reasonable
  assurance of preventing errors and irregularities, and to ensure that information
  required to be disclosed in the Company&#146;s reports filed or submitted under
  the Securities Exchange Act of 1934 recorded, processed, summarized and reported
  within the time periods specified in the Securities and Exchange Commission&#146;s
  rules and forms. Disclosure controls and procedures include controls and procedures
  designed to ensure that information required to be disclosed in Company reports
  filed under the Exchange Act is accumulated and communicated to management,
  including the Company&#146;s Chief Executive Officer and Chief Financial Officer
  as appropriate, to allow timely decisions regarding disclosures.</FONT> </P>
<P align="center">
<FONT face="serif">- 55 </FONT>
</P>

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<A name="page_58"></A>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">There were no significant changes in the Company&#146;s internal controls or in other factors that could significantly affect these controls subsequent to the date our Chief Executive Officer and our
Chief Financial Officer completed their evaluation, nor were there any significant deficiencies or material weaknesses in the Company&#146;s internal controls requiring corrective actions.</FONT>
</P>
<P>
<B><FONT face="serif">Item 16. Not applicable. </FONT></B>
</P>
<P>
<FONT face="serif">Item 16 A. </FONT><U><FONT face="serif">Audit Committee Financial Expert</FONT></U>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company&#146;s Audit Committee does not currently have a member who qualifies as &#147;audit committee financial expert&#148; as defined by Item 401(h) of Regulation S-K adopted pursuant to the
Exchange Act.  The Board of Directors believes that Dr. Hermann meets the requirements as an &#147;audit committee financial expert&#148; except for his lack of experience with U.S. accounting procedures. Dr. Hermann received bachelor&#146;s degree
in business administration from the University of Konstanz in Germany, a master&#146;s degree in business administration from the University of St. Gallen in Switzerland, and a Ph.D. degree in business administration from the University of Leipzig,
in Germany. In addition, each of the other three members of the audit committee have extensive financial and business experience as presidents, chief operating officers, and directors of various public and private enterprises.</FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Three of the members of the audit committee, Messrs. Lee, Tamir, and Noonan, are independent non-executive directors.  Dr. Hermann has no affiliation with the Company or business relationship with the
Company that would disqualify him as an independent director. However, Dr. Hermann is the brother-in-law of Roland Kohl, the Chief Executive Officer of the Company. </FONT>
</P>
<P>
<FONT face="serif">Item 16 B. </FONT><U><FONT face="serif"><U>Code of Ethics</U></FONT></U>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company has adopted a Code of Ethics for the Chief Executive Officer and Chief Financial Officer, which applies to the Company&#146;s principal executive officer and to its principal financial and
accounting officers. A copy of the Code of Ethics is attached as Exhibit 14.1 to this Annual Report on Form 20-F.</FONT>
</P>
<P align="center">
<FONT face="serif">- 56</FONT>
</P>

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<A name="page_59"></A>

<P>
<FONT face="serif">Item 16 C. </FONT><U><FONT face="serif">Principal Accountant Fees and Services</FONT></U>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The Company&#146;s independent public accountant for each of the fiscal years in the three-year period ended March 31, 2004 has been Deloitte Touche Tohmatsu. The auditor is selected annually by the
Company&#146;s Board of Directors and ratified by the shareholders at the Annual General Meeting. The Audit Committee has selected Deloitte Touche Tohmatsu as the auditor for the fiscal year ended March  31, 2004 and will propose to the Annual
General Meeting convening on August 3, 2004 that Deloitte Touche Tohmatsu be ratified as the auditor for that fiscal year.</FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The following table sets forth the aggregate fees for professional services and other services rendered by Deloitte Touche Tohmatsu to the Company during the fiscal years ended March 31, 2003 and
March 31, 2004.</FONT>
</P>
<TABLE width="60%" border=0 align="center" cellpadding=0 cellspacing=0>
  <TR>
    <TD width="79%">&nbsp;</TD>
    <TD align="right" colspan=2><B><FONT size=2 face="serif"><U>2003</U>&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD width="2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="right" colspan=2><B><FONT size=2 face="serif"><U>2004</U>&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD width="3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
  </TR>
  <TR>
    <TD width="79%"><FONT size=2 face="serif">Audit Fees (1)</FONT></TD>
    <TD width="3%" align="center"><DIV align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;$</FONT></DIV></TD>
    <TD width="6%"><FONT size=2 face="serif">97,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD width="2%" align="center"><DIV align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;$</FONT></DIV></TD>
    <TD width="5%"><FONT size=2 face="serif">105,000</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="79%"><FONT size=2 face="serif">Audit-Related Fees (2)</FONT></TD>
    <TD><DIV align="right"></DIV></TD>
    <TD>&nbsp;&nbsp;&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;&nbsp;&#151;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="79%"><FONT size=2 face="serif">Tax Fees (3)</FONT></TD>
    <TD align="center"><DIV align="right"><FONT size=2 face="serif">$</FONT></DIV></TD>
    <TD><FONT size=2 face="serif">5,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="center"><DIV align="right"><FONT size=2 face="serif">$</FONT></DIV></TD>
    <TD><FONT size=2 face="serif">19,000</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="79%"><FONT size=2 face="serif">All Other Fees</FONT></TD>
    <TD><DIV align="right"></DIV></TD>
    <TD> <div align="center">- </div></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><div align="center">-</div></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="79%"><FONT size=2 face="serif">Total</FONT></TD>
    <TD align="center"><DIV align="right"><FONT size=2 face="serif">$</FONT></DIV></TD>
    <TD><FONT size=2 face="serif">102,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="center"><DIV align="right"><FONT size=2 face="serif">$</FONT></DIV></TD>
    <TD><FONT size=2 face="serif">124,000</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="79%">&nbsp;</TD>
    <TD><HR noshade size=2></TD>
    <TD><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD><HR noshade size=2></TD>
    <TD><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
  </TR>
</TABLE>
<P><hr align="left" width="15%" size=1 noshade>
<FONT size=2 face="serif">(1)&nbsp;&nbsp;Audit fees represent fees for professional services provided in connection with the audit of the Company&#146;s consolidated financial statements and review of the Annual Report on Form 20-F, and audit services provided
in connection with other statutory or regulatory filings.</FONT>
<P>
<FONT size=2 face="serif">(2)&nbsp;&nbsp;Audit-related fees consist of assurance and related services reasonably related to the audit or a review of the Company&#146;s financial statements.</FONT>
</P>
<P>
<FONT size=2 face="serif">(3)&nbsp;&nbsp;Tax Fees include fees for the preparation of tax returns; tax consultations, such as tax advice related to mergers and acquisitions and transfer pricing; and tax planning services.</FONT>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">As part of is policies and procedures, all audit related services, tax services and other services rendered by were Deloitte Touche Tohmatsu pre-approved by the Audit Committee.</FONT><FONT size=1
face="serif"> </FONT>
</P>
<P> <FONT face="serif">Item 16 D. </FONT><U><FONT face="serif">Exemptions From
  the Listing Standards for Audit Committees </FONT></U></P>
<P>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Not applicable Item</FONT></P>
<P><FONT face="serif">16 E. <U>Purchases of Equity Securities by the Issuer and
  Affiliated Purchasers </U></FONT></P>
<P>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">Not applicable</FONT> </P>
<P>
<B><FONT face="serif">PART III</FONT></B><FONT face="serif"> </FONT>
</P>
<P>
<B><FONT face="serif">Item 17. Not applicable </FONT></B>
</P>
<P align="center">
<FONT face="serif">- 57</FONT>
</P>

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<P>
<B><FONT face="serif">Item 18. Financial statements. </FONT></B>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">See the Index to Consolidated Financial Statements accompanying this report beginning page F-1. </FONT>
</P>
<A name="page_F-1"></A>
<p><TABLE width="100%" border="0" cellspacing="0" cellpadding="0">
  <TR>
    <TD width="50%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD><u><FONT size=2 face="serif">HIGHWAY HOLDINGS LIMITED</FONT></u></TD>
  </TR>
  <TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif">Consolidated Financial Statements </FONT></TD>
  </TR>
  <TR>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif">For each of the three years in the period ended
      March 31, 2004</FONT></TD>
  </TR>
  <TR>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif">and Report of Independent Registered Public
      Accounting Firm</FONT></TD>
  </TR>
</TABLE>

<P> <U></U><FONT size=2 face="serif"> </FONT> </P>
<P align="center">&nbsp; </P>
<P> <FONT size=2 face="serif"> </FONT></P>

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<A name="page_F-2"></A>

<P align="center">
<FONT size=2 face="serif">HIGHWAY HOLDINGS LIMITED AND SUBSIDIARIES </FONT>
</P>
<P align="center">
<FONT size=2 face="serif">INDEX </FONT>
</P>
<TABLE width="100%" border=0 cellspacing=0 cellpadding=0>
  <TR>
    <TD>&nbsp;</TD>
    <TD align="center" width="6%"><U><FONT size=2 face="serif">Page</FONT></U></TD>
    <TD width="2%">&nbsp;</TD>
  </TR>
  <TR>
    <TD><FONT size=2 face="serif">CONSOLIDATED FINANCIAL STATEMENTS</FONT></TD>
    <TD align="center" width="6%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
  </TR>
  <TR>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD><FONT size=2 face="serif">Report of Independent Registered Public Accounting
      Firm</FONT></TD>
    <TD align="center" width="6%"><A href="#page_F-3"><FONT size=2 face="serif">F - 2</FONT></A></TD>
    <TD width="2%">&nbsp;</TD>
  </TR>
  <TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD><FONT size=2 face="serif">Consolidated Statements of Operations for each
      of the three years in the period</FONT></TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
  </TR>
  <TR>
    <TD>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">ended March 31, 2004</FONT></TD>
    <TD align="center" width="6%"><A href="#page_F-4"><FONT size=2 face="serif">F - 3</FONT></A></TD>
    <TD width="2%">&nbsp;</TD>
  </TR>
  <TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD><FONT size=2 face="serif">Consolidated Balance Sheets as of March 31,
      2003 and 2004</FONT></TD>
    <TD align="center" width="6%"><A href="#page_F-5"><FONT size=2 face="serif">F - 4</FONT></A></TD>
    <TD width="2%">&nbsp;</TD>
  </TR>
  <TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD><FONT size=2 face="serif">Consolidated Statements of Shareholders' Equity
      and Comprehensive (Loss)</FONT></TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
  </TR>
  <TR>
    <TD>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Income for each of the three
      years in the period ended March 31, 2004</FONT></TD>
    <TD align="center" width="6%"><A href="#page_F-6"><FONT size=2 face="serif">F - 5</FONT></A></TD>
    <TD width="2%">&nbsp;</TD>
  </TR>
  <TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD><FONT size=2 face="serif">Consolidated Statements of Cash Flows for each
      of the three years in the period</FONT></TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
  </TR>
  <TR>
    <TD>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">ended March 31, 2004</FONT></TD>
    <TD align="center" width="6%"><A href="#page_F-7"><FONT size=2 face="serif">F - 6</FONT></A></TD>
    <TD width="2%">&nbsp;</TD>
  </TR>
  <TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD><FONT size=2 face="serif">Notes to Consolidated Financial Statements</FONT></TD>
    <TD align="center" width="6%"><A href="#page_F-9"><FONT size=2 face="serif">F - 8</FONT></A></TD>
    <TD width="2%">&nbsp;</TD>
  </TR>
</TABLE>
<P align="center">
<FONT size=2 face="serif">F - 1</FONT>
</P>

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<A name="page_F-3"></A>

<P align="center"> <B><FONT size=2 face="serif">REPORT OF INDEPENDENT REGISTERED
  PUBLIC ACCOUNTING FIRM</FONT></B><FONT size=2 face="serif"> </FONT> </P>
<P>
<FONT size=2 face="serif">To the Shareholders and Board of Directors of Highway Holdings Limited: </FONT>
</P>
<P>
<FONT size=2 face="serif">We have audited the accompanying consolidated balance sheets of Highway Holdings Limited and its subsidiaries as of March 31, 2003 and 2004, and the related consolidated statements of operations, shareholders' equity and
comprehensive (loss) income, and cash flows for each of the three years in the period ended March 31, 2004. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial
statements based on our audits. </FONT>
</P>
<P>
<FONT size=2 face="serif">We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. </FONT>
</P>
<P>
<FONT size=2 face="serif">In our opinion, such consolidated financial statements referred to above present fairly, in all material respects, the financial position of Highway Holdings Limited and its subsidiaries as of March 31, 2003 and 2004, and
the results of their operations and their cash flows for each of the three years in the period ended March 31, 2004, in conformity with accounting principles generally accepted in the United States of America. </FONT>
</P>
<P>
<B><FONT size=2 face="serif">Deloitte Touche Tohmatsu </FONT></B>
<BR>
<FONT size=2 face="serif">Certified Public Accountants<BR>Hong Kong<BR>June 2, 2004 </FONT>
</P>
<P align="center">
<FONT size=2 face="serif">F - 2</FONT>
</P>

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<A name="page_F-4"></A>

<P align="center">
<FONT size=2 face="serif">HIGHWAY HOLDINGS LIMITED AND SUBSIDIARIES </FONT>
</P>
<P align="center">
<FONT size=2 face="serif">CONSOLIDATED STATEMENTS OF OPERATIONS </FONT>
<BR>
<FONT size=2 face="serif">(Dollars in thousands except per share data) </FONT>
</P>
<TABLE border=0 cellspacing=0 cellpadding=0 width="100%">
  <TR>
    <TD width="65%" nowrap>&nbsp;</TD>
    <TD align="center" colspan=8><FONT size=2 face="serif">Year ended March 31,</FONT></TD>
    <TD align="center">&nbsp;</TD>
  </TR>
  <TR>
    <TD width="65%" nowrap>&nbsp;</TD>
    <TD align="center" colspan=8><HR noshade size=1></TD>
    <TD align="center">&nbsp;</TD>
  </TR>
  <TR>
    <TD width="65%" nowrap>&nbsp;</TD>
    <TD align="center" colspan=2><DIV align="center"><U><FONT size=2 face="serif">2002</FONT></U></DIV></TD>
    <TD align="center"><DIV align="center"></DIV></TD>
    <TD align="center" colspan=2><DIV align="center"><U><FONT size=2 face="serif">2003</FONT></U></DIV></TD>
    <TD align="center"><DIV align="center"></DIV></TD>
    <TD align="center" colspan=2><DIV align="center"><U><FONT size=2 face="serif">2004</FONT></U></DIV></TD>
    <TD align="center">&nbsp;</TD>
  </TR>
  <TR>
    <TD width="65%" nowrap><FONT size=2 face="serif">Net sales:</FONT></TD>
    <TD align="center" colspan=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
  </TR>
  <TR>
    <TD width="65%" nowrap>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Third parties</FONT></TD>
    <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">19,432</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">20,370</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">23,691</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="65%" nowrap>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Affiliate</FONT></TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> 1,665</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="65%" nowrap>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="65%" nowrap>&nbsp;</TD>
    <TD><FONT size=2 face="serif">$</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">19,432</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif">$</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">20,370</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif">$</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">25,356</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="65%" nowrap><FONT size=2 face="serif">Cost of sales</FONT></TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> 16,048</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> 16,488</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> 20,262</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="65%" nowrap>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="65%" nowrap><FONT size=2 face="serif">Gross profit</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">3,384</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">3,882</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">5,094</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="65%" nowrap><FONT size=2 face="serif">Selling, general and administrative
      expenses</FONT></TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> 3,625</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> 3,723</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> 4,219</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="65%" nowrap>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="65%" nowrap><FONT size=2 face="serif">Operating (loss) income</FONT></TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"> (241</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"> 159</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"> 875</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="65%" nowrap>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="65%" nowrap><FONT size=2 face="serif">Non-operating (expense) income:</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="65%" nowrap>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Exchange
      gain, net</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">13</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">344</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">278</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="65%" nowrap>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Interest
      expense</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">(82</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">(64</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">(77</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="65%" nowrap>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Interest
      income</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">64</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">20</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">9</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="65%" nowrap>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Other income</FONT></TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"> 78</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"> 81</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"> 105</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="65%" nowrap>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="65%" nowrap>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Total non-operating
      income</FONT></TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> 73</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> 381</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> 315</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="65%" nowrap>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="65%" nowrap><FONT size=2 face="serif">Affiliates:</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="65%" nowrap>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Impairment
      of investment in an affiliate</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">(109</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="65%" nowrap>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Equity
      in (loss) income of an affiliate</FONT></TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> (5</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> (5</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> 2</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="65%" nowrap>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="65%" nowrap>&nbsp;</TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"> (5</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"> (5</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"> (107</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
  </TR>
  <TR>
    <TD width="65%" nowrap>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="65%" nowrap><FONT size=2 face="serif">(Loss) income before income
      taxes and</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="65%" nowrap>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">minority
      interests</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">(173</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">535</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">1,083</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="65%" nowrap><FONT size=2 face="serif">Income taxes (note 3)</FONT></TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"> (58</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"> (50</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"> (100</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
  </TR>
  <TR>
    <TD width="65%" nowrap>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="65%" nowrap><FONT size=2 face="serif">(Loss) income before minority
      interests</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">(231</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">485</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">983</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="65%" nowrap><FONT size=2 face="serif">Minority interests</FONT></TD>
    <TD align="right" colspan=2><FONT size=2 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right" colspan=2><FONT size=2 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"> (1</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
  </TR>
  <TR>
    <TD width="65%" nowrap>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="65%" nowrap><FONT size=2 face="serif">Net (loss) income</FONT></TD>
    <TD><FONT size=2 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">(231</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD><FONT size=2 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">485</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">982</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="65%" nowrap>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="65%" nowrap><FONT size=2 face="serif">(Loss) income per share -
      basic</FONT></TD>
    <TD><FONT size=2 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">(0.08</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD><FONT size=2 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">0.17</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">0.32</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="65%" nowrap>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="65%" nowrap><FONT size=2 face="serif">(Loss) income per share -
      diluted</FONT></TD>
    <TD><FONT size=2 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">(0.08</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD><FONT size=2 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">0.17</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">0.30</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="65%" nowrap>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="65%" nowrap><FONT size=2 face="serif">Weighted average number of
      shares outstanding</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="65%" nowrap>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">- basic</FONT></TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"> 2,904</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"> 2,902</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"> 3,030</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="65%" nowrap>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="65%" nowrap><FONT size=2 face="serif">Weighted average number of
      shares outstanding</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="65%" nowrap>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">- diluted</FONT></TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> 2,904</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> 2,902</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> 3,258</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="65%" nowrap>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
  </TR>
</TABLE>
<P align="center">
<FONT size=2 face="serif">See accompanying notes to consolidated financial statements.</FONT>
</P>
<P align="center">
<FONT size=2 face="serif">F - 3 </FONT>
</P>

<HR noshade align="center" width="100%" size=1 style="PAGE-BREAK-AFTER: ALWAYS" color="#66FF99">



<A name="page_F-5"></A>

<P align="center">
<FONT size=2 face="serif">HIGHWAY HOLDINGS LIMITED AND SUBSIDIARIES </FONT>
</P>
<P align="center">
<FONT size=2 face="serif">CONSOLIDATED BALANCE SHEETS<BR>(Dollars in thousands except share data) </FONT>
</P>
<p align="center"><FONT size=2 face="serif">ASSETS</FONT></p>
<TABLE border=0 cellspacing=0 cellpadding=0 width="100%">
  <TR>
    <TD width="80%">&nbsp;</TD>
    <TD align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="center" colspan=5><FONT size=2 face="serif">March 31,</FONT></TD>
    <TD align="center">&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%">&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center" colspan=5><HR noshade size=1></TD>
    <TD align="center">&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%">&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center" colspan=2><FONT size=2 face="serif">2003</FONT></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center" colspan=2><FONT size=2 face="serif">2004</FONT></TD>
    <TD align="center">&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%"><FONT size=2 face="serif">Current assets:</FONT></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Cash and cash equivalents</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">3,148</FONT></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">4,158</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="80%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Restricted cash (note 7)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">1,157</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">965</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Accounts receivable, net of
      allowances for</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD colspan=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">doubtful
      accounts of $63 in 2003 and $111 in 2004</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">2,872</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">3,763</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="80%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Inventories (note 4)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">4,572</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">4,394</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Investment securities (note
      5)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">309</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="80%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Prepaid expenses and other
      current assets</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> 254</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> 639</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Total current assets</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">12,003</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">14,228</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="80%"><FONT size=2 face="serif">Property, plant and equipment, net (note 6)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">3,657</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">3,780</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD colspan=2><FONT size=2 face="serif">Industrial property rights, at cost
      less accumulated amortization of</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">$506 in 2003 and $633 in 2004</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">725</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">673</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="80%"><FONT size=2 face="serif">Investments in and advance to affiliates</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> 109</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> 7</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Total
      assets</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">16,494</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">18,688</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD colspan="8">&nbsp;</TD>
  </TR>
  <TR>
    <TD colspan="8"><DIV align="center"><FONT size=2 face="serif">LIABILITIES
        AND SHAREHOLDERS' EQUITY</FONT></DIV></TD>
  </TR>
  <TR>
    <TD width="80%">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%"><FONT size=2 face="serif">Current liabilities:</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="80%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Accounts payable</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif">$</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">1,917</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif">$</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">2,296</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Short-term borrowings (note
      7)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">1,156</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">1,933</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD colspan=2>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Obligations under
      capital leases - current portion (note 8)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">125</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">173</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Accrued mold charges</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">147</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">233</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="80%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Accrued payroll and employee
      benefits</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">349</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">321</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Payable to an affiliate</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">109</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="80%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Income taxes payable</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">78</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Other liabilities and accrued
      expenses</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"> 447</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"> 420</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="80%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Total
      current liabilities</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">4,250</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">5,454</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD colspan=2><FONT size=2 face="serif">Obligations under capital leases -
      net of current portion (note 8)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">105</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">212</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="80%"><FONT size=2 face="serif">Deferred income taxes (note 3)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">231</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">178</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%"><FONT size=2 face="serif">Minority interest</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">1</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">2</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%"><FONT size=2 face="serif">Commitments and contingencies (note 9)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%"><FONT size=2 face="serif">Shareholders' equity:</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD colspan=2><FONT size=2 face="serif">Common Shares $0.01 par value (Authorized:
      20,000,000 shares)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">30</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">31</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Additional paid-in capital</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">8,793</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">9,035</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="80%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Retained earnings</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">3,210</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">3,955</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Accumulated other comprehensive
      loss</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">(73</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">(126</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="80%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Treasury shares, at cost -
      37,800 shares</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> (53</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> (53</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
  </TR>
  <TR>
    <TD width="80%">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Total
      shareholders' equity</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"> 11,907</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"> 12,842</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="80%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Total
      liabilities and shareholders' equity</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">16,494</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">18,688</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
  </TR>
</TABLE>
<P align="center">
<FONT size=2 face="serif">See accompanying notes to consolidated financial statements.</FONT>
</P>
<P align="center">
<FONT size=2 face="serif">F - 4 </FONT>
</P>

<HR noshade align="center" width="100%" size=1 style="PAGE-BREAK-AFTER: ALWAYS" color="#66FF99">



<A name="page_F-6"></A>

<P align="center">
<FONT size=2 face="serif">HIGHWAY HOLDINGS LIMITED AND SUBSIDIARIES </FONT>
</P>
<P align="center">
<FONT size=2 face="serif">CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY</FONT>
<BR>
<FONT size=2 face="serif">AND COMPREHENSIVE (LOSS) INCOME </FONT>
<BR>
<FONT size=2 face="serif">(In thousands except per share data) </FONT>
</P>
<TABLE width="100%" border=0 cellspacing=0 cellpadding=0>
  <TR>
    <TD width="30%" nowrap>&nbsp;</TD>
    <TD colspan=4 align="center" nowrap><FONT size=1 face="serif">Common
      shares,</FONT></TD>
    <TD nowrap>&nbsp;</TD>
    <TD colspan=2 align="center" nowrap>&nbsp;</TD>
    <TD nowrap>&nbsp;</TD>
    <TD colspan=2 align="center" nowrap>&nbsp;</TD>
    <TD align="center" nowrap>&nbsp;</TD>
    <TD colspan=2 align="center" nowrap><FONT size=1 face="serif">Accumulated</FONT></TD>
    <TD align="center" nowrap>&nbsp;</TD>
    <TD colspan=2 align="center" nowrap>&nbsp;</TD>
    <TD align="center" nowrap>&nbsp;</TD>
    <TD colspan=2 align="center" nowrap>&nbsp;</TD>
    <TD align="center" nowrap>&nbsp;</TD>
    <TD colspan=2 align="center" nowrap>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
  </TR>
  <TR>
    <TD width="30%" nowrap>&nbsp;</TD>
    <TD colspan=4 align="center" nowrap><FONT size=1 face="serif">issued
      and</FONT></TD>
    <TD nowrap>&nbsp;</TD>
    <TD colspan=2 align="center" nowrap><FONT size=1 face="serif">Additional</FONT></TD>
    <TD nowrap>&nbsp;</TD>
    <TD colspan=2 align="center" nowrap>&nbsp;</TD>
    <TD align="center" nowrap>&nbsp;</TD>
    <TD colspan=2 align="center" nowrap><FONT size=1 face="serif">other</FONT></TD>
    <TD align="center" nowrap>&nbsp;</TD>
    <TD colspan=2 align="center" nowrap><FONT size=1 face="serif">&nbsp;&nbsp;&nbsp;Treasury&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="center" nowrap>&nbsp;</TD>
    <TD colspan=2 align="center" nowrap><FONT size=1 face="serif">Total</FONT></TD>
    <TD align="center" nowrap>&nbsp;</TD>
    <TD colspan=2 align="center" nowrap><FONT size=1 face="serif">Compre-</FONT></TD>
    <TD align="center">&nbsp;</TD>
  </TR>
  <TR>
    <TD width="30%" nowrap>&nbsp;</TD>
    <TD colspan=4 align="center" nowrap><FONT size=1 face="serif">outstanding</FONT></TD>
    <TD nowrap>&nbsp;</TD>
    <TD colspan=2 align="center" nowrap><FONT size=1 face="serif">paid-in</FONT></TD>
    <TD nowrap>&nbsp;</TD>
    <TD colspan=2 align="center" nowrap><FONT size=1 face="serif">Retained</FONT></TD>
    <TD align="center" nowrap>&nbsp;</TD>
    <TD colspan=2 align="center" nowrap><FONT size=1 face="serif">comprehensive</FONT></TD>
    <TD align="center" nowrap>&nbsp;</TD>
    <TD colspan=2 align="center" nowrap><FONT size=1 face="serif">shares</FONT></TD>
    <TD align="center" nowrap>&nbsp;</TD>
    <TD colspan=2 align="center" nowrap><FONT size=1 face="serif">shareholders'</FONT></TD>
    <TD align="center" nowrap>&nbsp;</TD>
    <TD colspan=2 align="center" nowrap><FONT size=1 face="serif">hensive</FONT></TD>
    <TD align="center">&nbsp;</TD>
  </TR>
  <TR>
    <TD width="30%" nowrap>&nbsp;</TD>
    <TD align="center" nowrap>&nbsp;&nbsp;&nbsp;<U><FONT size=1 face="serif">Shares</FONT></U>&nbsp;&nbsp;&nbsp;</TD>
    <TD nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD colspan=2 align="center" nowrap>&nbsp;&nbsp;<U><FONT size=1 face="serif">Amount</FONT></U>&nbsp;&nbsp;</TD>
    <TD nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD colspan=2 align="center" nowrap><U><FONT size=1 face="serif">capital</FONT></U></TD>
    <TD nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD colspan=2 align="center" nowrap><U><FONT size=1 face="serif">earnings</FONT></U></TD>
    <TD align="center" nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD colspan=2 align="center" nowrap><U><FONT size=1 face="serif">loss</FONT></U></TD>
    <TD align="center" nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD colspan=2 align="center" nowrap><U><FONT size=1 face="serif">at
      cost</FONT></U></TD>
    <TD align="center" nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD colspan=2 align="center" nowrap><U><FONT size=1 face="serif">equity</FONT></U></TD>
    <TD align="center" nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD colspan=2 align="center" nowrap><U><FONT size=1 face="serif">(loss)
      income</FONT></U></TD>
    <TD align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
  </TR>
  <TR>
    <TD width="30%" nowrap>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
  </TR>
  <TR>
    <TD width="30%" nowrap><FONT size=1 face="serif">Balance at April 1, 2001</FONT></TD>
    <TD align="right"><FONT size=1 face="serif">2,936</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=1 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD><DIV align="right"><FONT size=1 face="serif">&nbsp;&nbsp;&nbsp;30</FONT></DIV></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=1 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><FONT size=1 face="serif">8,793</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=1 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><FONT size=1 face="serif">2,956</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=1 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><FONT size=1 face="serif">(33</FONT></TD>
    <TD><FONT size=1 face="serif">)</FONT></TD>
    <TD><FONT size=1 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><FONT size=1 face="serif">(49</FONT></TD>
    <TD><FONT size=1 face="serif">)</FONT></TD>
    <TD><FONT size=1 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><FONT size=1 face="serif">11,697</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="30%" nowrap><FONT size=1 face="serif">Net loss</FONT></TD>
    <TD align="right"><FONT size=1 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV align="right"><FONT size=1 face="serif">&#151;</FONT></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">(231</FONT></TD>
    <TD><FONT size=1 face="serif">)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">(231</FONT></TD>
    <TD><FONT size=1 face="serif">)</FONT></TD>
    <TD><FONT size=1 face="serif"> $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><FONT size=1 face="serif">(231</FONT></TD>
    <TD><FONT size=1 face="serif">)</FONT></TD>
  </TR>
  <TR>
    <TD width="30%" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan=2>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan=2>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan=2>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan=2>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan=2>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan=2>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><HR noshade size=2></TD>
    <TD><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="30%" nowrap>&nbsp;</TD>
    <TD><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="30%" nowrap><FONT size=1 face="serif">Balance at March 31, 2002</FONT></TD>
    <TD align="right"><FONT size=1 face="serif">2,936</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV align="right"><FONT size=1 face="serif">30</FONT></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">8,793</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">2,725</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">(33</FONT></TD>
    <TD><FONT size=1 face="serif">)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">(49</FONT></TD>
    <TD><FONT size=1 face="serif">)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">11,466</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="30%" nowrap><FONT size=1 face="serif">Repurchase of treasury shares</FONT></TD>
    <TD align="right"><FONT size=1 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV align="right"><FONT size=1 face="serif">&#151;</FONT></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">(4</FONT></TD>
    <TD><FONT size=1 face="serif">)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">(4</FONT></TD>
    <TD><FONT size=1 face="serif">)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="30%" nowrap><FONT size=1 face="serif">Net income</FONT></TD>
    <TD align="right"><FONT size=1 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV align="right"><FONT size=1 face="serif">&#151;</FONT></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">485</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">485</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=1 face="serif">$</FONT></TD>
    <TD align="right"><FONT size=1 face="serif">485</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="30%" nowrap><FONT size=1 face="serif">Translation adjustments</FONT></TD>
    <TD align="right"><FONT size=1 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV align="right"><FONT size=1 face="serif">&#151;</FONT></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">(40</FONT></TD>
    <TD><FONT size=1 face="serif">)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">(40</FONT></TD>
    <TD><FONT size=1 face="serif">)</FONT></TD>
    <TD colspan=2 align="right"><FONT size=1 face="serif"> (40</FONT></TD>
    <TD><FONT size=1 face="serif">)</FONT></TD>
  </TR>
  <TR>
    <TD width="30%" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV align="right"></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="30%" nowrap><FONT size=1 face="serif">Comprehensive income</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV align="right"></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=1 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=1 face="serif">445</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="30%" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan=2>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan=2>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan=2>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan=2>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan=2>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan=2>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><HR noshade size=2></TD>
    <TD><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="30%" nowrap>&nbsp;</TD>
    <TD><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="30%" nowrap><FONT size=1 face="serif">Balance at March 31, 2003</FONT></TD>
    <TD align="right"><FONT size=1 face="serif">2,936</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV align="right"><FONT size=1 face="serif">30</FONT></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">8,793</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">3,210</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">(73</FONT></TD>
    <TD><FONT size=1 face="serif">)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">(53</FONT></TD>
    <TD><FONT size=1 face="serif">)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">11,907</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="30%" nowrap><FONT size=1 face="serif">Issued during the year</FONT></TD>
    <TD align="right"><FONT size=1 face="serif">138</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV align="right"><FONT size=1 face="serif">1</FONT></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">242</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">243</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="30%" nowrap><FONT size=1 face="serif">Net income</FONT></TD>
    <TD align="right"><FONT size=1 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV align="right"><FONT size=1 face="serif">&#151;</FONT></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">982</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">982</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=1 face="serif">$</FONT></TD>
    <TD align="right"><FONT size=1 face="serif">982</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="30%" nowrap><FONT size=1 face="serif">Unrealised holding loss on</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV align="right"></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="30%" nowrap>&nbsp;&nbsp;&nbsp;<FONT size=1 face="serif">investment securities</FONT></TD>
    <TD align="right"><FONT size=1 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV align="right"><FONT size=1 face="serif">&#151;</FONT></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">(13</FONT></TD>
    <TD><FONT size=1 face="serif">)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">(13</FONT></TD>
    <TD><FONT size=1 face="serif">)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">(13</FONT></TD>
    <TD><FONT size=1 face="serif">)</FONT></TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="30%" nowrap><FONT size=1 face="serif">Translation adjustments</FONT></TD>
    <TD align="right"><FONT size=1 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV align="right"><FONT size=1 face="serif">&#151;</FONT></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">(40</FONT></TD>
    <TD><FONT size=1 face="serif">)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">(40</FONT></TD>
    <TD><FONT size=1 face="serif">)</FONT></TD>
    <TD colspan=2 align="right"><FONT size=1 face="serif"> (40</FONT></TD>
    <TD><FONT size=1 face="serif">)</FONT></TD>
  </TR>
  <TR>
    <TD width="30%" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV align="right"></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="30%" nowrap><FONT size=1 face="serif">Comprehensive income</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV align="right"></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=1 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=1 face="serif">929</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="30%" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV align="right"></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><HR noshade size=2></TD>
    <TD><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="30%" nowrap><FONT size=1 face="serif">Cash dividends ($0.08 per share)</FONT></TD>
    <TD align="right"><FONT size=1 face="serif"><FONT size=1 face="serif">&#151;</FONT></FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV align="right"><FONT size=1 face="serif">&#151;</FONT></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=1 face="serif">(237</FONT></TD>
    <TD><FONT size=1 face="serif">)</FONT></TD>
    <TD colspan=2 align="right"><FONT size=1 face="serif"><FONT size=1 face="serif">&#151;</FONT></FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2 align="right"><FONT size=1 face="serif"><FONT size=1 face="serif">&#151;</FONT></FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2 align="right"><FONT size=1 face="serif"> (237</FONT></TD>
    <TD><FONT size=1 face="serif">)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="30%" nowrap>&nbsp;</TD>
    <TD><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD><HR noshade size=1></TD>
    <TD><HR align="right" size=1 noshade></TD>
    <TD>&nbsp;</TD>
    <TD><HR noshade size=1></TD>
    <TD><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD><HR noshade size=1></TD>
    <TD><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size="1"></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size="1"></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="30%" nowrap><FONT size=1 face="serif">Balance at March 31, 2004</FONT></TD>
    <TD align="right"><FONT size=1 face="serif"> 3,074</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=1 face="serif"> $</FONT></TD>
    <TD><DIV align="right"><FONT size=1 face="serif">31</FONT></DIV></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=1 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=1 face="serif">9,035</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=1 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=1 face="serif">3,955</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=1 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=1 face="serif">(126</FONT></TD>
    <TD><FONT size=1 face="serif">)</FONT></TD>
    <TD><FONT size=1 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=1 face="serif">(53</FONT></TD>
    <TD><FONT size=1 face="serif">)</FONT></TD>
    <TD><FONT size=1 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=1 face="serif">12,842</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="30%" nowrap>&nbsp;</TD>
    <TD><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD><HR noshade size=2></TD>
    <TD><HR align="right" size=2 noshade></TD>
    <TD>&nbsp;</TD>
    <TD><HR noshade size=2></TD>
    <TD><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD><HR noshade size=2></TD>
    <TD><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD><HR noshade size=2></TD>
    <TD><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD><HR noshade size=2></TD>
    <TD><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD><HR noshade size=2></TD>
    <TD><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
</TABLE>
<P align="center">
<FONT size=2 face="serif">See accompanying notes to consolidated financial statements.</FONT>
</P>
<P align="center">
<FONT size=2 face="serif">F - 5 </FONT>
</P>

<HR noshade align="center" width="100%" size=1 style="PAGE-BREAK-AFTER: ALWAYS" color="#66FF99">



<A name="page_F-7"></A>
<P align="center"><FONT size=2 face="serif">HIGHWAY HOLDINGS LIMITED AND SUBSIDIARIES </FONT>
</P>
<P align="center">
<FONT size=2 face="serif">CONSOLIDATED STATEMENTS OF CASH FLOWS </FONT>
<BR>
<FONT size=2 face="serif">(Dollars in thousands) </FONT></P>
<TABLE border=0 cellspacing=0 cellpadding=0 width="100%">
  <TR>
    <TD width="70%" nowrap>&nbsp;</TD>
    <TD align="center" colspan=9><FONT size=2 face="serif">Year ended March 31,</FONT></TD>
    <TD align="center">&nbsp;</TD>
  </TR>
  <TR>
    <TD width="70%" nowrap>&nbsp;</TD>
    <TD colspan=9><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="70%" nowrap>&nbsp;</TD>
    <TD align="center" colspan=3><U><FONT size=2 face="serif">2002</FONT></U></TD>
    <TD align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="center" colspan=2><U><FONT size=2 face="serif">2003</FONT></U></TD>
    <TD align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="center" colspan=2><U><FONT size=2 face="serif">2004</FONT></U></TD>
    <TD align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
  </TR>
  <TR>
    <TD width="70%" nowrap>&nbsp;</TD>
    <TD colspan=3>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan=2>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan=2>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="70%" nowrap><FONT size=2 face="serif">Cash flows from operating
      activities:</FONT></TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
  </TR>
  <TR>
    <TD width="70%" nowrap>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Net (loss)
      income</FONT></TD>
    <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right" colspan=2><FONT size=2 face="serif">(231</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">485</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">982</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="70%" nowrap>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Adjustments
      to reconcile net (loss) income to net</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="70%" nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">cash
      provided by operating activities:</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="70%" nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Impairment
      on investment in an affiliate</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">109</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="70%" nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Loss
      (gain) on disposal of properly, plant and</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="70%" nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">equipment</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">2</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">(24</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="70%" nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Depreciation
      and amortization</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif">1,068</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">1,130</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">1,112</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="70%" nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Minority
      interest</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">1</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="70%" nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Equity
      in loss (income) of an affiliate</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right"><FONT size=2 face="serif">5</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">5</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">(2</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
  </TR>
  <TR>
    <TD width="70%" nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Deferred
      income taxes</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">(53</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
  </TR>
  <TR>
    <TD width="70%" nowrap>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Changes
      in operating assets and liabilities:</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="70%" nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Accounts
      receivable</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif">(767</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">(39</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">(891</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
  </TR>
  <TR>
    <TD width="70%" nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Inventories</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right" colspan=2><FONT size=2 face="serif">(50</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">(379</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">178</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="70%" nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Prepaid
      expenses and other current assets</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif">66</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">43</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">(385</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
  </TR>
  <TR>
    <TD width="70%" nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Accounts
      payable</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right" colspan=2><FONT size=2 face="serif">(354</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">334</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">379</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="70%" nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Accrued
      mold charges</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif">409</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">(274</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">86</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="70%" nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Accrued
      payroll and employee benefits</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right" colspan=2><FONT size=2 face="serif">42</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">45</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">(28</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="70%" nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Income
      taxes payable</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">78</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="70%" nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Other
      liabilities and accrued expenses</FONT></TD>
    <TD align="right" colspan=3><FONT size=2 face="serif"> 176</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"> (31</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"> (67</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
  </TR>
  <TR>
    <TD width="70%" nowrap>&nbsp;</TD>
    <TD colspan=3><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="70%" nowrap><FONT size=2 face="serif">Net cash provided by operating
      activities</FONT></TD>
    <TD colspan=3 align="right"><FONT size=2 face="serif"> 364</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> 1,321</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> 1,475</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="70%" nowrap>&nbsp;</TD>
    <TD colspan=3><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="70%" nowrap><FONT size=2 face="serif">Cash flows from investing
      activities:</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="70%" nowrap>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Purchase
      of property, plant and equipment</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right" colspan=2><FONT size=2 face="serif">(336</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">(190</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">(853</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="70%" nowrap>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Acquisition
      of investment securities</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">(322</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
  </TR>
  <TR>
    <TD width="70%" nowrap>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Repayment
      of payable to an affiliate</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">(109</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="70%" nowrap>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Purchase
      of industrial property rights</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif">(113</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">(56</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">(75</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
  </TR>
  <TR>
    <TD width="70%" nowrap>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Acquisition
      of an affiliate</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">(5</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="70%" nowrap>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Proceeds
      from disposal of property, plant and</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="70%" nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">equipment</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">58</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="70%" nowrap>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Decrease
      in restricted cash</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right" colspan=2><FONT size=2 face="serif">108</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">192</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="70%" nowrap>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Advance
      to an affiliate</FONT></TD>
    <TD colspan=3 align="right"><FONT size=2 face="serif"><FONT size=2 face="serif">&#151;</FONT></FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> (3</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"><FONT size=2 face="serif">&#151;</FONT></FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="70%" nowrap>&nbsp;</TD>
    <TD colspan=3><HR noshade size="1"></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="70%" nowrap><FONT size=2 face="serif">Net cash used in investing
      activities</FONT></TD>
    <TD align="right" colspan=3><FONT size=2 face="serif"> (341</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"> (249</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"> (1,114</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
  </TR>
  <TR>
    <TD width="70%" nowrap>&nbsp;</TD>
    <TD colspan=3><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
</TABLE>
<P align="center">
<FONT size=2 face="serif">See accompanying notes to consolidated financial statements.</FONT>
</P>
<P align="center"><FONT size=2 face="serif">F - 6 </FONT></P>
<HR noshade align="center" width="100%" size=1 style="PAGE-BREAK-AFTER: ALWAYS" color="#66FF99">
<A name="page_F-8"></A>
<P align="center">
<FONT size=2 face="serif">HIGHWAY HOLDINGS LIMITED AND SUBSIDIARIES </FONT>
</P>
<P align="center">
<FONT size=2 face="serif">CONSOLIDATED STATEMENTS OF CASH FLOWS - continued<BR>(Dollars in thousands) </FONT>
</P>
<TABLE border=0 cellspacing=0 cellpadding=0 width="100%">
  <TR>
    <TD width="70%">&nbsp;</TD>
    <TD align="center" colspan=8><FONT size=2 face="serif">Year ended March 31,</FONT></TD>
    <TD align="center">&nbsp;</TD>
  </TR>
  <TR>
    <TD width="70%">&nbsp;</TD>
    <TD colspan=8><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="70%">&nbsp;</TD>
    <TD align="center" colspan=2><U><FONT size=2 face="serif">2002</FONT></U></TD>
    <TD align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="center" colspan=2><U><FONT size=2 face="serif">2003</FONT></U></TD>
    <TD align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="center" colspan=2><U><FONT size=2 face="serif">2004</FONT></U></TD>
    <TD align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
  </TR>
  <TR>
    <TD width="70%"><FONT size=2 face="serif">Cash flows from financing activities:</FONT></TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
  </TR>
  <TR>
    <TD width="70%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Cash dividends paid</FONT></TD>
    <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">(237</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="70%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Repayment of long-term debt</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">(79</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">(119</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">(134</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
  </TR>
  <TR>
    <TD width="70%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">(Decrease) increase in short-term
      borrowings - net</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">(48</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">10</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">777</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="70%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Common shares repurchased</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">(4</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="70%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Proceeds from shares issued
      on exercise of options</FONT></TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"><FONT size=2 face="serif">&#151;</FONT></FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"><FONT size=2 face="serif">&#151;</FONT></FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"> 243</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="70%">&nbsp;</TD>
    <TD colspan=2><HR noshade size="1"></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size="1"></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="70%"><FONT size=2 face="serif">Net cash (used in) from financing activities</FONT></TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> (127</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> (113</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> 649</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="70%">&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="70%"><FONT size=2 face="serif">Net (decrease) increase in cash and cash equivalents</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">(104</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">959</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">1,010</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="70%"><FONT size=2 face="serif">Cash and cash equivalents, beginning of year</FONT></TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> 2,293</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> 2,189</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> 3,148</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="70%">&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="70%"><FONT size=2 face="serif">Cash and cash equivalents, end of year</FONT></TD>
    <TD><FONT size=2 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">2,189</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">3,148</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">4,158</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="70%">&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="70%">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="70%"><FONT size=2 face="serif">Supplemental cash flow information:</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="70%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Cash paid during the year
      for</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="70%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Interest</FONT></TD>
    <TD><FONT size=2 face="serif">$</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">82</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif">$</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">64</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif">$</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">77</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="70%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Income taxes</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">41</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">51</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">75</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
</TABLE>
<P>
<FONT size=2 face="serif">Non-cash transactions: </FONT>
</P>
<P>
<FONT size=2 face="serif">Additions to property, plant and equipment of $237 and $289 during the year ended March 31, 2003 and 2004, respectively, were acquired under arrangements qualified as capital leases. There was no new capital lease
arrangement entered into during the year ended March 31, 2002. </FONT>
</P>
<P>
<FONT size=2 face="serif">Investment in an affiliate of $109 was financed by a payable to an affiliate during the year ended March 31, 2003. </FONT>
</P>
<P align="center">
<FONT size=2 face="serif">See accompanying notes to consolidated financial statements.</FONT>
</P>
<P align="center">
<FONT size=2 face="serif">F - 7 </FONT>
</P>

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<A name="page_F-9"></A>

<P align="center">
<FONT size=2 face="serif">HIGHWAY HOLDINGS LIMITED AND SUBSIDIARIES </FONT>
</P>
<P align="center">
<FONT size=2 face="serif">NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</FONT>
<BR>
<FONT size=2 face="serif">(Dollars in thousands except per share data) </FONT>
</P>
<P>
<FONT size=2 face="serif">1.</FONT>&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">ORGANIZATION AND BASIS OF FINANCIAL STATEMENTS </FONT>
</P>
<DIV style="DISPLAY: block; MARGIN-LEFT: 18pt;" align=left>
<P>
<FONT size=2 face="serif"> 	Highway Holdings Limited (the "Company") was incorporated in the British Virgin Islands on July 20, 1990. It operates through its subsidiaries operating in the Hong Kong Special Administrative Region ("Hong Kong") of the
People's Republic of China ("China"), in Shenzhen, China, in Germany and in the Republic of Bulgaria ("Bulgaria"). </FONT>
</P>
<P>
<FONT size=2 face="serif"> 	The Company and its subsidiaries operate in three principal business segments - metal stamping, (including tooling design and manufacturing), the manufacture and assembly of cameras, and clocks and watches. The Company
sells its products to customers under its customers' brand names and a portion of its sale of clocks and watches under the name "Kienzle". The manufacturing activities and certain administrative activities are all conducted in Shenzhen and selling
activities are principally performed in Hong Kong, Shenzhen and Germany.  In prior years, certain camera manufacturing activities were also carried out in Bulgaria. During the year ended March 31, 2004, the Company closed the operations in Bulgaria
resulting in a write off of assets amounting to $9 in 2004. </FONT>
</P>
<P>
<FONT size=2 face="serif"> 	The financial statements of the Company and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). There are no material differences
between the U.S. GAAP amounts and the amounts used in the statutory accounts of the subsidiaries. </FONT>
</P>
<P>
<FONT size=2 face="serif"> 	On March 28, 2003, the Company acquired a 20% equity interest in Kienzle AG, a German stock corporation which is engaged in the marketing, sale and distribution of products under the brand name of "Kienzle", for $109.
Kienzle AG is accounted for in the consolidated financial statements as an affiliate using the equity method. </FONT>
</P>
<P>
<FONT size=2 face="serif"> 	On January 30, 2003, the Company entered into a license agreement with Kienzle AG. Under the license agreement, the Company granted to Kienzle AG a five-year exclusive, royalty-free license to use and display the
trademark of "Kienzle" solely in conjunction with the promotion, marketing, sale, and distribution by Kienzle AG of products under the brand name of "Kienzle" in Austria, Benelux, Denmark, Germany, Spain, Switzerland, Norway, Sweden, Denmark,
Finland, Portugal, France, and the United Kingdom.  Under the license agreement, Kienzle AG was required to purchase all products under the brand name of "Kienzle" from the Company. Under the license agreement, Kienzle AG was required to purchase
$3,000 of products from the Company during the year ended December 31, 2003; and in subsequent years, the amount of required purchases is required to increase to no less than $6,000 in the year ending December 31, 2004, $14,000 in the year ending
December 31, 2005, and $28,000 in the year ending December 31, 2006. The Company would have the right to terminate the license agreement if Kienzle AG fails to meet these minimum requirements. </FONT>
</P>
<P>
<FONT size=2 face="serif"> 	Kienzle AG did not meet the minimum purchase requirement for the year ended December 31, 2003 and the Company, in order to protect its own interest, terminated the license agreement on January 16, 2004. In addition, the
Company reassessed its investment in Kienzle AG in 2004 and determined that the investment had been impaired as Kienzle AG did not meet the minimum purchase requirement and had dissatisfactory operating results. An impairment loss of $109 in respect
of the investment in Kienzle AG has thus been recognized during the year ended March 31, 2004. </FONT>
</P>
</DIV>
<P align="center">
<FONT size=2 face="serif">F - 8</FONT>
</P>

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<A name="page_F-10"></A>

<P align="center">
<FONT size=2 face="serif">HIGHWAY HOLDINGS LIMITED AND SUBSIDIARIES </FONT>
</P>
<P align="center">
<FONT size=2 face="serif">NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued<BR>(Dollars in thousands except per share data) </FONT>
</P>
<P>
<FONT size=2 face="serif">1.</FONT>&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">ORGANIZATION AND BASIS OF FINANCIAL STATEMENTS - continued </FONT>
</P>
<DIV style="DISPLAY: block; MARGIN-LEFT: 18pt;" align=left>
<P>
<FONT size=2 face="serif"> 	On August 5, 2003, the Company acquired a 50% equity interest in Kayser Photo (Overseas) Corp. (K.P.C.) ("Kayser Photo"), a company incorporated in the Republic of Panama, at a cash consideration of $5. Kayser Photo is
engaged in the trading of camera batteries, films and disposable cameras. It is accounted for in the consolidated financial statements as an affiliate using the equity method. </FONT>
</P>
<P>
<FONT size=2 face="serif"> 	At March 31, 2004, details of the Company's subsidiary companies are as follows: </FONT>
</P>
<TABLE width="95%" border=0 cellspacing=0 cellpadding=0>
  <TR>
    <TD nowrap>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Place of</FONT></TD>
    <TD width="31%">&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD width="31%" align="left" nowrap>&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
    <TD width="20%" align="left" nowrap>&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
    <TD width="38%" align="left" nowrap>&nbsp;</TD>
  </TR>
  <TR>
    <TD nowrap><U><FONT size=2 face="serif">incorporation</FONT></U>&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="center" width="31%">&nbsp;</TD>
    <TD width="31%" align="left" nowrap><U><FONT size=2 face="serif">Name of entity</FONT></U></TD>
    <TD align="center" width="20%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD width="20%" align="left" nowrap><U><FONT size=2 face="serif">Date of incorporation</FONT></U>&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="center" width="20%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD width="38%" align="left" nowrap><u><FONT size=2 face="serif">Principal
      activities</FONT></u></TD>
  </TR>
  <TR>
    <TD nowrap>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="left" nowrap>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="left" nowrap>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="left" nowrap>&nbsp;</TD>
  </TR>
  <TR>
    <TD nowrap><FONT size=2 face="serif">Hong Kong</FONT></TD>
    <TD align="center" width="31%">&nbsp;</TD>
    <TD width="31%" align="left" nowrap><FONT size=2 face="serif">Antemat Limited</FONT></TD>
    <TD align="center" width="20%">&nbsp;</TD>
    <TD width="20%" align="left" nowrap><FONT size=2 face="serif">May 5, 1989</FONT></TD>
    <TD align="center" width="20%">&nbsp;</TD>
    <TD width="38%" align="left" nowrap><FONT size=2 face="serif">Dormant</FONT></TD>
  </TR>
  <TR>
    <TD nowrap>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="left" nowrap>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="left" nowrap>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="left" nowrap>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD nowrap><FONT size=2 face="serif">Hong Kong</FONT></TD>
    <TD width="31%" align="center">&nbsp;</TD>
    <TD width="31%" align="left" nowrap><FONT size=2 face="serif">Badex Investments
      Limited</FONT></TD>
    <TD width="20%" align="center">&nbsp;</TD>
    <TD width="20%" align="left" nowrap><FONT size=2 face="serif">May 25, 1990</FONT></TD>
    <TD width="20%" align="center">&nbsp;</TD>
    <TD width="38%" align="left" nowrap><FONT size=2 face="serif">Dormant</FONT></TD>
  </TR>
  <TR>
    <TD nowrap>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="left" nowrap>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="left" nowrap>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="left" nowrap>&nbsp;</TD>
  </TR>
  <TR>
    <TD nowrap><FONT size=2 face="serif">Hong Kong</FONT></TD>
    <TD align="center" width="31%">&nbsp;</TD>
    <TD width="31%" align="left" nowrap><FONT size=2 face="serif">Cavour Industrial
      Limited</FONT></TD>
    <TD align="center" width="20%">&nbsp;</TD>
    <TD width="20%" align="left" nowrap><FONT size=2 face="serif">May 9, 1989</FONT></TD>
    <TD align="center" width="20%">&nbsp;</TD>
    <TD width="38%" align="left" nowrap><FONT size=2 face="serif">Providing tooling,
      handling and</FONT></TD>
  </TR>
  <TR>
    <TD nowrap>&nbsp;</TD>
    <TD align="center" width="31%">&nbsp;</TD>
    <TD width="31%" align="left" nowrap>&nbsp;</TD>
    <TD align="center" width="20%">&nbsp;</TD>
    <TD width="20%" align="left" nowrap>&nbsp;</TD>
    <TD align="center" width="20%">&nbsp;</TD>
    <TD width="38%" align="left" nowrap><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;repairing
      services in China and</FONT></TD>
  </TR>
  <TR>
    <TD nowrap>&nbsp;</TD>
    <TD align="center" width="31%">&nbsp;</TD>
    <TD width="31%" align="left" nowrap>&nbsp;</TD>
    <TD align="center" width="20%">&nbsp;</TD>
    <TD width="20%" align="left" nowrap>&nbsp;</TD>
    <TD align="center" width="20%">&nbsp;</TD>
    <TD width="38%" align="left" nowrap><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;management
      services to</FONT></TD>
  </TR>
  <TR>
    <TD nowrap>&nbsp;</TD>
    <TD align="center" width="31%">&nbsp;</TD>
    <TD width="31%" align="left" nowrap>&nbsp;</TD>
    <TD align="center" width="20%">&nbsp;</TD>
    <TD width="20%" align="left" nowrap>&nbsp;</TD>
    <TD align="center" width="20%">&nbsp;</TD>
    <TD width="38%" align="left" nowrap><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;fellow
      subsidiaries</FONT></TD>
  </TR>
  <TR>
    <TD nowrap>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="left" nowrap>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="left" nowrap>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="left" nowrap>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD nowrap><FONT size=2 face="serif">Hong Kong</FONT></TD>
    <TD width="31%" align="center">&nbsp;</TD>
    <TD width="31%" align="left" nowrap><FONT size=2 face="serif">Hi-Lite Camera
      Company</FONT></TD>
    <TD width="20%" align="center">&nbsp;</TD>
    <TD width="20%" align="left" nowrap><FONT size=2 face="serif">November 10,
      1978</FONT></TD>
    <TD width="20%" align="center">&nbsp;</TD>
    <TD width="38%" align="left" nowrap><FONT size=2 face="serif">Manufacturing
      and trading of</FONT></TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD nowrap>&nbsp;</TD>
    <TD width="31%" align="center">&nbsp;</TD>
    <TD width="31%" align="left" nowrap><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;Limited
      ("Hi-Lite")</FONT></TD>
    <TD width="20%" align="center">&nbsp;</TD>
    <TD width="20%" align="left" nowrap>&nbsp;</TD>
    <TD width="20%" align="center">&nbsp;</TD>
    <TD width="38%" align="left" nowrap><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;camera
      and rental of machinery</FONT></TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD nowrap>&nbsp;</TD>
    <TD width="31%" align="center">&nbsp;</TD>
    <TD width="31%" align="left" nowrap>&nbsp;</TD>
    <TD width="20%" align="center">&nbsp;</TD>
    <TD width="20%" align="left" nowrap>&nbsp;</TD>
    <TD width="20%" align="center">&nbsp;</TD>
    <TD width="38%" align="left" nowrap><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;and
      equipment to its fellow</FONT></TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD nowrap>&nbsp;</TD>
    <TD width="31%" align="center">&nbsp;</TD>
    <TD width="31%" align="left" nowrap>&nbsp;</TD>
    <TD width="20%" align="center">&nbsp;</TD>
    <TD width="20%" align="left" nowrap>&nbsp;</TD>
    <TD width="20%" align="center">&nbsp;</TD>
    <TD width="38%" align="left" nowrap><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;subsidiary</FONT></TD>
  </TR>
  <TR>
    <TD nowrap>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="left" nowrap>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="left" nowrap>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="left" nowrap>&nbsp;</TD>
  </TR>
  <TR>
    <TD nowrap><FONT size=2 face="serif">Hong Kong</FONT></TD>
    <TD align="center" width="31%">&nbsp;</TD>
    <TD width="31%" align="left" nowrap><FONT size=2 face="serif">Kayser Technik
      Limited</FONT></TD>
    <TD align="center" width="20%">&nbsp;</TD>
    <TD width="20%" align="left" nowrap><FONT size=2 face="serif">June 23, 1994</FONT></TD>
    <TD align="center" width="20%">&nbsp;</TD>
    <TD width="38%" align="left" nowrap><FONT size=2 face="serif">Sales of metal
      parts and rental of</FONT></TD>
  </TR>
  <TR>
    <TD nowrap>&nbsp;</TD>
    <TD align="center" width="31%">&nbsp;</TD>
    <TD width="31%" align="left" nowrap>&nbsp;</TD>
    <TD align="center" width="20%">&nbsp;</TD>
    <TD width="20%" align="left" nowrap>&nbsp;</TD>
    <TD align="center" width="20%">&nbsp;</TD>
    <TD width="38%" align="left" nowrap><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;machinery
      and equipment to fellow</FONT></TD>
  </TR>
  <TR>
    <TD nowrap>&nbsp;</TD>
    <TD align="center" width="31%">&nbsp;</TD>
    <TD width="31%" align="left" nowrap>&nbsp;</TD>
    <TD align="center" width="20%">&nbsp;</TD>
    <TD width="20%" align="left" nowrap>&nbsp;</TD>
    <TD align="center" width="20%">&nbsp;</TD>
    <TD width="38%" align="left" nowrap><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;subsidiaries</FONT></TD>
  </TR>
  <TR>
    <TD nowrap>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="left" nowrap>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="left" nowrap>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="left" nowrap>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD nowrap><FONT size=2 face="serif">Bulgaria</FONT></TD>
    <TD width="31%" align="center">&nbsp;</TD>
    <TD width="31%" align="left" nowrap><FONT size=2 face="serif">Kienzle Balkan
      Limited</FONT></TD>
    <TD width="20%" align="center">&nbsp;</TD>
    <TD width="20%" align="left" nowrap><FONT size=2 face="serif">November 27,
      2001</FONT></TD>
    <TD width="20%" align="center">&nbsp;</TD>
    <TD width="38%" align="left" nowrap><FONT size=2 face="serif">Sales of cameras,
      clocks and watches</FONT></TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD nowrap>&nbsp;</TD>
    <TD width="31%" align="center">&nbsp;</TD>
    <TD width="31%" align="left" nowrap><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;("Kienzle
      Balkan")</FONT></TD>
    <TD width="20%" align="center">&nbsp;</TD>
    <TD width="20%" align="left" nowrap>&nbsp;</TD>
    <TD width="20%" align="center">&nbsp;</TD>
    <TD width="38%" align="left" nowrap>&nbsp;</TD>
  </TR>
  <TR>
    <TD nowrap>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="left" nowrap>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="left" nowrap>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="left" nowrap>&nbsp;</TD>
  </TR>
  <TR>
    <TD nowrap><FONT size=2 face="serif">Bulgaria</FONT></TD>
    <TD align="center" width="31%">&nbsp;</TD>
    <TD width="31%" align="left" nowrap><FONT size=2 face="serif">Kienzle Bulgaria
      Limited</FONT></TD>
    <TD align="center" width="20%">&nbsp;</TD>
    <TD width="20%" align="left" nowrap><FONT size=2 face="serif">January 23,
      2001</FONT></TD>
    <TD align="center" width="20%">&nbsp;</TD>
    <TD width="38%" align="left" nowrap><FONT size=2 face="serif">Dormant</FONT></TD>
  </TR>
  <TR>
    <TD nowrap>&nbsp;</TD>
    <TD align="center" width="31%">&nbsp;</TD>
    <TD width="31%" align="left" nowrap><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;("Kienzle
      Bulgaria")</FONT></TD>
    <TD align="center" width="20%">&nbsp;</TD>
    <TD width="20%" align="left" nowrap>&nbsp;</TD>
    <TD align="center" width="20%">&nbsp;</TD>
    <TD width="38%" align="left" nowrap>&nbsp;</TD>
  </TR>
  <TR>
    <TD nowrap>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="left" nowrap>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="left" nowrap>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="left" nowrap>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD nowrap><FONT size=2 face="serif">Hong Kong</FONT></TD>
    <TD width="31%" align="center">&nbsp;</TD>
    <TD width="31%" align="left" nowrap><FONT size=2 face="serif">Kienzle Time
      (H.K.) Limited</FONT></TD>
    <TD width="20%" align="center">&nbsp;</TD>
    <TD width="20%" align="left" nowrap><FONT size=2 face="serif">August 24, 1997</FONT></TD>
    <TD width="20%" align="center">&nbsp;</TD>
    <TD width="38%" align="left" nowrap><FONT size=2 face="serif">Manufacturing
      and trading of</FONT></TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD nowrap>&nbsp;</TD>
    <TD width="31%" align="center">&nbsp;</TD>
    <TD width="31%" align="left" nowrap><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;("Kienzle
      HK")</FONT></TD>
    <TD width="20%" align="center">&nbsp;</TD>
    <TD width="20%" align="left" nowrap>&nbsp;</TD>
    <TD width="20%" align="center">&nbsp;</TD>
    <TD width="38%" align="left" nowrap><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;clocks
      and watches</FONT></TD>
  </TR>
  <TR>
    <TD nowrap>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="left" nowrap>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="left" nowrap>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="left" nowrap>&nbsp;</TD>
  </TR>
  <TR>
    <TD nowrap><FONT size=2 face="serif">Germany</FONT></TD>
    <TD align="center" width="31%">&nbsp;</TD>
    <TD width="31%" align="left" nowrap><FONT size=2 face="serif">Kienzle Uhrenfabriken
      G.m.b.h.</FONT></TD>
    <TD align="center" width="20%">&nbsp;</TD>
    <TD width="20%" align="left" nowrap><FONT size=2 face="serif">April 1, 1999</FONT></TD>
    <TD align="center" width="20%">&nbsp;</TD>
    <TD width="38%" align="left" nowrap><FONT size=2 face="serif">Sales of clocks
      and watches</FONT></TD>
  </TR>
  <TR>
    <TD nowrap>&nbsp;</TD>
    <TD align="center" width="31%">&nbsp;</TD>
    <TD width="31%" align="left" nowrap><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;("Kienzle
      Germany")</FONT></TD>
    <TD align="center" width="20%">&nbsp;</TD>
    <TD width="20%" align="left" nowrap>&nbsp;</TD>
    <TD align="center" width="20%">&nbsp;</TD>
    <TD width="38%" align="left" nowrap>&nbsp;</TD>
  </TR>
  <TR>
    <TD nowrap>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="left" nowrap>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="left" nowrap>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="left" nowrap>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD nowrap><FONT size=2 face="serif">Hong Kong</FONT></TD>
    <TD width="31%" align="center">&nbsp;</TD>
    <TD width="31%" align="left" nowrap><FONT size=2 face="serif">Nissin Precision
      Metal</FONT></TD>
    <TD width="20%" align="center">&nbsp;</TD>
    <TD width="20%" align="left" nowrap><FONT size=2 face="serif">November 21,
      1980</FONT></TD>
    <TD width="20%" align="center">&nbsp;</TD>
    <TD width="38%" align="left" nowrap><FONT size=2 face="serif">Metal stamping
      and tooling design</FONT></TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD nowrap>&nbsp;</TD>
    <TD width="31%" align="center">&nbsp;</TD>
    <TD width="31%" align="left" nowrap><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;Manufacturing
      Limited</FONT></TD>
    <TD width="20%" align="center">&nbsp;</TD>
    <TD width="20%" align="left" nowrap>&nbsp;</TD>
    <TD width="20%" align="center">&nbsp;</TD>
    <TD width="38%" align="left" nowrap><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;and
      manufacturing</FONT></TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD nowrap>&nbsp;</TD>
    <TD width="31%" align="center">&nbsp;</TD>
    <TD width="31%" align="left" nowrap><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;("Nissin")</FONT></TD>
    <TD width="20%" align="center">&nbsp;</TD>
    <TD width="20%" align="left" nowrap>&nbsp;</TD>
    <TD width="20%" align="center">&nbsp;</TD>
    <TD width="38%" align="left" nowrap>&nbsp;</TD>
  </TR>
  <TR>
    <TD nowrap>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="left" nowrap>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="left" nowrap>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="left" nowrap>&nbsp;</TD>
  </TR>
  <TR>
    <TD nowrap><FONT size=2 face="serif">Hong Kong</FONT></TD>
    <TD align="center" width="31%">&nbsp;</TD>
    <TD width="31%" align="left" nowrap><FONT size=2 face="serif">Saiwan Industries
      Limited</FONT></TD>
    <TD align="center" width="20%">&nbsp;</TD>
    <TD width="20%" align="left" nowrap><FONT size=2 face="serif">August 10, 1990</FONT></TD>
    <TD align="center" width="20%">&nbsp;</TD>
    <TD width="38%" align="left" nowrap><FONT size=2 face="serif">Manufacturing
      of plastic injection</FONT></TD>
  </TR>
  <TR>
    <TD nowrap>&nbsp;</TD>
    <TD align="center" width="31%">&nbsp;</TD>
    <TD width="31%" align="left" nowrap>&nbsp;</TD>
    <TD align="center" width="20%">&nbsp;</TD>
    <TD width="20%" align="left" nowrap>&nbsp;</TD>
    <TD align="center" width="20%">&nbsp;</TD>
    <TD width="38%" align="left" nowrap><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;parts
      to fellow subsidiaries</FONT></TD>
  </TR>
</TABLE>
<P> <FONT size=2 face="serif">All of the subsidiaries
  are wholly-owned except for Kienzle
  Balkan, which is 51% owned by the Company.</FONT></p>
<P>
  <FONT size=2 face="serif">On
  January 25, 2000, the Company and an unrelated party established Kienzle USA
  Ltd. ("Kienzle USA"), a company incorporated in the United States of America
  ("USA") which sells clocks, with each party owning 50% of its common shares.
  It is accounted for in the consolidated financial statements as an affiliate.
  Kienzle USA has been inactive since September 2002. </FONT> </P>
</DIV>
<P align="center">
<FONT size=2 face="serif">F - 9 </FONT>
</P>

<HR noshade align="center" width="100%" size=1 style="PAGE-BREAK-AFTER: ALWAYS" color="#66FF99">



<A name="page_F-11"></A>

<P align="center">
<FONT size=2 face="serif">HIGHWAY HOLDINGS LIMITED AND SUBSIDIARIES </FONT>
</P>
<P align="center">
<FONT size=2 face="serif">NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued<br>(Dollars in thousands except per share data) </FONT>
</P>
<P>
<FONT size=2 face="serif">2.</FONT>&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES </FONT>
</P>
<DIV style="DISPLAY: block; MARGIN-LEFT: 18pt;" align=left>
<P>
<FONT size=2 face="serif"> 	</FONT><B><FONT size=2 face="serif">Principles of consolidation </FONT></B><FONT size=2 face="serif">- The consolidated financial statements include the assets, liabilities, revenues and expenses of the Company and all
its subsidiaries.  All significant intercompany transactions and balances have been eliminated on consolidation. Affiliated companies (20% to 50% owned companies) in which the Company has significant influence but does not have a controlling
interest are accounted for using the equity method. </FONT>
</P>
<P>
<FONT size=2 face="serif"> 	</FONT><B><FONT size=2 face="serif">Revenue recognition</FONT></B><FONT size=2 face="serif"> - The Company recognizes revenue when all of the following conditions are met: </FONT>
</P>
<UL>
<LI><FONT size=2 face="serif">Persuasive evidence of an arrangement exists;</FONT><BR></LI>
<LI><FONT size=2 face="serif">Delivery has occurred;</FONT><BR></LI>
<LI><FONT size=2 face="serif">Price to the customer is fixed or determinable; and</FONT><BR></LI>
<LI><FONT size=2 face="serif">Collectibility is reasonably assured.</FONT><BR></LI>
</UL>
<P>
<FONT size=2 face="serif">Provision for discounts and rebates to customers, and returns and other adjustments are provided for in the same period the related sales are recorded. </FONT>
</P>
<P>
<B><FONT size=2 face="serif">Cash and cash equivalents</FONT></B><FONT size=2 face="serif"> - Cash and cash equivalents include cash on hand, cash accounts, interest bearing savings accounts, and certificates of time deposit with a maturity of three
months or less at the time of purchase. </FONT>
</P>
<P>
<B><FONT size=2 face="serif">Inventories</FONT></B><FONT size=2 face="serif"> - Inventories are stated at the lower of cost determined by the first in first out method, or market value.  Work-in-progress and finished goods consist of raw materials,
direct labor and overhead associated with the manufacturing process. </FONT>
</P>
<P>
<B><FONT size=2 face="serif">Property, plant and equipment</FONT></B><FONT size=2 face="serif"> - Property, plant and equipment are stated at cost. Depreciation and amortization are provided using the straight-line method based on the estimated
useful lives of the property being 10 years for machinery and equipment and generally 6 to 7 years for other properties. Assets held under capital leases are depreciated over the shorter of their lease period or estimated useful lives on the same
basis as owned assets. </FONT>
</P>
<P>
<B><FONT size=2 face="serif">Industrial property rights </FONT></B><FONT size=2 face="serif">- Industrial property rights represent the patents, technology and the rights relating to the name "Kienzle" and are stated at cost. Amortization is
provided on a straight-line basis over a period of 10 years which is the estimated useful lives of these assets. Amortization expense charged to operating (loss) income for the year ended March 31, 2002, 2003 and 2004 was $110, $119 and $127,
respectively. </FONT>
</P>
</DIV>
<P align="center"><FONT size=2 face="serif">F - 10</FONT> </P>
<HR noshade align="center" width="100%" size=1 style="PAGE-BREAK-AFTER: ALWAYS" color="#66FF99">
<A name="page_F-12"></A>
<P align="center">
<FONT size=2 face="serif">HIGHWAY HOLDINGS LIMITED AND SUBSIDIARIES </FONT>
</P>
<P align="center">
<FONT size=2 face="serif">NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued<BR>(Dollars in thousands except per share data) </FONT>
</P>
<P>
<FONT size=2 face="serif">2.</FONT>&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued </FONT>
</P>
<DIV style="DISPLAY: block; MARGIN-LEFT: 18pt;" align=left>
<P>
<FONT size=2 face="serif">Amortization expense on industrial property rights for each of the next five years is as follows:</FONT>
</P>
  <TABLE border=0 cellspacing=0 cellpadding=0 width="95%">
    <TR>
      <TD><FONT size=2 face="serif">Year ending March 31,</FONT></TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD align="right">&nbsp;</TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR>
      <TD>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">- 2005</FONT></TD>
      <TD width="75%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
      <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
      <TD align="right"><FONT size=2 face="serif">129</FONT></TD>
      <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    </TR>
    <TR bgcolor="#66FF99">
      <TD>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">- 2006</FONT></TD>
      <TD width="75%">&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD align="right"><FONT size=2 face="serif">129</FONT></TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR>
      <TD>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">- 2007</FONT></TD>
      <TD width="75%">&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD align="right"><FONT size=2 face="serif">129</FONT></TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR bgcolor="#66FF99">
      <TD>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">- 2008</FONT></TD>
      <TD width="75%">&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD align="right"><FONT size=2 face="serif">93</FONT></TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR>
      <TD>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">- 2009</FONT></TD>
      <TD width="75%">&nbsp;</TD>
      <TD align="right" colspan=2><FONT size=2 face="serif"> 93</FONT></TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR>
      <TD>&nbsp;</TD>
      <TD width="75%">&nbsp;</TD>
      <TD colspan=2><HR noshade size=1></TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR bgcolor="#66FF99">
      <TD><FONT size=2 face="serif">Total</FONT></TD>
      <TD width="75%">&nbsp;</TD>
      <TD><FONT size=2 face="serif"> $</FONT></TD>
      <TD align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;573</FONT></TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR>
      <TD>&nbsp;</TD>

      <TD width="75%">&nbsp;</TD>
      <TD colspan=2><HR noshade size=2></TD>
      <TD>&nbsp;</TD>
    </TR>
  </TABLE>
<P>
<B><FONT size=2 face="serif">Investment securities</FONT></B><FONT size=2 face="serif"> - Investment securities, which consist primarily of capital guaranteed investment fund, have been categorized as available for sale and, as a result, are stated
at fair value based generally on quoted market prices. Unrealized holding gains and losses are included as a component of accumulated other comprehensive income. </FONT>
</P>
<P>
<B><FONT size=2 face="serif">Impairment of long-lived assets</FONT></B><FONT size=2 face="serif"> - The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset
may no longer be recoverable. When these events occur, the Company measures impairment by comparing the carrying value of the long-lived assets to the estimated undiscounted future cash flows expected to result from the use of the assets and their
eventual disposition.  If the sum of the expected undiscounted cash flow is less than the carrying amount of the asses, the Company would recognize an impairment loss based on the fair value of the assets. </FONT>
</P>
<P>
<B><FONT size=2 face="serif">Foreign currency translation</FONT></B><FONT size=2 face="serif"> - The Company uses the United States dollar as its reporting currency. Assets and liabilities of non-United States dollar functional currency financial
statements of subsidiaries are translated at year-end exchange rates, while revenues and expenses are translated at average currency exchange rates during the year. Adjustments resulting from translating non-United States dollar functional currency
financial statements are reported as a separate component of shareholders' equity. Gains or losses from foreign currency transactions are included in net income. </FONT>
</P>
<P>
<B><FONT size=2 face="serif">Income taxes</FONT></B><FONT size=2 face="serif"> - Deferred income taxes are provided using the asset and liability method. Under this method, deferred income taxes are recognized for all significant temporary
differences and classified as current or non-current based upon the classification of the related asset or liability in the financial statements. A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more
likely than not that some portion of, or all, the deferred tax asset will not be realized. </FONT>
</P>
<P>
<B><FONT size=2 face="serif">Use of estimates</FONT></B><FONT size=2 face="serif"> - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures 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. </FONT>
</P>
</DIV>
<P align="center">
<FONT size=2 face="serif">F - 11</FONT>
</P>

<HR noshade align="center" width="100%" size=1 style="PAGE-BREAK-AFTER: ALWAYS" color="#66FF99">



<A name="page_F-13"></A>

<P align="center">
<FONT size=2 face="serif">HIGHWAY HOLDINGS LIMITED AND SUBSIDIARIES </FONT>
</P>
<P align="center">
<FONT size=2 face="serif">NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued<BR>(Dollars in thousands except per share data) </FONT>
</P>
<P>
<FONT size=2 face="serif">2.</FONT>&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued </FONT>
</P>
<DIV style="DISPLAY: block; MARGIN-LEFT: 18pt;" align=left>
<P>
<FONT size=2 face="serif"> 	</FONT><B><FONT size=2 face="serif">Stock-based compensation</FONT></B><FONT size=2 face="serif"> - The Company accounts for stock-based awards to employees using the intrinsic value method. </FONT>
</P>
<P>
<FONT size=2 face="serif">Had compensation cost for the Company's stock option plan and stock purchase rights been determined based on the fair value at the grant dates for awards under the plan in accordance with the method of SFAS No. 123, the
Company's net (loss) income and (loss) income per share would have been as follows: </FONT>
</P>
<TABLE border=0 cellspacing=0 cellpadding=0 width="95%">
  <TR>
    <TD nowrap>&nbsp;</TD>
    <TD width="70%">&nbsp;</TD>
    <TD colspan="2"><DIV align="center"><U><FONT size=2 face="serif">2002</FONT></U></DIV></TD>
    <TD><DIV align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</DIV></TD>
    <TD colspan="2"><DIV align="center"><U><FONT size=2 face="serif">2003</FONT></U></DIV></TD>
    <TD><DIV align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</DIV></TD>
    <TD align="right" colspan=2><DIV align="center"><U><FONT size=2 face="serif">2004</FONT></U></DIV></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
  </TR>
  <TR>
    <TD nowrap>&nbsp;</TD>
    <TD width="70%">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD nowrap><FONT size=2 face="serif">Net (loss) income, as reported</FONT></TD>
    <TD width="70%">&nbsp;</TD>
    <TD align="center"><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(231</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD align="center"><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;485</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;982</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD colspan=2 nowrap><FONT size=2 face="serif">Less: Stock based compensation
      costs under fair</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD colspan=2 nowrap><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;value based method for all
      awards</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">(9</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">(212</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
  </TR>
  <TR>
    <TD nowrap>&nbsp;</TD>
    <TD width="70%">&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD nowrap><FONT size=2 face="serif">Net (loss) income, pro forma</FONT></TD>
    <TD width="70%">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">(240</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">485</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">770</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD nowrap>&nbsp;</TD>
    <TD width="70%">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD nowrap><FONT size=2 face="serif">(Loss) income per share -
      basic</FONT></TD>
    <TD width="70%"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
      reported</FONT></TD>
    <TD align="center"><DIV align="left"><FONT size=2 face="serif">$</FONT></DIV></TD>
    <TD align="right"><FONT size=2 face="serif">(0.08</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD align="center"><DIV align="left"><FONT size=2 face="serif">$</FONT></DIV></TD>
    <TD align="right"><FONT size=2 face="serif">0.17</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif">$</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">0.32</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD nowrap>&nbsp;</TD>
    <TD width="70%"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pro
      forma</FONT></TD>
    <TD><DIV align="left"></DIV></TD>
    <TD align="right"><FONT size=2 face="serif">(0.08</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD><DIV align="left"></DIV></TD>
    <TD align="right"><FONT size=2 face="serif">0.17</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">0.25</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD nowrap>&nbsp;</TD>
    <TD width="70%">&nbsp;</TD>
    <TD><DIV align="left"></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV align="left"></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD nowrap><FONT size=2 face="serif">(Loss) income per share -
      diluted</FONT></TD>
    <TD width="70%"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
      reported</FONT></TD>
    <TD align="center"><DIV align="left"><FONT size=2 face="serif">$</FONT></DIV></TD>
    <TD align="right"><FONT size=2 face="serif">(0.08</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD align="center"><DIV align="left"><FONT size=2 face="serif">$</FONT></DIV></TD>
    <TD align="right"><FONT size=2 face="serif">0.17</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif">$</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">0.30</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD nowrap>&nbsp;</TD>
    <TD width="70%"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pro
      forma</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">(0.08</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">0.17</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">0.24</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
</TABLE>
<P>
<FONT size=2 face="serif">Compensation expense resulting from the fair value method of SFAS No. 123 may not be representative of compensation expense to be incurred on a pro forma basis in future years. </FONT>
</P>
<P>
<FONT size=2 face="serif">The weighted average fair value of options and stock purchase rights granted during 2004 was $1.2130, using the Black-Scholes option-pricing model based on the following assumptions: </FONT>
</P>
<TABLE width="95%" border=0 cellspacing=0 cellpadding=0>
<TR>
   <TD><FONT size=2 face="serif">Risk-free interest rate</FONT></TD>
   <TD align="right" width="43%"><FONT size=2 face="serif">4.75%</FONT></TD>
   <TD width="4%">&nbsp;</TD>
</TR>
<TR bgcolor="#66FF99">
   <TD><FONT size=2 face="serif">Expected life</FONT></TD>
   <TD width="43%" align="right"><FONT size=2 face="serif">4.25 to 4.50 years</FONT></TD>
   <TD width="4%">&nbsp;</TD>
</TR>
<TR>
   <TD><FONT size=2 face="serif">Expected volatility</FONT></TD>
   <TD align="right" width="43%"><FONT size=2 face="serif">101.73%</FONT></TD>
   <TD width="4%"><FONT size=2 face="serif">&nbsp;</FONT></TD>
</TR>
<TR bgcolor="#66FF99">
   <TD><FONT size=2 face="serif">Expected dividend yield</FONT></TD>
   <TD width="43%" align="right"><FONT size=2 face="serif">2.50%</FONT></TD>
   <TD width="4%"><FONT size=2 face="serif">&nbsp;</FONT></TD>
</TR>
</TABLE>
<P>
<B><FONT size=2 face="serif">(Loss) income per share </FONT></B><FONT size=2 face="serif">- Basic (loss) income per share is computed by dividing net (loss) income attributable to common shareholders by the weighted average of common shares
outstanding for the period. Diluted earnings per share gives effect to all dilutive potential common shares outstanding during the year. The weighted average number of common shares outstanding is adjusted to include the number of additional common
shares that would have been outstanding if the dilutive potential common shares had been issued. In each of the three years ended March 31, 2004, the Company had 558,128, 326,128 and nil respectively, of outstanding employee stock options and stock
purchase rights which could potentially dilute basic earnings per share ("EPS") in the future, but were excluded in the computation of diluted EPS in such periods, as their effect would have been antidilutive. </FONT>
</P>
</DIV>
<P align="center">
<FONT size=2 face="serif">F - 12</FONT>
</P>

<HR noshade align="center" width="100%" size=1 style="PAGE-BREAK-AFTER: ALWAYS" color="#66FF99">



<A name="page_F-14"></A>

<P align="center">
<FONT size=2 face="serif">HIGHWAY HOLDINGS LIMITED AND SUBSIDIARIES </FONT>
</P>
<P align="center">
<FONT size=2 face="serif">NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued<BR>(Dollars in thousands except per share data) </FONT>
</P>
<P>
<FONT size=2 face="serif">2.</FONT>&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued </FONT>
</P>
<DIV style="DISPLAY: block; MARGIN-LEFT: 18pt;" align=left>
<P>
<B><FONT size=2 face="serif"> 	Comprehensive (loss)</FONT></B><FONT size=2 face="serif"> </FONT><B><FONT size=2 face="serif">income</FONT></B><FONT size=2 face="serif"> - Comprehensive (loss) income is defined to include all changes in equity except
those resulting from investments by owners and distributions to owners.</FONT>
</P>
<P>
<FONT size=2 face="serif">Comprehensive (loss) income for the years, which comprises foreign currency translation adjustments, unrealized holding loss on investment securities and net (loss) income, has been disclosed within the consolidated
statement of shareholders' equity and comprehensive (loss) income. </FONT>
</P>
<P>
<B><FONT size=2 face="serif">Recent changes in accounting standards</FONT></B><FONT size=2 face="serif"> - In January 2003, the Financial Accounting Standard Board ("FASB") issued Interpretation No. ("FIN") 46 (revised), "</FONT><I><FONT size=2
face="serif">Consolidation of Variable Interest Entities</FONT></I><FONT size=2 face="serif">".  FIN 46 (revised) requires that if a business enterprise has a controlling financial interest in a variable interest entity, the assets, liabilities and
results of the activities of the variable interest entity should be included in consolidated financial statements of the business enterprise. FIN 46 (revised) applies immediately to variable interest entities created after January 31, 2003.  For
variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 (revised) are effective beginning January 1, 2004. The adoption of FIN 46 (revised) did not have a material impact on the Company's financial
position, results of operations, or cash flows. </FONT>
</P>
<P>
<FONT size=2 face="serif">In May 2003, the FASB issued SFAS No. 150, "</FONT><I><FONT size=2 face="serif">Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity</FONT></I><FONT size=2 face="serif">". SFAS
No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective for the third calendar quarter of 2003. The adoption of SFAS No. 150 did
not have a material impact on the Company's financial position, results of operations, or cash flows. </FONT>
</P>
</DIV>
<P>
<FONT size=2 face="serif">3.</FONT>&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">INCOME TAXES </FONT>
</P>
<DIV style="DISPLAY: block; MARGIN-LEFT: 18pt;" align=left>
<P>
<FONT size=2 face="serif"> 	Income is subject to taxation in the various countries in which the Company and its subsidiaries operate. </FONT>
</P>
<P>
<FONT size=2 face="serif">The components of (loss) income before income taxes and minority interest are as follows: </FONT>
</P>
  <TABLE border=0 cellspacing=0 cellpadding=0 width="95%">
    <TR>
      <TD width="70%" nowrap>&nbsp;</TD>
      <TD align="center" colspan=8><FONT size=2 face="serif">Year
        ended March 31,</FONT></TD>
      <TD align="center">&nbsp;</TD>
    </TR>
    <TR>
      <TD width="70%" nowrap>&nbsp;</TD>
      <TD align="center" colspan=8><HR noshade size=1></TD>
      <TD align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    </TR>
    <TR>
      <TD width="70%" nowrap>&nbsp;</TD>
      <TD align="center" colspan=2><U><FONT size=2 face="serif">2002</FONT></U></TD>
      <TD align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
      <TD align="center" colspan=2><U><FONT size=2 face="serif">2003</FONT></U></TD>
      <TD align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
      <TD align="center" colspan=2><U><FONT size=2 face="serif">2004</FONT></U></TD>
      <TD align="center">&nbsp;</TD>
    </TR>
    <TR>
      <TD width="70%" nowrap>&nbsp;</TD>
      <TD align="center" colspan=2>&nbsp;</TD>
      <TD align="center">&nbsp;</TD>
      <TD align="center" colspan=2>&nbsp;</TD>
      <TD align="center">&nbsp;</TD>
      <TD align="center" colspan=2>&nbsp;</TD>
      <TD align="center">&nbsp;</TD>
    </TR>
    <TR>
      <TD width="70%" nowrap><FONT size=2 face="serif">Hong Kong</FONT></TD>
      <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
      <TD align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;318</FONT></TD>
      <TD>&nbsp;</TD>
      <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
      <TD align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;823</FONT></TD>
      <TD>&nbsp;</TD>
      <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
      <TD align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,663</FONT></TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR bgcolor="#66FF99">
      <TD width="70%" nowrap><FONT size=2 face="serif">Europe</FONT></TD>
      <TD>&nbsp;</TD>
      <TD align="right"><FONT size=2 face="serif">(486</FONT></TD>
      <TD><FONT size=2 face="serif">)</FONT></TD>
      <TD>&nbsp;</TD>
      <TD align="right"><FONT size=2 face="serif">(283</FONT></TD>
      <TD><FONT size=2 face="serif">)</FONT></TD>
      <TD>&nbsp;</TD>
      <TD align="right"><FONT size=2 face="serif">(580</FONT></TD>
      <TD><FONT size=2 face="serif">)</FONT></TD>
    </TR>
    <TR>
      <TD width="70%" nowrap><FONT size=2 face="serif">USA</FONT></TD>
      <TD align="right" colspan=2><FONT size=2 face="serif"> (5</FONT></TD>
      <TD><FONT size=2 face="serif">)</FONT></TD>
      <TD align="right" colspan=2><FONT size=2 face="serif"> (5</FONT></TD>
      <TD><FONT size=2 face="serif">)</FONT></TD>
      <TD align="right" colspan=2><FONT size=2 face="serif">&#151;</FONT></TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR>
      <TD width="70%" nowrap>&nbsp;</TD>
      <TD colspan=2><HR noshade size=1></TD>
      <TD>&nbsp;</TD>
      <TD colspan=2><HR noshade size=1></TD>
      <TD>&nbsp;</TD>
      <TD colspan=2><HR noshade size="2"></TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR bgcolor="#66FF99">
      <TD width="70%" nowrap>&nbsp;</TD>
      <TD><FONT size=2 face="serif"> $</FONT></TD>
      <TD align="right"><FONT size=2 face="serif">(173</FONT></TD>
      <TD><FONT size=2 face="serif">)</FONT></TD>
      <TD><FONT size=2 face="serif"> $</FONT></TD>
      <TD align="right"><FONT size=2 face="serif">535</FONT></TD>
      <TD>&nbsp;</TD>
      <TD><FONT size=2 face="serif"> $</FONT></TD>
      <TD align="right"><FONT size=2 face="serif">1,083</FONT></TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR>
      <TD width="70%" nowrap>&nbsp;</TD>
      <TD colspan=2><HR noshade size=2></TD>
      <TD>&nbsp;</TD>
      <TD colspan=2><HR noshade size=2></TD>
      <TD>&nbsp;</TD>
      <TD colspan=2><HR noshade size=2></TD>
      <TD>&nbsp;</TD>
    </TR>
  </TABLE>
</DIV>
<P align="center">
<FONT size=2 face="serif">F - 13 </FONT>
</P>

<HR noshade align="center" width="100%" size=1 style="PAGE-BREAK-AFTER: ALWAYS" color="#66FF99">



<A name="page_F-15"></A>

<P align="center">
<FONT size=2 face="serif">HIGHWAY HOLDINGS LIMITED AND SUBSIDIARIES </FONT>
</P>
<P align="center">
<FONT size=2 face="serif">NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued<BR>(Dollars in thousands except per share data) </FONT>
</P>
<P>
<FONT size=2 face="serif">3.</FONT>&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">INCOME TAXES - continued </FONT>
</P>
<DIV style="DISPLAY: block; MARGIN-LEFT: 18pt;" align=left>
<P>
<FONT size=2 face="serif"> 	The Company is not taxed in the British Virgin Islands where the holding company is incorporated. </FONT>
</P>
<P>
<FONT size=2 face="serif"> 	The Company's subsidiaries, other than Kienzle Germany, Kienzle Balkan and Kienzle Bulgaria, are all incorporated in Hong Kong and are subject to Hong Kong taxation on their activities conducted in Hong Kong. </FONT>
</P>
<P>
<FONT size=2 face="serif">The Company's manufacturing operations are currently conducted solely in China.  These manufacturing operations are conducted pursuant to agreements entered into between certain China companies set up by the local
government and the Shenzhen City Baoan District Foreign Economic Development Head Company and its designees (collectively, the "BFDC") (the agreements, collectively the "BFDC Agreements"). </FONT>
</P>
<P>
<FONT size=2 face="serif">Under the BFDC Agreements, the Company is not considered by local tax authorities to be doing business in China; accordingly, the Company's activities in China have not been subjected to local taxes. The BFDC is responsible
for paying taxes it incurs as a result of its operations under the BFDC Agreements. There can be no assurances, however, that the Company will not be subject to such taxes in the future. If China did impose a tax upon the Company, the tax could
materially adversely affect the Company's business and results of operations. </FONT>
</P>
<P>
<FONT size=2 face="serif">As the Company's subsidiaries' manufacturing operations are carried out in China under those BFDC Agreements, in accordance with the Hong Kong Inland Revenue Departmental Interpretation and Practice Note No. 21, 50% of the
income for the year arising in Hong Kong has been determined not subject to Hong Kong profits tax. The calculation of Hong Kong profits tax has been based on such tax relief. </FONT>
</P>
<P>
<FONT size=2 face="serif">The provision for income taxes consists of the following: </FONT>
</P>
  <TABLE border=0 cellpadding=0 cellspacing=0 width="95%">
    <TR>
      <TD width="80%" nowrap>&nbsp;</TD>
      <TD align="center" colspan=8><FONT size=2 face="serif">March 31,</FONT></TD>
      <TD align="center">&nbsp;</TD>
    </TR>
    <TR>
      <TD width="80%" nowrap>&nbsp;</TD>
      <TD colspan=8><HR noshade size=1></TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR>
      <TD width="80%" nowrap>&nbsp;</TD>
      <TD align="center" colspan=2><U><FONT size=2 face="serif">2002</FONT></U></TD>
      <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
      <TD align="center" colspan=2><U><FONT size=2 face="serif">2003</FONT></U></TD>
      <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
      <TD align="center" colspan=2><U><FONT size=2 face="serif">2004</FONT></U></TD>
      <TD align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    </TR>
    <TR>
      <TD width="80%" nowrap>&nbsp;</TD>
      <TD colspan=2>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD colspan=2>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD colspan=2>&nbsp;</TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR>
      <TD width="80%" nowrap><FONT size=2 face="serif">Hong Kong</FONT></TD>
      <TD align="center" colspan=2>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD align="center" colspan=2>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD align="center" colspan=2>&nbsp;</TD>
      <TD align="center">&nbsp;</TD>
    </TR>
    <TR>
      <TD width="80%" nowrap>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Current</FONT></TD>
      <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
      <TD align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;58</FONT></TD>
      <TD>&nbsp;</TD>
      <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
      <TD align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;50</FONT></TD>
      <TD>&nbsp;</TD>
      <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
      <TD align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;153</FONT></TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR bgcolor="#66FF99">
      <TD width="80%" nowrap>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Deferred</FONT></TD>
      <TD colspan=2 align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
      <TD>&nbsp;</TD>
      <TD colspan=2 align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
      <TD>&nbsp;</TD>
      <TD colspan=2 align="right"><FONT size=2 face="serif"> (53</FONT></TD>
      <TD><FONT size=2 face="serif">)</FONT></TD>
    </TR>
    <TR>
      <TD width="80%" nowrap>&nbsp;</TD>
      <TD colspan=2><HR noshade size="1"></TD>
      <TD>&nbsp;</TD>
      <TD colspan=2><HR noshade size="1"></TD>
      <TD>&nbsp;</TD>
      <TD colspan=2><HR noshade size=1></TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR>
      <TD width="80%" nowrap>&nbsp;</TD>
      <TD><FONT size=2 face="serif"> $</FONT></TD>
      <TD align="right"><FONT size=2 face="serif">58</FONT></TD>
      <TD>&nbsp;</TD>
      <TD><FONT size=2 face="serif"> $</FONT></TD>
      <TD align="right"><FONT size=2 face="serif">50</FONT></TD>
      <TD>&nbsp;</TD>
      <TD><FONT size=2 face="serif"> $</FONT></TD>
      <TD align="right"><FONT size=2 face="serif">100</FONT></TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR>
      <TD width="80%" nowrap>&nbsp;</TD>
      <TD colspan=2><HR noshade size=2></TD>
      <TD>&nbsp;</TD>
      <TD colspan=2><HR noshade size=2></TD>
      <TD>&nbsp;</TD>
      <TD colspan=2><HR noshade size=2></TD>
      <TD>&nbsp;</TD>
    </TR>
  </TABLE>
</DIV>
<P align="center">
<FONT size=2 face="serif">F - 14</FONT>
</P>

<HR noshade align="center" width="100%" size=1 style="PAGE-BREAK-AFTER: ALWAYS" color="#66FF99">



<A name="page_F-16"></A>

<P align="center">
<FONT size=2 face="serif">HIGHWAY HOLDINGS LIMITED AND SUBSIDIARIES </FONT>
</P>
<P align="center">
<FONT size=2 face="serif">NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued<BR>(Dollars in thousands except per share data) </FONT>
</P>
<P>
<FONT size=2 face="serif">3.</FONT>&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">INCOME TAXES - continued </FONT>
</P>
<DIV style="DISPLAY: block; MARGIN-LEFT: 18pt;" align=left>
<P>
<FONT size=2 face="serif"> 	A reconciliation between the provision for income taxes computed by applying the Hong Kong profits tax rate to (loss) income before income taxes and minority interests and the actual provision for income taxes is as
follows: </FONT>
</P>
  <TABLE border=0 cellspacing=0 cellpadding=0 width="95%">
    <TR>
      <TD width="80%">&nbsp;</TD>
      <TD colspan="9" align="center"><FONT size=2 face="serif">Year ended March
        31,</FONT></TD>
      <TD align="center">&nbsp;</TD>
    </TR>
    <TR>
      <TD width="80%">&nbsp;</TD>
      <TD colspan="9"><HR noshade size=1></TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR>
      <TD width="80%">&nbsp;</TD>
      <TD align="center"><DIV align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U><FONT size=2 face="serif">2002</FONT></U></DIV></TD>
      <TD align="center"><DIV align="right"></DIV></TD>
      <TD align="center"><DIV align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</DIV></TD>
      <TD colspan="2" align="center"><DIV align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U><FONT size=2 face="serif">2003</FONT></U></DIV></TD>
      <TD align="center"><DIV align="right"></DIV></TD>
      <TD align="center"><DIV align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</DIV></TD>
      <TD align="center"><DIV align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U><FONT size=2 face="serif">2004</FONT></U></DIV></TD>
      <TD align="center">&nbsp;</TD>
      <TD align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    </TR>
    <TR>
      <TD width="80%">&nbsp;</TD>
      <TD align="center">&nbsp;</TD>
      <TD align="center">&nbsp;</TD>
      <TD align="center">&nbsp;</TD>
      <TD colspan="2" align="center">&nbsp;</TD>
      <TD align="center">&nbsp;</TD>
      <TD align="center">&nbsp;</TD>
      <TD align="center">&nbsp;</TD>
      <TD align="center">&nbsp;</TD>
      <TD align="center">&nbsp;</TD>
    </TR>
    <TR>
      <TD width="80%"><FONT size=2 face="serif">Profits tax rate in Hong Kong</FONT></TD>
      <TD align="right"><FONT size=2 face="serif">16.0</FONT></TD>
      <TD><FONT size=2 face="serif">%</FONT></TD>
      <TD>&nbsp;</TD>
      <TD colspan="2" align="right"><FONT size=2 face="serif">16.0</FONT></TD>
      <TD><FONT size=2 face="serif">%</FONT></TD>
      <TD>&nbsp;</TD>
      <TD align="right"><FONT size=2 face="serif">17.5</FONT></TD>
      <TD><FONT size=2 face="serif">%</FONT></TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR bgcolor="#66FF99">
      <TD width="80%"><FONT size=2 face="serif">Non-deductible items/non-taxable income</FONT></TD>
      <TD align="right"><FONT size=2 face="serif">(30.5</FONT></TD>
      <TD><FONT size=2 face="serif">%)</FONT></TD>
      <TD>&nbsp;</TD>
      <TD colspan="2" align="right"><FONT size=2 face="serif">(16.6</FONT></TD>
      <TD><FONT size=2 face="serif">%)</FONT></TD>
      <TD colspan=2 align="right"><FONT size=2 face="serif">(10.9</FONT></TD>
      <TD><FONT size=2 face="serif">%)</FONT></TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR>
      <TD width="80%"><FONT size=2 face="serif">Changes in valuation allowances</FONT></TD>
      <TD align="right"><FONT size=2 face="serif">(26.6</FONT></TD>
      <TD><FONT size=2 face="serif">%)</FONT></TD>
      <TD>&nbsp;</TD>
      <TD colspan="2" align="right"><FONT size=2 face="serif">9.9</FONT></TD>
      <TD><FONT size=2 face="serif">%</FONT></TD>
      <TD>&nbsp;</TD>
      <TD align="right"><FONT size=2 face="serif">4.0</FONT></TD>
      <TD><FONT size=2 face="serif">%</FONT></TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR bgcolor="#66FF99">
      <TD width="80%"><FONT size=2 face="serif">International rate difference</FONT></TD>
      <TD align="right"><FONT size=2 face="serif">15.0</FONT></TD>
      <TD><FONT size=2 face="serif">%</FONT></TD>
      <TD>&nbsp;</TD>
      <TD colspan="2" align="right"><FONT size=2 face="serif">10.3</FONT></TD>
      <TD><FONT size=2 face="serif">%</FONT></TD>
      <TD>&nbsp;</TD>
      <TD align="right"><FONT size=2 face="serif">(3.5</FONT></TD>
      <TD><FONT size=2 face="serif">%)</FONT></TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR>
      <TD width="80%"><FONT size=2 face="serif">Increase in opening deferred income taxes</FONT></TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD colspan="2">&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR>
      <TD width="80%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">resulting from an increase
        in profits</FONT></TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD colspan="2">&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR>
      <TD width="80%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">tax rate in Hong Kong</FONT></TD>
      <TD align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD colspan="2" align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD align="right"><FONT size=2 face="serif">2.0</FONT></TD>
      <TD><FONT size=2 face="serif">%</FONT></TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR bgcolor="#66FF99">
      <TD width="80%"><FONT size=2 face="serif">Other</FONT></TD>
      <TD align="right"><FONT size=2 face="serif"> (7.4</FONT></TD>
      <TD><FONT size=2 face="serif">%)</FONT></TD>
      <TD>&nbsp;</TD>
      <TD colspan="2" align="right"><FONT size=2 face="serif"> (10.3</FONT></TD>
      <TD><FONT size=2 face="serif">%)</FONT></TD>
      <TD colspan=2 align="right"><FONT size=2 face="serif"> 0.1</FONT></TD>
      <TD><FONT size=2 face="serif">%</FONT></TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR>
      <TD width="80%">&nbsp;</TD>
      <TD><HR noshade size=1></TD>
      <TD><HR noshade size=1></TD>
      <TD>&nbsp;</TD>
      <TD colspan="2"><HR noshade size=1></TD>
      <TD><HR noshade size=1></TD>
      <TD>&nbsp;</TD>
      <TD><HR noshade size=1></TD>
      <TD><HR noshade size=1></TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR>
      <TD width="80%"><FONT size=2 face="serif">Effective tax rate</FONT></TD>
      <TD align="right"><FONT size=2 face="serif"> (33.5</FONT></TD>
      <TD><FONT size=2 face="serif">%)</FONT></TD>
      <TD>&nbsp;</TD>
      <TD colspan="2" align="right"><FONT size=2 face="serif"> 9.3</FONT></TD>
      <TD><FONT size=2 face="serif">%</FONT></TD>
      <TD align="right"><FONT size=2 face="serif">&nbsp; </FONT></TD>
      <TD align="right"><FONT size=2 face="serif">9.2</FONT></TD>
      <TD><FONT size=2 face="serif">%</FONT></TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR>
      <TD width="80%">&nbsp;</TD>
      <TD><HR noshade size=2></TD>
      <TD><HR noshade size=2></TD>
      <TD>&nbsp;</TD>
      <TD colspan="2"><HR noshade size=2></TD>
      <TD><HR noshade size=2></TD>
      <TD>&nbsp;</TD>
      <TD><HR noshade size=2></TD>
      <TD><HR noshade size=2></TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR>
      <TD width="80%">&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD colspan="2">&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR>
      <TD width="80%"><FONT size=2 face="serif">Deferred income tax (assets) liabilities are
        as follows:</FONT></TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD colspan="2">&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR>
      <TD width="80%">&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD colspan="6"><DIV align="center"><FONT size=2 face="serif">March 31,</FONT></DIV></TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR>
      <TD width="80%">&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD colspan="6"><HR noshade size=1></TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR>
      <TD width="80%">&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD align="right"><U></U></TD>
      <TD colspan=2 align="center"><u><FONT size=2 face="serif">2003</FONT></u></TD>
      <TD>&nbsp;</TD>
      <TD align="center" colspan=2><U><FONT size=2 face="serif">2004</FONT></U></TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR>
      <TD width="80%">&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD colspan=2>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD colspan=2>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR>
      <TD width="80%"><FONT size=2 face="serif">Deferred tax liability:</FONT></TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD colspan="2">&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR>
      <TD width="80%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Property, plant and equipment</FONT></TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD><FONT size=2 face="serif">&nbsp; </FONT></TD>
      <TD align="left"><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
      <TD align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;231</FONT></TD>
      <TD>&nbsp;</TD>
      <TD><FONT size=2 face="serif"> $</FONT></TD>
      <TD align="right"><FONT size=2 face="serif">390</FONT></TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR>
      <TD width="80%">&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD colspan="2"><HR noshade size=1></TD>
      <TD>&nbsp;</TD>
      <TD><HR noshade size=1></TD>
      <TD><HR noshade size=1></TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR>
      <TD width="80%"><FONT size=2 face="serif">Deferred tax asset:</FONT></TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD colspan="2">&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR bgcolor="#66FF99">
      <TD width="80%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Operating loss carryforwards</FONT></TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD colspan="2" align="right"><FONT size=2 face="serif">(1,140</FONT></TD>
      <TD><FONT size=2 face="serif">)</FONT></TD>
      <TD>&nbsp;</TD>
      <TD align="right"><FONT size=2 face="serif">(572</FONT></TD>
      <TD><FONT size=2 face="serif">)</FONT></TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR>
      <TD width="80%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Valuation allowance</FONT></TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD align="right"><FONT size=2 face="serif">&nbsp; </FONT></TD>
      <TD align="right">&nbsp;</TD>
      <TD align="right"><FONT size=2 face="serif">1,140</FONT></TD>
      <TD>&nbsp;</TD>
      <TD align="right" colspan=2><FONT size=2 face="serif"> 360</FONT></TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR>
      <TD width="80%">&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD><HR noshade size=1></TD>
      <TD><HR noshade size=1></TD>
      <TD>&nbsp;</TD>
      <TD colspan=2><HR noshade size=1></TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR bgcolor="#66FF99">
      <TD width="80%" height="20"><FONT size=2 face="serif">Total net deferred tax asset</FONT></TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD align="right">&nbsp;</TD>
      <TD align="right">&nbsp;</TD>
      <TD align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
      <TD>&nbsp;</TD>
      <TD colspan=2 align="right"><FONT size=2 face="serif"> (212</FONT></TD>
      <TD><FONT size=2 face="serif">)</FONT></TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR>
      <TD width="80%">&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD><HR noshade size="1"></TD>
      <TD><HR noshade size="1"></TD>
      <TD>&nbsp;</TD>
      <TD colspan=2><HR noshade size=1></TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR>
      <TD width="80%"><FONT size=2 face="serif">Net deferred tax liability</FONT></TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD align="left"><FONT size=2 face="serif"> $</FONT></TD>
      <TD align="right"><FONT size=2 face="serif">231</FONT></TD>
      <TD>&nbsp;</TD>
      <TD><FONT size=2 face="serif"> $</FONT></TD>
      <TD align="right"><FONT size=2 face="serif">178</FONT></TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR>
      <TD width="80%">&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD><HR noshade size=2></TD>
      <TD><HR noshade size=2></TD>
      <TD>&nbsp;</TD>
      <TD colspan=2><HR noshade size=2></TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
    </TR>
  </TABLE>
<P>
<FONT size=2 face="serif">At March 31, 2003 and 2004, subsidiaries of the Company had tax loss carryforwards for Hong Kong profit tax purposes, subject to the agreement of the Hong Kong Inland Revenue Department, amounting to approximately $3,597
and $3,174, respectively, which have no expiration date. </FONT>
</P>
</DIV>
<P align="center">
<FONT size=2 face="serif">F - 15</FONT>
</P>

<HR noshade align="center" width="100%" size=1 style="PAGE-BREAK-AFTER: ALWAYS" color="#66FF99">



<A name="page_F-17"></A>

<P align="center">
<FONT size=2 face="serif">HIGHWAY HOLDINGS LIMITED AND SUBSIDIARIES </FONT>
</P>
<P align="center">
<FONT size=2 face="serif">NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued<BR>(Dollars in thousands except per share data) </FONT>
</P>
<P>
<FONT size=2 face="serif">3.</FONT>&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">INCOME TAXES - continued </FONT>
</P>
<DIV style="DISPLAY: block; MARGIN-LEFT: 18pt;" align=left>
<P>
<FONT size=2 face="serif"> 	At March 31, 2004, the tax loss carryforwards in Bulgaria and Germany and their future expiration dates are as follows: </FONT>
</P>
<TABLE border=0 cellspacing=0 cellpadding=0 width="95%">
  <TR>
    <TD width="70%">&nbsp;</TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="center" colspan=2><U><FONT size=2 face="serif">Bulgaria</FONT></U></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="center" colspan=2><U><FONT size=2 face="serif">Germany</FONT></U></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="center" colspan=2><U><FONT size=2 face="serif">Total</FONT></U></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
  </TR>
  <TR>
    <TD width="70%"><FONT size=2 face="serif">Year ending March 31,</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="70%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">- 2005</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;20</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;20</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="70%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">- 2006</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">66</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">66</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="70%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">- 2007</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="70%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">- 2008</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="70%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">- 2009</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">104</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">104</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="70%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">- Indefinite</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"><FONT size=2 face="serif">&#151;</FONT></FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> 2,116</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> 2,116</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="70%">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size="2"></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="70%">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">190</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">2,116</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">2,306</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="70%">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
  </TR>
</TABLE>
<P>
<FONT size=2 face="serif">The tax loss carryforwards can only be utilized by the subsidiaries generating the losses.</FONT>
</P>
</DIV>
<P>
<FONT size=2 face="serif">4.</FONT>&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">INVENTORIES </FONT>
</P>
<DIV style="DISPLAY: block; MARGIN-LEFT: 18pt;" align=left>
<P>
<FONT size=2 face="serif"> 	Inventories by major categories are summarized as follows:</FONT>
</P>
<TABLE border=0 cellspacing=0 cellpadding=0 width="95%">
  <TR>
    <TD width="80%" nowrap>&nbsp;</TD>
    <TD align="center" colspan=5><FONT size=2 face="serif">March 31,</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%" nowrap>&nbsp;</TD>
    <TD align="center" colspan=5><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%" nowrap>&nbsp;</TD>
    <TD align="center" colspan=2><U><FONT size=2 face="serif">2003</FONT></U></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="center" colspan=2><U><FONT size=2 face="serif">2004</FONT></U></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%" nowrap>&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%" nowrap><FONT size=2 face="serif">Raw materials</FONT></TD>
    <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;2,486</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,292</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="80%" nowrap><FONT size=2 face="serif">Work in progress</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">446</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">855</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%" nowrap><FONT size=2 face="serif">Finished goods</FONT></TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"> 1,640</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"> 1,247</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%" nowrap>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="80%" nowrap>&nbsp;</TD>
    <TD><FONT size=2 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">4,572</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">4,394</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%" nowrap>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
  </TR>
</TABLE>
<P>
<FONT size=2 face="serif"> 	Inventories amounting to $133, $52 and $640, were written off in 2002, 2003 and 2004, respectively.</FONT>
</P>
</DIV>
<P>
<FONT size=2 face="serif">5.</FONT>&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">INVESTMENT SECURITIES </FONT>
</P>
<DIV style="DISPLAY: block; MARGIN-LEFT: 18pt;" align=left>
  <TABLE border=0 cellspacing=0 cellpadding=0 width="95%">
    <TR>
      <TD width="80%">&nbsp;</TD>
      <TD colspan="6" align="center"><FONT size=2 face="serif">March 31,</FONT></TD>
      <TD align="center">&nbsp;</TD>
    </TR>
    <TR>
      <TD width="80%">&nbsp;</TD>
      <TD colspan="6"><HR noshade size=1></TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR>
      <TD width="80%">&nbsp;</TD>
      <TD colspan="3" align="center"><u><FONT size=2 face="serif">2003</FONT></u></TD>
      <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
      <TD align="center" colspan=2><u><FONT size=2 face="serif">2004</FONT></u></TD>
      <TD align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    </TR>
    <TR>
      <TD width="80%">&nbsp;</TD>
      <TD colspan="2" align="center">&nbsp;</TD>
      <TD align="center">&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD align="center" colspan=2>&nbsp;</TD>
      <TD align="center">&nbsp;</TD>
    </TR>
    <TR>
      <TD width="80%"><FONT size=2 face="serif">Cost</FONT></TD>
      <TD><FONT size=2 face="serif">$</FONT></TD>
      <TD colspan="2" align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&#151;</FONT></TD>
      <TD>&nbsp;</TD>
      <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
      <TD align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;322</FONT></TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR bgcolor="#66FF99">
      <TD width="80%"><FONT size=2 face="serif">Gross unrealized holding loss</FONT></TD>
      <TD colspan=3 align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
      <TD>&nbsp;</TD>
      <TD colspan=2 align="right"><FONT size=2 face="serif"> (13</FONT></TD>
      <TD><FONT size=2 face="serif">)</FONT></TD>
    </TR>
    <TR>
      <TD width="80%">&nbsp;</TD>
      <TD colspan=3><HR noshade size="2"></TD>
      <TD>&nbsp;</TD>
      <TD colspan=2><HR noshade size=1></TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR>
      <TD width="80%"><FONT size=2 face="serif">Fair value</FONT></TD>
      <TD><FONT size=2 face="serif"> $</FONT></TD>
      <TD colspan=2 align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
      <TD>&nbsp;</TD>
      <TD><FONT size=2 face="serif">$</FONT></TD>
      <TD align="right"><FONT size=2 face="serif">309</FONT></TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR>
      <TD width="80%">&nbsp;</TD>
      <TD colspan=3><HR noshade size=2></TD>
      <TD>&nbsp;</TD>
      <TD colspan=2><HR noshade size=2></TD>
      <TD>&nbsp;</TD>
    </TR>
  </TABLE>
</DIV>
<P align="center">
<FONT size=2 face="serif">F - 16</FONT>
</P>

<HR noshade align="center" width="100%" size=1 style="PAGE-BREAK-AFTER: ALWAYS" color="#66FF99">



<A name="page_F-18"></A>

<P align="center">
<FONT size=2 face="serif">HIGHWAY HOLDINGS LIMITED AND SUBSIDIARIES </FONT>
</P>
<P align="center">
<FONT size=2 face="serif">NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued<BR>(Dollars in thousands except per share data) </FONT>
</P>
<P>
<FONT size=2 face="serif">6.</FONT>&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">PROPERTY, PLANT AND EQUIPMENT, NET </FONT>
</P>
<DIV style="DISPLAY: block; MARGIN-LEFT: 18pt;" align=left>
<P>
<FONT size=2 face="serif"> 	Property, plant and equipment consist of the following:</FONT>
</P>
<TABLE border=0 cellspacing=0 cellpadding=0 width="95%">
  <TR>
    <TD width="80%" nowrap>&nbsp;</TD>
    <TD align="center" colspan=5><FONT size=2 face="serif">March 31,</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%" nowrap>&nbsp;</TD>
    <TD align="center" colspan=5><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%" nowrap>&nbsp;</TD>
    <TD align="center" colspan=2><U><FONT size=2 face="serif">2003</FONT></U></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="center" colspan=2><U><FONT size=2 face="serif">2004</FONT></U></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%" nowrap>&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
<TR>
   <TD width="80%"><FONT size=2 face="serif">At cost:</FONT></TD>
   <TD align="center" colspan=2>&nbsp;</TD>
   <TD align="center">&nbsp;</TD>
   <TD align="center" colspan=2>&nbsp;</TD>
   <TD align="center">&nbsp;</TD>
</TR>
<TR>
   <TD width="80%"><FONT size=2 face="serif">Machinery and equipment</FONT></TD>
   <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
   <TD align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9,456</FONT></TD>
   <TD>&nbsp;</TD>
   <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
   <TD align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10,377</FONT></TD>
   <TD>&nbsp;</TD>
</TR>
<TR bgcolor="#66FF99">
   <TD width="80%"><FONT size=2 face="serif">Furniture and fixtures</FONT></TD>
   <TD>&nbsp;</TD>
   <TD align="right"><FONT size=2 face="serif">666</FONT></TD>
   <TD>&nbsp;</TD>
   <TD>&nbsp;</TD>
   <TD align="right"><FONT size=2 face="serif">671</FONT></TD>
   <TD>&nbsp;</TD>
</TR>
<TR>
   <TD width="80%"><FONT size=2 face="serif">Leasehold improvements</FONT></TD>
   <TD align="right" colspan=2><FONT size=2 face="serif"> 479</FONT></TD>
   <TD>&nbsp;</TD>
   <TD align="right" colspan=2><FONT size=2 face="serif"> 527</FONT></TD>
   <TD>&nbsp;</TD>
</TR>
<TR>
   <TD width="80%">&nbsp;</TD>
   <TD colspan=2><HR noshade size=1></TD>
   <TD>&nbsp;</TD>
   <TD colspan=2><HR noshade size=1></TD>
   <TD>&nbsp;</TD>
</TR>
<TR bgcolor="#66FF99">
   <TD width="80%"><FONT size=2 face="serif">Total</FONT></TD>
   <TD>&nbsp;</TD>
   <TD align="right"><FONT size=2 face="serif">10,601</FONT></TD>
   <TD>&nbsp;</TD>
   <TD>&nbsp;</TD>
   <TD align="right"><FONT size=2 face="serif">11,575</FONT></TD>
   <TD>&nbsp;</TD>
</TR>
<TR>
   <TD width="80%"><FONT size=2 face="serif">Less: Accumulated depreciation and amortization</FONT></TD>
   <TD align="right" colspan=2><FONT size=2 face="serif"> (6,944</FONT></TD>
   <TD><FONT size=2 face="serif">)</FONT></TD>
   <TD align="right" colspan=2><FONT size=2 face="serif"> (7,795</FONT></TD>
   <TD><FONT size=2 face="serif">)</FONT></TD>
</TR>
<TR>
   <TD width="80%">&nbsp;</TD>
   <TD colspan=2><HR noshade size=1></TD>
   <TD>&nbsp;</TD>
   <TD colspan=2><HR noshade size=1></TD>
   <TD>&nbsp;</TD>
</TR>
<TR bgcolor="#66FF99">
   <TD width="80%"><FONT size=2 face="serif">Net book value</FONT></TD>
   <TD><FONT size=2 face="serif"> $</FONT></TD>
   <TD align="right"><FONT size=2 face="serif">3,657</FONT></TD>
   <TD>&nbsp;</TD>
   <TD><FONT size=2 face="serif"> $</FONT></TD>
   <TD align="right"><FONT size=2 face="serif">3,780</FONT></TD>
   <TD>&nbsp;</TD>
</TR>
<TR>
   <TD width="80%">&nbsp;</TD>
   <TD colspan=2><HR noshade size=2></TD>
   <TD>&nbsp;</TD>
   <TD colspan=2><HR noshade size=2></TD>
   <TD>&nbsp;</TD>
</TR>
</TABLE>
<P>
<FONT size=2 face="serif">Depreciation expense charged to operating (loss) income for the year ended March 31, 2002, 2003 and 2004 was $958, $1,011 and $985, respectively. </FONT>
</P>
<P>
<FONT size=2 face="serif">Included in property, plant and equipment are assets held under capital leases with the following net book values: </FONT>
</P>
<TABLE border=0 cellspacing=0 cellpadding=0 width="95%">
  <TR>
    <TD width="80%" nowrap>&nbsp;</TD>
    <TD align="center" colspan=5><FONT size=2 face="serif">March 31,</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%" nowrap>&nbsp;</TD>
    <TD align="center" colspan=5><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%" nowrap>&nbsp;</TD>
    <TD align="center" colspan=2><U><FONT size=2 face="serif">2003</FONT></U></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="center" colspan=2><U><FONT size=2 face="serif">2004</FONT></U></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%" nowrap>&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
<TR>
   <TD width="80%">&nbsp;</TD>
   <TD align="center" colspan=2>&nbsp;</TD>
   <TD align="center">&nbsp;</TD>
   <TD align="center" colspan=2>&nbsp;</TD>
   <TD align="center">&nbsp;</TD>
</TR>
<TR>
   <TD width="80%"><FONT size=2 face="serif">Machinery and equipment, at cost</FONT></TD>
   <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
   <TD align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;441</FONT></TD>
   <TD>&nbsp;</TD>
   <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
   <TD align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;796</FONT></TD>
   <TD>&nbsp;</TD>
</TR>
<TR bgcolor="#66FF99">
   <TD width="80%"><FONT size=2 face="serif">Less: Accumulated depreciation and amortization</FONT></TD>
   <TD colspan=2 align="right"><FONT size=2 face="serif"> (53</FONT></TD>
   <TD><FONT size=2 face="serif">)</FONT></TD>
   <TD colspan=2 align="right"><FONT size=2 face="serif"> (98</FONT></TD>
   <TD><FONT size=2 face="serif">)</FONT></TD>
</TR>
<TR>
   <TD width="80%">&nbsp;</TD>
   <TD colspan=2><HR noshade size=1></TD>
   <TD>&nbsp;</TD>
   <TD colspan=2><HR noshade size=1></TD>
   <TD>&nbsp;</TD>
</TR>
<TR>
   <TD width="80%">&nbsp;</TD>
   <TD><FONT size=2 face="serif"> $</FONT></TD>
   <TD align="right"><FONT size=2 face="serif">388</FONT></TD>
   <TD>&nbsp;</TD>
   <TD><FONT size=2 face="serif"> $</FONT></TD>
   <TD align="right"><FONT size=2 face="serif">698</FONT></TD>
   <TD>&nbsp;</TD>
</TR>
<TR>
   <TD width="80%">&nbsp;</TD>
   <TD colspan=2><HR noshade size=2></TD>
   <TD>&nbsp;</TD>
   <TD colspan=2><HR noshade size=2></TD>
   <TD>&nbsp;</TD>
</TR>
</TABLE>
<P>
<FONT size=2 face="serif">Depreciation and amortization of machinery and equipment held under capital leases, which is included in depreciation and amortization expense in the accompanying consolidated statements of operations, was $16, $37 and $45
for the year ended March 31, 2002, 2003 and 2004, respectively. </FONT>
</P>
</div>
<P align="center">
<FONT size=2 face="serif">F - 17</FONT>
</P>

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<A name="page_F-19"></A>

<P align="center">
<FONT size=2 face="serif">HIGHWAY HOLDINGS LIMITED AND SUBSIDIARIES </FONT>
</P>
<P align="center">
<FONT size=2 face="serif">NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued<BR>(Dollars in thousands) </FONT>
</P>
<P>
<FONT size=2 face="serif">7.</FONT>&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">SHORT-TERM BORROWINGS </FONT>
</P>
<DIV style="DISPLAY: block; MARGIN-LEFT: 18pt;" align=left>
<P>
<FONT size=2 face="serif"> 	Short-term borrowings include import loans obtained from banks.</FONT>
</P>
<TABLE border=0 cellspacing=0 cellpadding=0 width="95%">
  <TR>
    <TD width="80%" nowrap>&nbsp;</TD>
    <TD align="center" colspan=5><FONT size=2 face="serif">March 31,</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%" nowrap>&nbsp;</TD>
    <TD align="center" colspan=5><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%" nowrap>&nbsp;</TD>
    <TD align="center" colspan=2><U><FONT size=2 face="serif">2003</FONT></U></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="center" colspan=2><U><FONT size=2 face="serif">2004</FONT></U></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%" nowrap>&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%"><FONT size=2 face="serif">Credit facilities granted</FONT></TD>
    <TD><FONT size=2 face="serif"> $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,864</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif"> $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,828</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%">&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="80%"><FONT size=2 face="serif">Weighted average interest rate on borrowings
      at</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="80%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">end of year</FONT></TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> 4.2</FONT></TD>
    <TD><FONT size=2 face="serif">%</FONT></TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> 4.2</FONT></TD>
    <TD><FONT size=2 face="serif">%</FONT></TD>
  </TR>
  <TR>
    <TD width="80%">&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
  </TR>
</TABLE>
<P>
<FONT size=2 face="serif"> 	At March 31, 2003 and 2004, the Company pledged bank deposits of $1,157 and $965, and investment securities of Nil and $309, respectively, to banks to secure banking facilities granted.</FONT>
</P>
<P>
<FONT size=2 face="serif">There is no restrictive financial covenants associated with these bank facilities. </FONT>
</P>
<P>
<FONT size=2 face="serif"> 	Interest rates are generally based on the banks' best lending rate in Hong Kong plus 1% to 2% per annum, subject to fluctuations at the banks' discretion.  The credit facilities are subject to annual review by the banks.
</FONT>
</P>
</div>
<P>
<FONT size=2 face="serif">8.</FONT>&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">OBLIGATIONS UNDER CAPITAL LEASES </FONT>
</P>
<DIV style="DISPLAY: block; MARGIN-LEFT: 18pt;" align=left>

<P>
<FONT size=2 face="serif"> 	Long-term debt consists of obligations under capital leases. </FONT>
</P>
<P>
<FONT size=2 face="serif"> 	Future minimum lease payments as at March 31, 2004 are as follows: </FONT>
</P>
<TABLE border=0 cellspacing=0 cellpadding=0 width="95%">
<TR>
   <TD width="85%"><FONT size=2 face="serif">Year ending March 31</FONT></TD>
   <TD>&nbsp;</TD>
   <TD>&nbsp;</TD>
   <TD>&nbsp;</TD>
   <TD>&nbsp;</TD>
</TR>
<TR>
   <TD width="85%">&nbsp;</TD>
   <TD>&nbsp;</TD>
   <TD>&nbsp;</TD>
   <TD>&nbsp;</TD>
   <TD>&nbsp;</TD>
</TR>
<TR>
   <TD width="85%" align="left"><FONT size=2 face="serif">2005</FONT></TD>
   <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
   <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
      <TD align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;173</FONT></TD>
   <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
</TR>
<TR bgcolor="#66FF99">
   <TD width="85%" align="left"><FONT size=2 face="serif">2006</FONT></TD>
   <TD>&nbsp;</TD>
   <TD>&nbsp;</TD>
   <TD align="right"><FONT size=2 face="serif">121</FONT></TD>
   <TD>&nbsp;</TD>
</TR>
<TR>
   <TD width="85%" align="left"><FONT size=2 face="serif">2007</FONT></TD>
   <TD>&nbsp;</TD>
   <TD align="right" colspan=2><FONT size=2 face="serif"> 91</FONT></TD>
   <TD>&nbsp;</TD>
</TR>
<TR>
   <TD width="85%">&nbsp;</TD>
   <TD>&nbsp;</TD>
   <TD colspan=2><HR noshade size=1></TD>
   <TD>&nbsp;</TD>
</TR>
<TR bgcolor="#66FF99">
   <TD width="85%">&nbsp;</TD>
   <TD>&nbsp;</TD>
   <TD><FONT size=2 face="serif"> $</FONT></TD>
   <TD align="right"><FONT size=2 face="serif">385</FONT></TD>
   <TD>&nbsp;</TD>
</TR>
<TR>
   <TD width="85%">&nbsp;</TD>
   <TD>&nbsp;</TD>
   <TD colspan=2><HR noshade size=2></TD>
   <TD>&nbsp;</TD>
</TR>
</TABLE>
<P>
<FONT size=2 face="serif">The capital lease commitment amounts above exclude implicit interest of $19, $8 and $2 payable in the years ending March 31, 2005, 2006 and 2007, respectively. </FONT>
</P>
</DIV>
<P align="center">
<FONT size=2 face="serif">F - 18</FONT>
</P>

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<A name="page_F-20"></A>

<P align="center">
<FONT size=2 face="serif">HIGHWAY HOLDINGS LIMITED AND SUBSIDIARIES </FONT>
</P>
<P align="center">
<FONT size=2 face="serif">NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued<BR>(Dollars in thousands) </FONT>
</P>
<P>
<FONT size=2 face="serif">9.</FONT>&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">COMMITMENTS AND CONTINGENCIES </FONT>
</P>
<DIV style="DISPLAY: block; MARGIN-LEFT: 9pt;" align=left>
<OL>
<LI type="a">
<FONT size="2" face="serif">The Company leases premises under various operating leases which do not contain any renewal or escalation clauses. Rental expense under operating leases was $633, $691 and $725 in 2002, 2003 and 2004, respectively.
<BR><BR>At March 31, 2004, the Company and its subsidiaries were committed under operating leases requiring minimum lease payments as follows: </FONT></LI></OL>
</DIV>
<DIV style="DISPLAY: block; MARGIN-LEFT: 36pt;" align=left>
<TABLE border=0 cellspacing=0 cellpadding=0 width="90%">
<TR>
   <TD width="85%"><FONT size=2 face="serif">Year ending March 31,</FONT></TD>
   <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
   <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
   <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
   <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
</TR>
<TR>
   <TD width="85%"><FONT size=2 face="serif">- 2005</FONT></TD>
   <TD>&nbsp;</TD>
   <TD><FONT size=2 face="serif">$</FONT></TD>
   <TD align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;828</FONT></TD>
   <TD>&nbsp;</TD>
</TR>
<TR bgcolor="#66FF99">
   <TD width="85%" align="left"><FONT size=2 face="serif">- 2006</FONT></TD>
   <TD>&nbsp;</TD>
   <TD>&nbsp;</TD>
   <TD align="right"><FONT size=2 face="serif">805</FONT></TD>
   <TD>&nbsp;</TD>
</TR>
<TR>
   <TD width="85%" align="left"><FONT size=2 face="serif">- 2007</FONT></TD>
   <TD>&nbsp;</TD>
   <TD>&nbsp;</TD>
   <TD align="right"><FONT size=2 face="serif">779</FONT></TD>
   <TD>&nbsp;</TD>
</TR>
<TR bgcolor="#66FF99">
   <TD width="85%" align="left"><FONT size=2 face="serif">- 2008</FONT></TD>
   <TD>&nbsp;</TD>
   <TD>&nbsp;</TD>
   <TD align="right"><FONT size=2 face="serif">760</FONT></TD>
   <TD>&nbsp;</TD>
</TR>
<TR>
   <TD width="85%" align="left"><FONT size=2 face="serif">- 2009</FONT></TD>
   <TD>&nbsp;</TD>
   <TD align="right" colspan=2><FONT size=2 face="serif"> 703</FONT></TD>
   <TD>&nbsp;</TD>
</TR>
<TR>
   <TD width="85%">&nbsp;</TD>
   <TD>&nbsp;</TD>
   <TD colspan=2><HR noshade size=1></TD>
   <TD>&nbsp;</TD>
</TR>
<TR bgcolor="#66FF99">
   <TD width="85%">&nbsp;</TD>
   <TD>&nbsp;</TD>
   <TD align="left"><FONT size=2 face="serif"> $</FONT></TD>
   <TD align="right"><FONT size=2 face="serif">3,875</FONT></TD>
   <TD>&nbsp;</TD>
</TR>
<TR>
   <TD width="85%">&nbsp;</TD>
   <TD>&nbsp;</TD>
   <TD colspan=2><HR noshade size=2></TD>
   <TD>&nbsp;</TD>
</TR>
</TABLE>
</DIV>
<DIV style="DISPLAY: block; MARGIN-LEFT: 9pt;" align=left>
<OL type="a" start="2">
<LI>
<FONT size=2 face="serif">The Company is committed to invest approximately $200 in Kienzle USA pursuant to an agreement entered with a joint venture partner of Kienzle USA. The Company had invested $31 in Kienzle USA as of March 31, 2004.
Kienzle USA has been inactive since September 2002. </FONT><BR>
</LI>
<LI>
<FONT size=2 face="serif">The Company has a total capital commitment of $271 for the purchase of property, plant and equipment as of March 31, 2004. </FONT><BR>
</LI>
<LI>
<FONT size=2 face="serif">The BFDC Agreements (see Note 3) will expire on March 31, 2006, unless renewed, with the BFDC. Pursuant to the BFDC Agreements, the Company is not subject to certain rules and regulations that would be imposed on
entities which are considered under China law to be doing business in China by utilizing other business structures such as joint ventures or wholly owned subsidiaries organized in China.  Should there be any adverse change in the Company's dealings
with the BFDC, or should the local or federal government change the rules under which the Company currently operates, all of the Company's operations and assets could be jeopardized. </FONT>
<br><br>
<FONT size=2 face="serif">In addition, transactions between the Company and the BFDC are on terms different in certain respects from those contained in the BFDC Agreements. There can be no assurance that the BFDC will not insist upon a change in the
current practices so as to require adherence to the terms of the BFDC Agreements, which the Company considers less favorable to it than the practices currently in effect, or that the Company or BFDC may not be required to do so by the Ministry of
Foreign Trade and Economic Co-operation of China and other relevant authorities.  There can also be no assurances that the Company will be able to negotiate extensions and further supplements to any of the BFDC Agreements or that the Company will be
able to continue its operations in China. If the Company were required to adhere to the terms of the BFDC Agreements, the Company's business and results of operations could be materially and adversely affected. </FONT>
</LI>
</OL>
</DIV>
<P align="center">
<FONT size=2 face="serif">F - 19</FONT>
</P>

<HR noshade align="center" width="100%" size=1 style="PAGE-BREAK-AFTER: ALWAYS" color="#66FF99">



<A name="page_F-21"></A>

<P align="center">
<FONT size=2 face="serif">HIGHWAY HOLDINGS LIMITED AND SUBSIDIARIES </FONT>
</P>
<P align="center">
<FONT size=2 face="serif">NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued<br>(Dollars in thousands except share and per share amounts) </FONT>
</P>
<P>
<FONT size=2 face="serif">9.</FONT>&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">COMMITMENTS AND CONTINGENCIES - continued </FONT>
</P>
<DIV style="DISPLAY: block; MARGIN-LEFT: 9pt;" align=left>
<OL type="a" start="5">
<LI>
<FONT size=2 face="serif">The United States International Trade Commission ("ITC"), an independent, nonpartisan, quasi-judicial federal agency of the Government of the USA that: (i) provides trade expertise to both the legislative and executive
branches of the United States of America, (ii) determines the impact of imports on U.S. industries, and (iii) directs actions against certain unfair trade practices, such as patent, trademark, and copyright infringement, initiated an investigation
in 1998 concerning certain lens-fitted film packages ("proceedings").</FONT><BR><BR>
<FONT size=2 face="serif">The ITC referred the investigation to an Administrative Law Judge ("ALJ") to conduct a hearing and address other issues pertaining to the proceedings. The ITC, based on an initial determination made by the ALJ, had issued
an order "1998 Order" banning the importation of products fitting the description lens-fitted film packages. </FONT><BR><BR>
<FONT size=2 face="serif">The Company, as a result of the 1998 Order issued by the ITC in connection with the proceedings, had obtained a ruling from the United States Customs Services ("USCS") stating that its product (HL-1 camera) does not meet
the description of lens-fitted film package under the 1998 Order. Fuji Photo Co. Ltd. ("Fuji") believed that the USCS had wrongly interpreted the 1998 Order in respect to the HL-1 camera and had requested an Advisory Opinion from the ITC whereby it
asked the ITC to redefine lens-fitted film packages in order to invalidate the ruling of the USCS in respect to the HL-1 camera. Also, Fuji claimed, in its request for Advisory Opinion, that the HL-1 camera of the Company infringed four of its US
Patents. The ALJ has made an initial determination on May 2, 2002 that the HL-1 camera did not infringe US Patent No. 4,884,087 and the US Patent No. Re 34,168; both held by Fuji and (ii) did infringe the US Patent No. 5,381,200 and the US Patent
No. 4,972,649; both held by Fuji. Notwithstanding the infringement on two of Fuji's US Patents, the ALJ did not assess any enforcement sanctions (including penalties) against the Company. The initial determination by the ALJ finding HL-1 camera to
have infringed on two of Fuji's US Patents had the effect of invalidating the ruling issued by the USCS. </FONT><BR><BR>
<FONT size=2 face="serif">The ITC, on August 7, 2002, accepted the findings of the ALJ concerning the four Fuji patents as they applied to HL-1 camera. Fuji appealed the findings accepted by the ITC related to the US Patent No. 4,884,087 and the US
Patent No. Re 34,168 with the United States Federal Circuit Court of Appeals for the Federal Circuit ("FCCA") on October 7, 2002.  The FCCA also granted on November 26, 2002 a motion of the Company to intervene in the appeal. The FCCA subsequently
suspended its review to allow the ITC to reach a final decision on other matters related to the proceedings. The ITC, on May 15, 2003, adopted the initial determination of the ALJ (including the recommendation not to take any enforcement sanctions
against the Company) regarding the four Fuji patents through the issuance of a final order ("Fuji Patent Final Order"). </FONT><BR><BR>
<FONT size=2 face="serif">The FCCA, as of June 2, 2004, still has not completed its review of the appeal by Fuji. </FONT><BR><BR>
<FONT size=2 face="serif">Management and its legal counsel believe that no monetary penalties will be imposed on the Company by the FCCA as a result of the appeal filed by Fuji.  Accordingly, the accompanying financial statements do not include an
accrual for any such monetary penalties. However, an unfavorable opinion by the FCCA may have a negative impact on the Company's ability to sell in the USA related products including its HL-2 camera; which management believes does not infringe any
of Fuji's US Patents. The Company's sales of HL-1 and HL-2 cameras in the USA have not been significant. </FONT>
</LI>
</OL>
</DIV>
<P align="center">
<FONT size=2 face="serif">F - 20</FONT>
</P>

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<A name="page_F-22"></A>

<P align="center">
<FONT size=2 face="serif">HIGHWAY HOLDINGS LIMITED AND SUBSIDIARIES </FONT>
</P>
<P align="center"> <FONT size=2 face="serif">NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  - continued<BR>(Dollars in thousands except share and per share amounts) </FONT>
</P>
<P>
<FONT size=2 face="serif">9.</FONT>&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">COMMITMENTS AND CONTINGENCIES - continued </FONT>
</P>
<DIV style="DISPLAY: block; MARGIN-LEFT: 9pt;" align=left>
<OL type="a" start="6">
<LI>
<FONT size=2 face="serif">The Company has entered into a fee arrangement with a law firm in connection with legal services provided to the Company. The terms of the fee arrangement entitle the law firm to the following consideration if the ITC
matter discussed in (e) above is resolved in favour of the Company: </FONT><BR><BR>
&#151;&nbsp;<font size=2 face="serif">A right to receive one-third of the Company's
net profit from world-wide sales of the Company's HL-2 camera up to a maximum
of $1,000.</font><br><br>&#151;&nbsp;<font size=2 face="serif">An option entitling the law
firm to purchase 100,000 common shares of the Company at a price of $1.00 per
share; the option expires in one year from resolution of the ITC matter.</font><br>
<br>
<FONT size=2 face="serif">At March 31, 2004, the option has not been granted as the Company believes that the ITC matter has not been resolved in favour of the Company.  Accordingly, no compensation expense has been recorded in the consolidated
statements of operations for the year ended March 31, 2004.  The Company and the law firm are currently negotiating regarding the issuance of the option. If the option was issued on March 31, 2004, the Company's net income and income per share for
the year ended March 31, 2004 would have been as follows: </FONT>
</LI>
</OL>
</DIV>
<DIV style="DISPLAY: block; MARGIN-LEFT: 27pt;" align=left>
  <TABLE border=0 cellspacing=0 cellpadding=0 width="95%">
    <TR>
      <TD nowrap><FONT size=2 face="serif">Net income, as reported</FONT></TD>
      <TD width="80%" nowrap>&nbsp;</TD>
      <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
      <TD align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;982</FONT></TD>
      <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    </TR>
    <TR bgcolor="#66FF99">
      <TD colspan=2 nowrap><FONT size=2 face="serif">Less: Stock based compensation
        costs under&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR bgcolor="#66FF99">
      <TD nowrap>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">fair value based
        method</FONT></TD>
      <TD width="80%" nowrap>&nbsp;</TD>
      <TD colspan=2 align="right"><FONT size=2 face="serif"> 423</FONT></TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR>
      <TD nowrap>&nbsp;</TD>
      <TD width="80%" nowrap>&nbsp;</TD>
      <TD colspan=2><HR noshade size=1></TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR>
      <TD nowrap><FONT size=2 face="serif">Net income, pro forma</FONT></TD>
      <TD width="80%" nowrap>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD align="right"><FONT size=2 face="serif">559</FONT></TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR>
      <TD nowrap>&nbsp;</TD>
      <TD width="80%" nowrap>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR bgcolor="#66FF99">
      <TD nowrap><FONT size=2 face="serif">Income per share - basic</FONT></TD>
      <TD width="80%" nowrap><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
        reported</FONT></TD>
      <TD><FONT size=2 face="serif">$</FONT></TD>
      <TD align="right"><FONT size=2 face="serif">0.32</FONT></TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR>
      <TD nowrap>&nbsp;</TD>
      <TD width="80%" nowrap><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pro
        forma</FONT></TD>
      <TD align="right" colspan=2><FONT size=2 face="serif">0.18</FONT></TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR>
      <TD nowrap>&nbsp;</TD>
      <TD width="80%" nowrap>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR bgcolor="#66FF99">
      <TD nowrap><FONT size=2 face="serif">Income per share - diluted</FONT></TD>
      <TD width="80%" nowrap><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
        reported</FONT></TD>
      <TD><FONT size=2 face="serif">$</FONT></TD>
      <TD align="right"><FONT size=2 face="serif">0.30</FONT></TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR>
      <TD nowrap>&nbsp;</TD>
      <TD width="80%" nowrap><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pro
        forma</FONT></TD>
      <TD align="right" colspan=2><FONT size=2 face="serif">0.17</FONT></TD>
      <TD>&nbsp;</TD>
    </TR>
  </TABLE>
</DIV>
<DIV style="DISPLAY: block; MARGIN-LEFT: 27pt;" align=left>
<P><FONT size=2 face="serif">Note:
      The pro forma amount is calculated after adjusting the compensation expense
      of the option determined based on the fair value method of SFAS No. 123.
      The fair value of the option is $4.23, using the Black-Scholes option-pricing
      model based on the following assumptions: </FONT>
</P>
  <TABLE border=0 cellspacing=0 cellpadding=0 width="95%">
    <TR>
      <TD width="75%"><FONT size=2 face="serif">Rise-free interest rate</FONT></TD>
      <TD width="20%" align="right"><FONT size=2 face="serif">4.75%</FONT></TD>
      <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    </TR>
    <TR bgcolor="#66FF99">
      <TD width="75%"><FONT size=2 face="serif">Expected life</FONT></TD>
      <TD width="20%" align="right"><FONT size=2 face="serif">1 year</FONT></TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR>
      <TD width="75%"><FONT size=2 face="serif">Expected volatility</FONT></TD>
      <TD width="20%" align="right"><FONT size=2 face="serif">101.73%</FONT></TD>
      <TD>&nbsp;</TD>
    </TR>
    <TR bgcolor="#66FF99">
      <TD width="75%"><FONT size=2 face="serif">Expected dividend yield</FONT></TD>
      <TD width="20%" align="right"><FONT size=2 face="serif">2.5%</FONT></TD>
      <TD>&nbsp;</TD>
    </TR>
  </TABLE>
</DIV>
<P align="center">
<FONT size=2 face="serif">F - 21</FONT>
</P>

<HR noshade align="center" width="100%" size=1 style="PAGE-BREAK-AFTER: ALWAYS" color="#66FF99">



<A name="page_F-23"></A>

<P align="center">
<FONT size=2 face="serif">HIGHWAY HOLDINGS LIMITED AND SUBSIDIARIES </FONT>
</P>
<P align="center"> <FONT size=2 face="serif">NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  - continued<BR>(Dollars in thousands except share and per share amounts) </FONT>
</P>
<P>
<FONT size=2 face="serif">10.</FONT>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">CAPITAL STOCK</FONT>
</P>
<DIV style="DISPLAY: block; MARGIN-LEFT: 18pt;" align=left>
<P>
<FONT size=2 face="serif"> 	In August 1998, the Board of Directors authorised the Company to repurchase shares up to the value of $400 with a maximum repurchase price of $3.50 per share. During the year ended March 31, 2003, the Company purchased
6,000 shares for a total cash consideration of $4 at prices per share ranging from $0.60 to $1.41.  At March 31, 2003 and 2004, these shares were held in treasury and are not eligible to vote or receive dividends. </FONT>
</P>
</DIV>
<P>
<FONT size=2 face="serif">11.</FONT>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS </FONT>
</P>
<DIV style="DISPLAY: block; MARGIN-LEFT: 18pt;" align=left>
<P>
<FONT size=2 face="serif"> 	A substantial percentage of the Company's sales are made to two customers and are typically on an open account basis. Details of the customers accounting for 10% or more of total net sales in any of the years ended March
31, 2002, 2003 and 2004 are as follows: </FONT>
</P>
<TABLE border=0 cellspacing=0 cellpadding=0 width="95%">
  <TR>
    <TD width="80%" nowrap>&nbsp;</TD>
    <TD align="center" colspan=8><FONT size=2 face="serif">March 31,</FONT></TD>
    <TD align="center">&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%" nowrap>&nbsp;</TD>
    <TD colspan=8><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%" nowrap>&nbsp;</TD>
    <TD align="right" colspan=2><U><FONT size=2 face="serif">2002</FONT></U>&nbsp;&nbsp;&nbsp;</TD>
    <TD align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="right" colspan=2><U><FONT size=2 face="serif">2003</FONT></U>&nbsp;&nbsp;&nbsp;</TD>
    <TD align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="right" colspan=2><U><FONT size=2 face="serif">2004</FONT></U>&nbsp;&nbsp;&nbsp;</TD>
    <TD align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%">&nbsp;</TD>
    <TD align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%"><FONT size=2 face="serif">Company A</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;17.4</FONT></TD>
    <TD><font size=2 face="serif">%</font></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;18.9</FONT></TD>
    <TD><font size=2 face="serif">%</font></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;17.1</FONT></TD>
    <TD><font size=2 face="serif">%</font></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="80%"><FONT size=2 face="serif">Company B</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">*</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">14.6</FONT></TD>
    <TD><font size=2 face="serif">%</font></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">22.4</FONT></TD>
    <TD><font size=2 face="serif">%</font></TD>
    <TD>&nbsp;</TD>
  </TR>
</TABLE>
<P>
<FONT size=2 face="serif">*</FONT>&nbsp;<FONT size=2 face="serif">Less than 10% </FONT>
</P>
<P>
<FONT size=2 face="serif">Details of the accounts receivable from the five customers with the largest receivable balances at March 31, 2003 and 2004 are as follows: </FONT>
</P>
<TABLE border=0 cellspacing=0 cellpadding=0 width="95%">
  <TR>
    <TD width="80%" nowrap>&nbsp;</TD>
    <TD align="center" colspan=5><FONT size=2 face="serif">March 31,</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%" nowrap>&nbsp;</TD>
    <TD align="center" colspan=5><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%" nowrap>&nbsp;</TD>
    <TD align="right" colspan=2><U><FONT size=2 face="serif">2003</FONT></U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="right" colspan=2><U><FONT size=2 face="serif">2004</FONT></U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%" nowrap>&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%">&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%"><FONT size=2 face="serif">Company A</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.4</FONT></TD>
    <TD><font size=2 face="serif">%&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.2</FONT></TD>
    <TD><FONT size=2 face="serif">%&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="80%"><FONT size=2 face="serif">Company B</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">7.0</FONT></TD>
    <TD><font size=2 face="serif">%</font></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%"><FONT size=2 face="serif">Company C</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">23.2</FONT></TD>
    <TD><font size=2 face="serif">%</font></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">36.5</FONT></TD>
    <TD><FONT size=2 face="serif">%</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="80%"><FONT size=2 face="serif">Others</FONT></TD>
    <TD align="right"><FONT size=2 face="serif"> 13.4</FONT></TD>
    <TD><font size=2 face="serif">%</font></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif"> 13.8</FONT></TD>
    <TD><FONT size=2 face="serif">%</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%">&nbsp;</TD>
    <TD><HR noshade size=1></TD>
    <TD><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD><HR noshade size=1></TD>
    <TD><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%"><FONT size=2 face="serif">Five largest receivable balances</FONT></TD>
    <TD align="right"><FONT size=2 face="serif"> 49.0</FONT></TD>
    <TD><font size=2 face="serif">%</font></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif"> 61.5</FONT></TD>
    <TD><FONT size=2 face="serif">%</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%">&nbsp;</TD>
    <TD><HR noshade size=2></TD>
    <TD><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD><HR noshade size=2></TD>
    <TD><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
  </TR>
</TABLE>
<P>
<FONT size=2 face="serif">Details of the movements of the allowance for doubtful account for the years ended March 31, 2002, 2003 and 2004 are as follows: </FONT>
</P>
<TABLE border=0 cellspacing=0 cellpadding=0 width="95%">
  <TR>
    <TD width="75%">&nbsp;</TD>
    <TD align="center" colspan=2><U><FONT size=2 face="serif">2002</FONT></U></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center" colspan=2><U><FONT size=2 face="serif">2003</FONT></U></TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center" colspan=2><U><FONT size=2 face="serif">2004</FONT></U></TD>
    <TD align="center">&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%">&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%"><FONT size=2 face="serif">At beginning of year</FONT></TD>
    <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;30</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;63</FONT></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="75%"><FONT size=2 face="serif">Bad debt expense</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">27</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">41</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">142</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%"><FONT size=2 face="serif">Amount written off</FONT></TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"> (2</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"> (8</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"> (94</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
  </TR>
  <TR>
    <TD width="75%">&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="75%"><FONT size=2 face="serif">At end of year</FONT></TD>
    <TD><FONT size=2 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">30</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">63</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">111</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%">&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
  </TR>
</TABLE>
</DIV>
<P align="center">
<FONT size=2 face="serif">F - 22</FONT>
</P>

<HR noshade align="center" width="100%" size=1 style="PAGE-BREAK-AFTER: ALWAYS" color="#66FF99">



<A name="page_F-24"></A>

<P align="center">
<FONT size=2 face="serif">HIGHWAY HOLDINGS LIMITED AND SUBSIDIARIES </FONT>
</P>
<P align="center">
<FONT size=2 face="serif">NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued<BR>(Dollars in thousands except share and per share amounts) </FONT>
</P>
<P>
<FONT size=2 face="serif">12.</FONT>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">FAIR VALUE OF FINANCIAL INSTRUMENTS </FONT>
</P>
<DIV style="DISPLAY: block; MARGIN-LEFT: 18pt;" align=left>
<P>
<FONT size=2 face="serif"> 	The estimated fair value amounts have been determined by the Company, using available market information and appropriate valuation methodologies.  The estimates presented herein are not necessarily indicative of amounts
that the Company could realize in a current market exchange. </FONT>
</P>
<P>
<FONT size=2 face="serif">The carrying amounts of cash and cash equivalents, restricted cash, investment securities, accounts receivable, accounts payable, accrued liabilities, short-term borrowings and long-term debt are reasonable estimates of
their fair value. The interest rates on the Company's long-term debt approximate those which would have been available at March 31, 2004 for debt of similar remaining maturities and credit rating. </FONT>
</P>
</DIV>
<P>
<FONT size=2 face="serif">13.</FONT>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">EMPLOYEE STOCK OPTIONS AND STOCK PURCHASE RIGHTS </FONT>
</P>
<DIV style="DISPLAY: block; MARGIN-LEFT: 18pt;" align=left>
<P>
<FONT size=2 face="serif"> 	The Company has adopted the 1996 Stock Option Plan (the "Option Plan") that currently covers 400,000 shares of the Common Shares.  The Option Plan provides for the grant of options to purchase Common Shares to employees,
officers, directors and consultants of the Company. The Option Plan is administered by the Compensation Committee appointed by the Board of Directors, which determines the terms of the options granted, including the exercise price (provided,
however, that the option price shall not be less than fair market value or less than the par value per share on the date the options granted), the number of Common Shares subject to the option and the option's exercisability. The maximum exercisable
period of options granted under the Option Plan is five years. In addition to the options that can be granted under the Option Plan, the Company also granted stock purchase rights to purchase 262,076 Common Shares to certain of the directors and key
employees prior to its December 1996 initial public offering and granted stock purchase rights to purchase 100,000 Common Shares to a director during the year ended March 31, 2004. </FONT>
</P>
<P>
<FONT size=2 face="serif">The options vest in accordance with the terms of the agreements entered into by the Company and the grantee of the options. </FONT>
</P>
</DIV>
<P align="center">
<FONT size=2 face="serif">F - 23</FONT>
</P>

<HR noshade align="center" width="100%" size=1 style="PAGE-BREAK-AFTER: ALWAYS" color="#66FF99">



<A name="page_F-25"></A>

<P align="center">
<FONT size=2 face="serif">HIGHWAY HOLDINGS LIMITED AND SUBSIDIARIES </FONT>
</P>
<P align="center">
<FONT size=2 face="serif">NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued<BR>(Dollars in thousands except share and per share data) </FONT>
</P>
<P>
<FONT size=2 face="serif">13.</FONT>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">EMPLOYEE STOCK OPTIONS AND STOCK PURCHASE RIGHTS - continued</FONT>
</P>
<DIV style="DISPLAY: block; MARGIN-LEFT: 18pt;" align=left>
<P>
<FONT size=2 face="serif"> 	The following summarizes the stock purchase rights and options outstanding: </FONT>
</P>
<TABLE border=0 cellspacing=0 cellpadding=0 width="95%">
  <TR>
    <TD width="80%" nowrap>&nbsp;</TD>
    <TD colspan=5 align="center" nowrap><FONT size=2 face="serif">Stock</FONT></TD>
    <TD align="center" nowrap>&nbsp;</TD>
    <TD colspan=5 align="center" nowrap>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%" nowrap>&nbsp;</TD>
    <TD colspan=5 align="center" nowrap><U><FONT size=2 face="serif">purchase
      rights</FONT></U></TD>
    <TD align="center" nowrap>&nbsp;</TD>
    <TD colspan=5 align="center" nowrap><U><FONT size=2 face="serif">Stock options</FONT></U></TD>
    <TD align="center">&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%" nowrap>&nbsp;</TD>
    <TD colspan=3 align="center" nowrap><FONT size=2 face="serif">Average</FONT></TD>
    <TD nowrap>&nbsp;</TD>
    <TD align="center" nowrap>&nbsp;</TD>
    <TD align="center" nowrap>&nbsp;</TD>
    <TD colspan=3 align="center" nowrap><FONT size=2 face="serif">Average</FONT></TD>
    <TD nowrap>&nbsp;</TD>
    <TD align="center" nowrap>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%" nowrap>&nbsp;</TD>
    <TD colspan=3 align="center" nowrap><FONT size=2 face="serif">exercise</FONT></TD>
    <TD nowrap>&nbsp;</TD>
    <TD align="center" nowrap><FONT size=2 face="serif">Number</FONT></TD>
    <TD align="center" nowrap>&nbsp;</TD>
    <TD colspan=3 align="center" nowrap><FONT size=2 face="serif">exercise</FONT></TD>
    <TD nowrap>&nbsp;</TD>
    <TD align="center" nowrap><FONT size=2 face="serif">Number</FONT></TD>
    <TD align="center">&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%" nowrap>&nbsp;</TD>
    <TD colspan=3 align="center" nowrap><FONT size=2 face="serif">price</FONT></TD>
    <TD nowrap>&nbsp;</TD>
    <TD align="center" nowrap><FONT size=2 face="serif">of shares</FONT></TD>
    <TD align="center" nowrap>&nbsp;</TD>
    <TD colspan=3 align="center" nowrap><FONT size=2 face="serif">price</FONT></TD>
    <TD nowrap>&nbsp;</TD>
    <TD align="center" nowrap><FONT size=2 face="serif">of shares</FONT></TD>
    <TD align="center">&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%" nowrap>&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%" nowrap><FONT size=2 face="serif">April 1, 2002</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;$</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">1.6683</FONT></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;185,628</FONT></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;$</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">2.6115</FONT></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;372,500</FONT></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="80%" nowrap><FONT size=2 face="serif">Stock purchase rights lapsed</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">1.5500</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">(100,000</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%" nowrap><FONT size=2 face="serif">Stock options lapsed/cancelled</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif"><FONT size=2 face="serif">&#151;</FONT></FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">3.8909</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">(132,000</FONT></TD>
    <TD><FONT size=2 face="serif">) </FONT></TD>
  </TR>
  <TR>
    <TD width="80%" nowrap>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><HR noshade size="1"></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="80%" nowrap><FONT size=2 face="serif">March 31, 2003</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">$</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">1.8065</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">85,628</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">$</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">1.9093</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">240,500</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%" nowrap><FONT size=2 face="serif">Stock purchase rights granted</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">1.5500</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">100,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="80%" nowrap><FONT size=2 face="serif">Stock options granted</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">2.1986</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">168,000</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%" nowrap><FONT size=2 face="serif">Stock purchase rights exercised</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">1.5500</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">(52,847</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="80%" nowrap><FONT size=2 face="serif">Stock options exercised</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">1.8871</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">(85,500</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
  </TR>
  <TR>
    <TD width="80%" nowrap><FONT size=2 face="serif">Stock options lapsed/cancelled</FONT></TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif"><FONT size=2 face="serif">&#151;</FONT></FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">3.0000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif"> (14,500</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
  </TR>
  <TR>
    <TD width="80%" nowrap>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="80%" nowrap><FONT size=2 face="serif">March 31, 2004</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">$</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">1.7154</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif"> 132,781</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">$</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">2.0217</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif"> 308,500</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%" nowrap>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
  </TR>
</TABLE>
<P>
<FONT size=2 face="serif">All stock purchase rights are exercisable at March 31, 2002, 2003 and 2004 while the stock options granted during the year end March 31, 2004 have a one year vesting period. </FONT>
</P>
<P>
<FONT size=2 face="serif">Additional information on options and stock purchase rights outstanding at March 31, 2004 is as </FONT>
</P>
<TABLE border=0 cellspacing=0 cellpadding=0 width="95%">
  <TR>
    <TD width="80%" align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center"><FONT size=2 face="serif">Weighted</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%" align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center"><FONT size=2 face="serif">average</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%" align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center"><FONT size=2 face="serif">remaining</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%" align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center"><FONT size=2 face="serif">Number</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="center"><FONT size=2 face="serif">contractual</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%" align="left"><U><FONT size=2 face="serif">Exercise prices</FONT></U></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD colspan="2" align="center"><U><FONT size=2 face="serif">outstanding</FONT></U></TD>
    <TD>&nbsp;</TD>
    <TD align="center"><U><FONT size=2 face="serif">life (years)</FONT></U></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%" align="left"><FONT size=2 face="serif">$</FONT><FONT size=2 face="serif">1.1875</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">40,500</FONT></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center"><FONT size=2 face="serif">1.0</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="80%" align="left"><FONT size=2 face="serif">$</FONT><FONT size=2 face="serif">1.4700</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">96,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center"><FONT size=2 face="serif">4.2</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%" align="left"><FONT size=2 face="serif">$</FONT><FONT size=2 face="serif">1.5500</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">100,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center"><FONT size=2 face="serif">4.2</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="80%" align="left"><FONT size=2 face="serif">$</FONT><FONT size=2 face="serif">2.0625</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">100,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center"><FONT size=2 face="serif">0.5</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%" align="left"><FONT size=2 face="serif">$</FONT><FONT size=2 face="serif">2.2200</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">32,781</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center"><FONT size=2 face="serif">0.5</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="80%" align="left"><FONT size=2 face="serif">$</FONT><FONT size=2 face="serif">3.1700</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif"> 72,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center"><FONT size=2 face="serif">4.6</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif"> 441,281</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center"><FONT size=2 face="serif">2.9</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
</TABLE>
<P>
<FONT size=2 face="serif">At of March 31, 2003 and 2004, there were 326,128 and 273,281, respectively, of stock options/purchase rights exercisable. </FONT>
</P>
</DIV>
<P align="center">
<FONT size=2 face="serif">F - 24 </FONT>
</P>

<HR noshade align="center" width="100%" size=1 style="PAGE-BREAK-AFTER: ALWAYS" color="#66FF99">



<A name="page_F-26"></A>

<P align="center">
<FONT size=2 face="serif">HIGHWAY HOLDINGS LIMITED AND SUBSIDIARIES </FONT>
</P>
<P align="center">
<FONT size=2 face="serif">NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued<br>(Dollars in thousands except share and per share data)
</FONT>
</P>
<P>
<FONT size=2 face="serif">14.</FONT>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">SEGMENT INFORMATION </FONT>
</P>
<DIV style="DISPLAY: block; MARGIN-LEFT: 18pt;" align=left>
<P>
<FONT size=2 face="serif"> 	The Company's chief operating decision maker evaluates segment performance and allocates resources based on several factors, of which the primary financial measure is operating (loss) income. </FONT>
</P>
<P>
<FONT size=2 face="serif">The Company considers its reportable segments to be metal stamping, the manufacture and assembly of cameras, and clocks and watches. A summary of the net sales, profitability information and asset information by segment and
geographical areas is shown below: </FONT>
</P>
<TABLE border=0 cellspacing=0 cellpadding=0 width="95%">
  <TR>
    <TD width="75%" nowrap>&nbsp;</TD>
    <TD align="center" colspan=8><FONT size=2 face="serif">Year ended March 31,</FONT></TD>
    <TD align="center">&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%" nowrap>&nbsp;</TD>
    <TD align="center" colspan=8><HR noshade size=1></TD>
    <TD align="center">&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%" nowrap>&nbsp;</TD>
    <TD align="center" colspan=2><U><FONT size=2 face="serif">2002</FONT></U></TD>
    <TD align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="center" colspan=2><U><FONT size=2 face="serif">2003</FONT></U></TD>
    <TD align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="center" colspan=2><U><FONT size=2 face="serif">2004</FONT></U></TD>
    <TD align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%" nowrap>&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%" nowrap><FONT size=2 face="serif">Net sales:</FONT></TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%" nowrap>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Metal stamping:</FONT></TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%" nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Unaffiliated
      customers</FONT></TD>
    <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12,024</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11,688</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;14,786</FONT></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="75%" nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Intersegment
      sales</FONT></TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> 402</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> 529</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> 1,190</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%" nowrap>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%" nowrap>&nbsp;</TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"> 12,426</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"> 12,217</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"> 15,976</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%" nowrap>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%" nowrap>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Cameras:</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="75%" nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Unaffiliated
      customers</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">4,541</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">4,910</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">5,990</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%" nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Intersegment
      sales</FONT></TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"> 790</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"> 618</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"> 413</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%" nowrap>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="75%" nowrap>&nbsp;</TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> 5,331</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> 5,528</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> 6,403</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%" nowrap>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%" nowrap>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Clocks and watches:</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%" nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Clocks:</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%" nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Unaffiliated
      customers</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">2,867</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">3,772</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">4,580</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="75%" nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Intersegment
      sales</FONT></TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> 319</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> 205</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> 415</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%" nowrap>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%" nowrap>&nbsp;</TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"> 3,186</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"> 3,977</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"> 4,995</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%" nowrap>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%" nowrap>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Corporate:</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="75%" nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Intersegment
      sales</FONT></TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> 1,606</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> 1,506</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> 1,209</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%" nowrap>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%" nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Intersegment
      eliminations</FONT></TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"> (3,117</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"> (2,858</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"> (3,227</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
  </TR>
  <TR>
    <TD width="75%" nowrap>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="75%" nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Total net
      sales</FONT></TD>
    <TD><FONT size=2 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">19,432</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">20,370</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">25,356</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%" nowrap>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%" nowrap><FONT size=2 face="serif">Operating (loss) income:</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%" nowrap>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Metal stamping</FONT></TD>
    <TD><FONT size=2 face="serif">$</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">1,015</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif">$</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">1,054</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif">$</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">1,304</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="75%" nowrap>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Cameras</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">(385</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">(234</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">41</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%" nowrap>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Clocks and watches</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">(658</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">(466</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">(323</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="75%" nowrap>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Corporate expenses (net)</FONT></TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> (213</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> (195</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> (147</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
  </TR>
  <TR>
    <TD width="75%" nowrap>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%" nowrap>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Total operating (loss) income</FONT></TD>
    <TD><FONT size=2 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">(241</FONT></TD>
    <TD><FONT size=2 face="serif">)</FONT></TD>
    <TD><FONT size=2 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">159</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">875</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%" nowrap>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
  </TR>
</TABLE>
</DIV>
<P align="center">
<FONT size=2 face="serif">F - 25</FONT>
</P>

<HR noshade align="center" width="100%" size=1 style="PAGE-BREAK-AFTER: ALWAYS" color="#66FF99">



<A name="page_F-27"></A>

<P align="center">
<FONT size=2 face="serif">HIGHWAY HOLDINGS LIMITED AND SUBSIDIARIES </FONT>
</P>
<P align="center"> <FONT size=2 face="serif">NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  - continued<BR>(Dollars in thousands) </FONT> </P>
<P>
<FONT size=2 face="serif">14.</FONT>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">SEGMENT INFORMATION - continued </FONT>
</P>
<DIV style="DISPLAY: block; MARGIN-LEFT: 18pt;" align=left>
<TABLE border=0 cellspacing=0 cellpadding=0 width="95%">
  <TR>
    <TD width="75%">&nbsp;</TD>
    <TD colspan="8" align="center"><FONT size=2 face="serif">Year ended March
      31,</FONT></TD>
    <TD align="center">&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%">&nbsp;</TD>
    <TD colspan="8"><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%">&nbsp;</TD>
    <TD colspan="2" align="center"><div align="center"><U><FONT size=2 face="serif">2002</FONT></U></div>
      <DIV align="right"></DIV></TD>
    <TD align="center"><DIV align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</DIV></TD>
    <TD colspan="2" align="center"><u><font size=2 face="serif">2003</font></u>
      <DIV align="right"></DIV></TD>
    <TD align="center"><DIV align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</DIV></TD>
    <TD colspan="2" align="center"><div align="center"><U><FONT size=2 face="serif">2004</FONT></U></div></TD>
    <TD align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%">&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%"><FONT size=2 face="serif">Interest expense:</FONT></TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Metal stamping</FONT></TD>
    <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;76</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;55</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;67</FONT></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="75%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Cameras</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">3</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">5</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">2</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Clocks and watches</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">3</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">4</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">8</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="75%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Corporate expense
      (net)</FONT></TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%">&nbsp;</TD>
    <TD colspan=2><HR noshade size="2"></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size="2"></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size="2"></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Total interest
      expense</FONT></TD>
    <TD><FONT size=2 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">82</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">64</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><FONT size=2 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">77</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%">&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%"><FONT size=2 face="serif">Depreciation and amortization expense:</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="75%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Metal stamping</FONT></TD>
    <TD><FONT size=2 face="serif">$</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">591</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif">$</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">636</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif">$</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">588</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Cameras</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">228</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">126</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">148</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="75%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Clocks and watches</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">142</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">268</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">290</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Corporate assets</FONT></TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"> 107</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"> 100</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"> 86</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%">&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="75%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Total depreciation
      and amortization</FONT></TD>
    <TD><FONT size=2 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">1,068</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">1,130</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><FONT size=2 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">1,112</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%">&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%"><FONT size=2 face="serif">Capital expenditure:</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Metal stamping</FONT></TD>
    <TD><FONT size=2 face="serif">$</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">335</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif">$</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">165</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif">$</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">896</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="75%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Cameras</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">147</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">99</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">95</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Clocks and watches</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">83</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">201</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">209</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="75%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Corporate assets</FONT></TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> 26</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> 18</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> 17</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%">&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Total capital
      expenditure</FONT></TD>
    <TD><FONT size=2 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">591</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">483</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">1,217</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%">&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" colspan=5><U><FONT size=2 face="serif">As at March 31,</FONT></U></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><U></U></TD>
    <TD colspan=2 align="center"><u><font size=2 face="serif">2003</font></u></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center"><U><FONT size=2 face="serif">2004</FONT></U></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%"><FONT size=2 face="serif">Identifiable assets:</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="75%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Metal stamping</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><div align="left"><font size=2 face="serif">$</font></div></TD>
    <TD align="right"><FONT size=2 face="serif">8,060</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif">$</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">10,635</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Cameras</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><div align="left"></div></TD>
    <TD align="right"><FONT size=2 face="serif">3,082</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">3,078</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="75%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Clocks and watches</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><div align="left"></div></TD>
    <TD align="right"><FONT size=2 face="serif">4,632</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">4,316</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Corporate assets</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">&nbsp; </FONT></TD>
    <TD align="right"><div align="left"></div></TD>
    <TD align="right"><font size=2 face="serif">720</font></TD>
    <TD>&nbsp;</TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"> 659</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><hr align="left" size=1 noshade></TD>
    <TD><hr align="left" size=1 noshade></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="75%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Total identifiable
      assets</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif">&nbsp; </FONT></TD>
    <TD align="right"><div align="left"><font size=2 face="serif">$</font></div></TD>
    <TD align="right"><font size=2 face="serif">16,494</font></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><FONT size=2 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">18,688</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><hr align="left" size=2 noshade></TD>
    <TD><hr align="left" size=2 noshade></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%"><FONT size=2 face="serif">Long-lived assets:</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><div align="left"></div></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Metal stamping</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><div align="left"><font size=2 face="serif">$</font></div></TD>
    <TD align="right"><FONT size=2 face="serif">2,606</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif">$</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">2,924</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="75%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Cameras</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><div align="left"></div></TD>
    <TD align="right"><FONT size=2 face="serif">363</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">293</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Clocks and watches</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><div align="left"></div></TD>
    <TD align="right"><FONT size=2 face="serif">1,520</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">1,242</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="75%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Corporate assets</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">&nbsp; </FONT></TD>
    <TD align="right"><div align="left"></div></TD>
    <TD align="right"><font size=2 face="serif">2</font></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> 1</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><div align="left">
        <hr noshade size=1>
      </div></TD>
    <TD><hr noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%">&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Total long-lived
      assets</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif">&nbsp; </FONT></TD>
    <TD align="right"><div align="left"><font size=2 face="serif">$</font></div></TD>
    <TD align="right"><font size=2 face="serif">4,491</font></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><FONT size=2 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">4,460</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="75%">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><hr noshade size=2></TD>
    <TD><hr noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
  </TR>
</TABLE>
</DIV>
<P align="center">
<FONT size=2 face="serif">F - 26</FONT>
</P>

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<A name="page_F-28"></A>

<P align="center">
<FONT size=2 face="serif">HIGHWAY HOLDINGS LIMITED AND SUBSIDIARIES </FONT>
</P>
<P align="center">
<FONT size=2 face="serif">NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued<BR>(Dollars in thousands) </FONT>
</P>
<P>
<FONT size=2 face="serif">14.</FONT>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">SEGMENT INFORMATION - continued </FONT>
</P>
<DIV style="DISPLAY: block; MARGIN-LEFT: 18pt;" align=left>
<P>
<FONT size=2 face="serif"> 	All of the Company's sales are co-ordinated through its head office in Hong Kong and the breakdown by destination is as follows: </FONT>
</P>
<TABLE border=0 cellspacing=0 cellpadding=0 width="95%">
  <TR>
    <TD width="80%" nowrap>&nbsp;</TD>
    <TD align="center" colspan=8><FONT size=2 face="serif">Year ended March 31,</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%" nowrap>&nbsp;</TD>
    <TD align="center" colspan=8><hr noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%" nowrap>&nbsp;</TD>
    <TD align="center" colspan=2><U><FONT size=2 face="serif">2002</FONT></U></TD>
    <TD>&nbsp;</TD>
    <TD align="center" colspan=2><U><FONT size=2 face="serif">2003</FONT></U></TD>
    <TD>&nbsp;</TD>
    <TD align="center" colspan=2><U><FONT size=2 face="serif">2004</FONT></U></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%" nowrap>&nbsp;</TD>
    <TD colspan=2>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan=2>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan=2>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%" nowrap><FONT size=2 face="serif">Net sales:</FONT></TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%" nowrap>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Hong Kong and China</FONT></TD>
    <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11,766</FONT></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12,975</FONT></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16,748</FONT></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="80%" nowrap>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Other Asian countries</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">322</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">259</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">596</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%" nowrap>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Europe</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">6,097</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">5,245</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">6,004</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="80%" nowrap>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">USA</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">1,060</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">1,533</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">621</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%" nowrap>&nbsp;&nbsp;&nbsp;<FONT size=2 face="serif">Others</FONT></TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"> 187</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"> 358</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right" colspan=2><FONT size=2 face="serif"> 1,387</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%" nowrap>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="80%" nowrap>&nbsp;</TD>
    <TD><FONT size=2 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">19,432</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">20,370</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">25,356</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="80%" nowrap>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
  </TR>
</TABLE>
<P>
<FONT size=2 face="serif">The locations of the Company's identifiable assets are as follows:</FONT>
</P>
<TABLE border=0 cellspacing=0 cellpadding=0 width="95%">
  <TR>
    <TD width="85%" nowrap>&nbsp;</TD>
    <TD align="center" colspan=5><U><FONT size=2 face="serif">As at March 31,</FONT></U></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="85%" nowrap>&nbsp;</TD>
    <TD align="center" colspan=2><U><FONT size=2 face="serif">2003</FONT></U></TD>
    <TD>&nbsp;</TD>
    <TD align="center" colspan=2><U><FONT size=2 face="serif">2004</FONT></U></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="85%" nowrap>&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" colspan=2>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="85%" nowrap><FONT size=2 face="serif">Hong Kong</FONT></TD>
    <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7,060</FONT></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD><FONT size=2 face="serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9,103</FONT></TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="85%" nowrap><FONT size=2 face="serif">China</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">6,938</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">7,666</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="85%" nowrap><FONT size=2 face="serif">Europe</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">2,387</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT size=2 face="serif">1,603</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR bgcolor="#66FF99">
    <TD width="85%" nowrap><FONT size=2 face="serif">USA</FONT></TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> 109</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2 align="right"><FONT size=2 face="serif"> 316</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="85%" nowrap>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=1></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="85%" nowrap>&nbsp;</TD>
    <TD><FONT size=2 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">16,494</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size=2 face="serif"> $</FONT></TD>
    <TD align="right"><FONT size=2 face="serif">18,688</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="85%" nowrap>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
    <TD colspan=2><HR noshade size=2></TD>
    <TD>&nbsp;</TD>
  </TR>
</TABLE>
</DIV>
<P align="center">
<FONT size=2 face="serif">*</FONT>&nbsp;<FONT size=2 face="serif">* * * * * </FONT>
</P>
<P align="center">
<FONT size=2 face="serif">F - 27 </FONT>
</P>

<hr noshade align="center" width="100%" size=1 style="PAGE-BREAK-AFTER: ALWAYS" color="#66FF99">
<P>
<B><FONT face="serif">Item 19. Exhibits. </FONT></B>
</P>
<P>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT face="serif">The following exhibits are filed as part of this annual report: </FONT>
</P>
<P>
<FONT face="serif">1.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Memorandum and Articles of Association, as amended, of Highway Holdings Limited, (incorporated by reference to Exhibit 1.1 of registrant's Form 20-F for the year ended March 31, 2001.) </FONT>
</P>
<P>
<FONT face="serif">1.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amendment to Memorandum and Articles of Association, as filed on January 20, 2003 (incorporated by reference to Exhibit 1.2 of registrant's Form 20-F for the year ended March 31, 2002.)  </FONT>
</P>
<P>
<FONT face="serif">4.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1996 Stock Option Plan (incorporated by reference to Exhibit 10.32 of the registrant&#146;s Registration Statement on Form F-1, Reg. No. 333-05980, filed with the SEC on November 8, 1996.) </FONT>
</P>
<P>
<FONT face="serif">4.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Form of Stock Option Agreement, dated October 16, 1999, between the Company and Roland W. Kohl (incorporated by reference to the registrant&#146;s Annual Report on Form 20-F for the fiscal year ended March 31, 2002). </FONT>
</P>
<P>
<FONT face="serif">4.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;License and Supply Agreement, dated as of January 30, 2003, is entered into by and between Highway Holdings Limited and Kienzle AG (incorporated by reference to Exhibit 4.3 of registrant's Form 20-F for the year ended March
31, 2003).</FONT>
</P>
<P>
<FONT face="serif">4.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Form of Longcheng Industrial Area Common Property Tenancy Contract No. WJ-003, dated October 10, 2003, between the Company and Shenzhen Land &amp; Sun Industrial &amp; Trade Co., Ltd.</FONT>
</P>
<P>
<FONT face="serif">4.5&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Form of Longcheng Industrial Area Common Property Tenancy Contract No. WJ-004, dated November 28, 2003, between the Company and Shenzhen Land &amp; Sun Industrial &amp; Trade Co., Ltd.</FONT>
</P>
<P>
<FONT face="serif">4.6&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Form of Longcheng Industrial Area Common Property Tenancy Contract No. WJ-005, dated December 11, 2003, between the Company and Shenzhen Land &amp; Sun Industrial &amp; Trade Co., Ltd.</FONT>
</P>
<P>
<FONT face="serif">4.7&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Form of Longcheng Industrial Area Common Property Tenancy Contract No. HTHT-006, dated December 12, 2003, between the Company and Shenzhen Land &amp; Sun Industrial &amp; Trade Co., Ltd.</FONT>
</P>
<P>
<FONT face="serif">4.8&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Form of Longcheng Industrial Area Common Property Tenancy Contract, dated December 29, 2003, between the Company and Shenzhen Land &amp; Sun Industrial &amp; Trade Co., Ltd.</FONT>
</P>
<P align="center">
<FONT face="serif">- 58 </FONT>
</P>

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<A name="page_61"></A>

<P>
<FONT face="serif">4.9&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Tenancy Agreement, dated October 30, 2003, between Nissin Precision Metal Manufacturing Limited and SHK Sheung Shui Landmark Investment Limited, as amended February 23, 2004. </FONT>
</P>
<P>
<FONT face="serif">4.10&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;General Business Agreement, dated April 29, 2004, between Berger Lahr GmbH &amp; Co. KG and Kayser Technik Ltd., the Company's metal manufacturing subsidiary. </FONT>
</P>
<P>
  <FONT face="serif">8.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;List of all of registrant&#146;s subsidiaries, their jurisdictions of incorporation, and the names under which they do business. </FONT>
</P>
<P>
<FONT face="serif">12.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certifications pursuant to Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 </FONT>
</P>
<P>
<FONT face="serif">14.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Code of Ethics </FONT>
</P>
<P>
<FONT face="serif">23.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Consent Of Independent Registered Public Accounting Firm </FONT>
</P>
<P>
<FONT face="serif">99.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 </FONT>
</P>
<P align="center">
<FONT face="serif">- 59</FONT>
</P>

<HR noshade align="center" width="100%" size=1 style="PAGE-BREAK-AFTER: ALWAYS" color="#66FF99">




<A name="page_62"></A>

<P align="center">
<B><FONT face="serif">SIGNATURES </FONT></B>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="serif">The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and has duly caused this Annual Report to be signed on its behalf. </FONT>
</P>
<TABLE width="100%" border=0 cellspacing=0 cellpadding=0>
  <TR>
    <TD width="50%">&nbsp;</TD>
    <TD colspan=2><FONT face="serif">HIGHWAY HOLDINGS LIMITED</FONT></TD>
  </TR>
  <TR>
    <TD width="50%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD>&nbsp;</TD>
    <TD><FONT face="serif">By</FONT></TD>
    <TD align="center" width="43%"><DIV align="left"><FONT face="serif">/s/ PO
        S. FONG</FONT></DIV></TD>
  </TR>
  <TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" width="43%"><DIV align="left"><FONT face="serif">Po S.
        Fong</FONT></DIV></TD>
  </TR>
  <TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD width="43%"><DIV align="left"><I><FONT face="serif">Chief Financial Officer
        and</FONT></I></DIV></TD>
  </TR>
  <TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD width="43%"><DIV align="left"><I><FONT face="serif">Secretary</FONT></I></DIV></TD>
  </TR>
  <TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV align="left"></DIV></TD>
  </TR>
  <TR>
    <TD>&nbsp;</TD>
    <TD><FONT face="serif">Date:</FONT></TD>
    <TD width="43%"><DIV align="left"><FONT face="serif">June 23, 2004</FONT></DIV></TD>
  </TR>
</TABLE>
<P align="center">&nbsp;
</P>
<HR noshade align="center" width="100%" size=1 color="#66FF99">
</BODY>
</HTML>


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.4
<SEQUENCE>2
<FILENAME>v04060_ex4-4.txt
<TEXT>
EXHIBIT 4.4

Longcheng Industrial Area Common Property Tenancy Contract

Contract No:      WJ-003

Lessor (Party A): Shenzhen Land & Sun Industrial & Trade Co., Ltd.

Lessee(Party B):  China Bao An Long Cheng Hi-Lite Electronic Factory, Shenzhen
                  Long Cheng Industrial Co., Ltd Plastic Metal Fty, Shenzhen
                  Long Cheng Nissin Precision Metal Plastic Factory

Place:            Shenzhen City, Longhua Zhen

Date:             10th October, 2003

      In accordance with The Contract Law of the People's Republic of China and
the relevant regulations, for the purpose of clarifying the rights and duties of
the lessor and lessee, after negotiation, both parties have come to an agreement
and this contract is made.

ARTICLE ONE: NAME AND AREA (BY CONSTRUCTION FLOOR AREA) OF THE LEASED PROPERTY:

      Party A provides the J-6 factory, the total construction area is 687
square meters.

ARTICLE TWO: PAYMENT OF RENT AND OTHER EXPENSES

      Party B shall pay the rent and management fee in the amount of
Rmb4,809--(equivalent to Rmb7 per square meter) to party A every month. The rent
shall be settled every month. Party B shall pay the rent of the month before the
10th day of the month by cash or by transferring accounts to Party A or by
remittance to Party's account. Rental fee will be increased by 1% per year.

ARTICLE THREE: DEPOSIT

      Party B shall pay two month's deposit of rent and management fee in the
amount of Rmb9,618-- to party A. After deducting any unpaid rent and renovation
fee from the deposit, Party A shall return the balance to party B.

ARTICLE FOUR: TERM OF TENANCY

      The term of this lease is starting from October 1st, 2003 to February
28th, 2009 with effect on October 1st, 2003.


                                       1
<PAGE>

ARTICLE FIVE: MAINTENANCE OF THE LEASED PROPERTY DURING THE TERMS OF THE LEASE

      During the terms of this contract, with the approval of Party A to alter
the structure of the leased property, Party B shall be responsible the cost of
the alternation. It is the responsibility of Party A to maintain the leased
property in good condition. Party B is responsible for the maintenance cost of
the leased property due to natural damage.

The terms of maintaining the leased property:

1.    The main structure of the leased property should be kept in good
      conditions. For any change of the structure of the leased property, Party
      B should get the approval from Party A.

2.    The leased property and all accessory facilities cannot be changed and
      damaged.

3.    The doors and glass should be maintained in good conditions. The windows
      should not be painted by any colour paint.

4.    To ensure the supply of water and electricity is sufficient for the leased
      property. The drainage system and the fire exit should not be blocked.

ARTICLE SIX: DUTIES FOR BOTH PARTY A AND PARTY B:

Party A's duties:

1.    To deliver the factory, dormitory, apartments, and canteen to Party B as
      scheduled and be responsible for the water supply, road access, and
      electricity supply .

2.    To assist Party B in handling the formalities of obtaining business
      license, tax registration (all necessary expense to be borne by Party B)

3.    During the term of this contract, Party A shall use its best endevaours to
      assist Party B in resolving some difficulties in the actual operations.

4.    To guarantee the safety from fire, the good hygienic condition of the
      environment and deal with the complaints promptly.



                                       2
<PAGE>


Party B's Duties:

1.    To pay the rent and other related expense as scheduled.

2.    To be responsible for the water, electricity and other charges for the
      leased factory, apartments, canteen and dormitory (including public
      facilities such as kitchen, etc.) Party B shall also be liable to the
      maintenance of the leased factory, dormitory, apartments, canteen, kitchen
      and other facilities during the period of tenancy (Party A can provide
      services for consideration)

3.    Party B shall, during the term of this lease, comply with the relevant
      laws, orders of China and the relevant regulations and shall obey the
      unified management rules and regulations of the industrial area. Shall not
      conduct any activities in violation of the laws, damaging the public
      interests or changing the contents stipulated in this contract.

4.    Not to sub-lease the leased factory, apartments, dormitory or canteen to a
      third party operator.

5.    Factory owners shall designate a person to be responsible for fire
      prevention and shall establish a fire prevention team of 5-7 persons,
      install fire fighting equipment in the factory as required by the
      regulations. Fire exits of the factory and dormitory shall not be blocked
      and offenders of this rule will be dealt with as offenders of the fire
      prevention regulations. The fixed fire fighting equipment, water tank,
      factory owners shall not install iron door in the leased factory or
      dormitory, use the water in the fire-fighting water tank and the fire
      hydrant improperly such as to clean the floor. Offenders shall be fined
      and shall be dealt with according to the fire prevention regulations.

6.    Party B shall not, during the term of this lease affect the normal
      business of other factory owners and people when using the public
      facilities and common areas; and shall educate the staff to protect the
      public property and pay compensation according to price if damaged.

7.    If Party B alters the leased factory, dormitory, canteen, kitchen and
      other building structure and facilities without the prior consent of Part
      A, Party B shall pay Party A a compensation equivalent to 100% of the
      value of the altered facilities.

      If Party B is seriously in breach of sub-articles 1,3,4,7, of Article Six
      (Party B's duties), Party A is entitled to dissolve this tenancy
      relationship, terminate this tenancy contract, and repossess the property.
      Party B's security deposit shall be forfeited by Party A for no
      consideration. Party B shall bear all the consequences arising there from.



                                       3
<PAGE>


      If Party A is seriously in breach of its duties under Article Six (Part
      A's duties) and does not deal with in promptly, Party B is entitled to
      investigate and affix responsibility.

ARTICLE SEVEN: LIABILITIES OF BREACH OF CONTRACT

Liabilities of Party A for breach of this tenancy contract:

1.    Fail to deliver possession of the leased property to the lessee as
      scheduled in contract.

2.    Fail to provide the relevant equipment to lessee as scheduled in contract.

Liabilities of Party B for breach of this tenancy contract:

1.    To be responsible for the necessary repair or compensation for damage to
      the leased property due to the improper use or maintenance by the lessee.

2.    To be responsible for the compensation of all losses arising from the
      unauthorized alterations of the leased property and equipment.

3.    Fail to return the leased property according to schedule after terminating
      the contract. Apart from the rent payable, the lessee shall pay the
      contractual penalty. Penalty for every day of delay is 0.1% of the monthly
      rent with a maximum delay of 30 days.

4.    Fail to pay the rent and expenses as scheduled. Unless paid on or before
      the due date, penalty shall be calculated according to the total
      outstanding amount owed by the lessee, with 0.1% of the total overdue
      amount per day as the overdue penalty.

      Calculating method:

      Total amount of the overdue penalty = total amount of rent and expense per
                                            month x No. of days overdue x 0.1%

Party A has the right to take the following actions if the Party B has breached
the contract according to the situation:

1.    Impose a fine of two month's rent and expense as the penalty for breach of
      contract;

2.    Order the lessee to move out and surrender the factory;

3.    If Party B fails to pay the rent and expense for 2 months, Party A is
      entitled to take legal action against Party B and claims back the entire
      unpaid fees.



                                       4
<PAGE>


ARTICLE EIGHT: EXEMPTION PROVISION

      Party B shall not be liable for any repairs or compensations to Party A if
the damages or losses of the leased property are caused by the force majeure.
However, Party B shall report and explain the situation to Party A and give the
legal documents from the relevant departments to Party A if necessary.

ARTICLE NINE: DISPUTE RESOLUTION

      If a dispute arises during the performance of this contract, both parties
shall resolve the dispute through consultation. If the dispute cannot be
resolved through consultation, the dispute shall be submitted to the authority
in charge of this contract for arbitration or to a People's Court with competent
jurisdiction for adjudication.

ARTICLE TEN: OTHER MATTERS

1.    During the term of this contract, if any party proposes to terminate this
      contract before its expiration, that party shall give a written report to
      the other party 6 months in advance. If both parties agree to the
      termination after negotiation, this contract may be terminated. The party
      proposing to terminate this contact shall pay the other party 3 months'
      rent as penalty for breach of contract.

2.    If Party B does not extend this contract after its expiration, Party B
      shall repair and restore the leased property according to the relevant
      standards and pay all the fees. Then Party B shall return all the security
      deposits to Party B once and for all. If the repair is done by Party A,
      the costs of repair shall be deducted from the deposits.

3.    If the lessee wishes to extend the tenancy, the lessee shall submit a
      written application to the lessor within 6 months before the expiration of
      this lease. The lessee shall have the preferential right to lease the
      property under equal conditions, but a new contract needs to be executed
      by both parties.

4.    Any matters not clearly stated in this contract will follow the relevant
      regulations in the Economic Contract Law of the People's Republic of
      China. Supplementary regulations may be made by agreement between both
      parties through consultation and such supplementary regulations shall have
      the equal legal effect as this contract.

5.    The terms of this contract is originally written in Chinese characters.
      This contract is in a form of four copies. Party A and B have two copies
      respectively having the same legal effect. It comes into effect after it
      has been signed and stamped by the representative from both parties.




                                       5
<PAGE>


Lessor(stamp)                   (Chop of Shenzhen Land & Sun Industrial &
                                Trade Co., Ltd.)

Unit address:

Legal Representative:           (Signature)

Agent:

Telephone no:

Bank account:

Number of bank account:

Lessee (stamp):                 (Chop of Shenzhen Long Cheng Industrial Co.,
                                Ltd. Plastic Metal Fty.)

                                (Chop of China Bao An Long Cheng Hi-Lite
                                Electronic Factory)

                                (Chop of Shenzhen Long Cheng Nissin Precision
                                Metal Plastic Factory)

Unit Address:

Legal Representative:           (Signature)

Agent:

Telephone no:

Bank account:

Number of bank account:


                                       6



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.5
<SEQUENCE>3
<FILENAME>v04060_ex4-5.txt
<TEXT>
EXHIBIT 4.5

Longcheng Industrial Area Common Property Tenancy Contract

Contract No:      WJ-004

Lessor (Party A): Shenzhen Land & Sun Industrial & Trade Co., Ltd.

Lessee(Party B):  China Bao An Long Cheng Hi-Lite Electronic Factory, Shenzhen
                  Long Cheng Industrial Co., Ltd Plastic Metal Fty, Shenzhen
                  Long Cheng Nissin Precision Metal Plastic Factory

Place:            Shenzhen City, Longhua Zhen

Date:             28th November, 2003

      In accordance with The Contract Law of the People's Republic of China and
the relevant regulations, for the purpose of clarifying the rights and duties of
the lessor and lessee, after negotiation, both parties have come to an agreement
and this contract is made.

ARTICLE ONE: NAME AND AREA (BY CONSTRUCTION FLOOR AREA) OF THE LEASED PROPERTY:

      Party A provides second floor of building number seven and second floor of
building number twelve factory, the total construction area is 2,120 square
meters.

ARTICLE TWO: PAYMENT OF RENT AND OTHER EXPENSES

      Party B shall pay the rent and management fee in the amount of Rmb25,440--
(equivalent Rmb12 per square meter) to party A every month. The rent shall be
settled every month. Party B shall pay the rent of the month before the 10th day
of the month by cash or by transferring accounts to Party A or by remittance to
Party's account. Rental fee will be increased by 1% per year.

ARTICLE THREE: DEPOSIT

      Party B shall pay two month's deposit of rent and management fee in the
amount of Rmb50,880-- to party A. After deducting any unpaid rent and renovation
fee from the deposit, Party A shall return the balance to party B.


                                       1
<PAGE>

ARTICLE FOUR: TERM OF TENANCY

      The term of this lease is starting from December 1st, 2003 to February
28th, 2009 with effect on December 1st, 2003.

ARTICLE FIVE: MAINTENANCE OF THE LEASED PROPERTY DURING THE TERMS OF THE LEASE

      During the terms of this contract, with the approval of Party A to alter
the structure of the leased property, Party B shall be responsible the cost of
the alternation. It is the responsibility of Party A to maintain the leased
property in good condition. Party B is responsible for the maintenance cost of
the leased property due to natural damage.

The terms of maintaining the leased property:

1.    The main structure of the leased property should be kept in good
      conditions. For any change of the structure of the leased property, Party
      B should get the approval from Party A.

2.    The leased property and all accessory facilities cannot be changed and
      damaged.

3.    The doors and glass should be maintained in good conditions. The windows
      should not be painted by any colour paint.

4.    To ensure the supply of water and electricity is sufficient for the leased
      property. The drainage system and the fire exit should not be blocked.

ARTICLE SIX: DUTIES FOR BOTH PARTY A AND PARTY B:

Party A's duties:

1.    To deliver the factory, dormitory, apartments, and canteen to Party B as
      scheduled and be responsible for the water supply, road access, and
      electricity supply .

2.    To assist Party B in handling the formalities of obtaining business
      license, tax registration (all necessary expense to be borne by Party B)

3.    During the term of this contract, Party A shall use its best endevaours to
      assist Party B in resolving some difficulties in the actual operations.

4.    To guarantee the safety from fire, the good hygienic condition of the
      environment and deal with the complaints promptly.



                                       2
<PAGE>


Party B's Duties:

1.    To pay the rent and other related expense as scheduled.

2.    To be responsible for the water, electricity and other charges for the
      leased factory, apartments, canteen and dormitory (including public
      facilities such as kitchen, etc.) Party B shall also be liable to the
      maintenance of the leased factory, dormitory, apartments, canteen, kitchen
      and other facilities during the period of tenancy (Party A can provide
      services for consideration)

3.    Party B shall, during the term of this lease, comply with the relevant
      laws, orders of China and the relevant regulations and shall obey the
      unified management rules and regulations of the industrial area. Shall not
      conduct any activities in violation of the laws, damaging the public
      interests or changing the contents stipulated in this contract.

4.    Not to sub-lease the leased factory, apartments, dormitory or canteen to a
      third party operator.

5.    Factory owners shall designate a person to be responsible for fire
      prevention and shall establish a fire prevention team of 5-7 persons,
      install fire fighting equipment in the factory as required by the
      regulations. Fire exits of the factory and dormitory shall not be blocked
      and offenders of this rule will be dealt with as offenders of the fire
      prevention regulations. The fixed fire fighting equipment, water tank,
      factory owners shall not install iron door in the leased factory or
      dormitory, use the water in the fire-fighting water tank and the fire
      hydrant improperly such as to clean the floor. Offenders shall be fined
      and shall be dealt with according to the fire prevention regulations.

6.    Party B shall not, during the term of this lease affect the normal
      business of other factory owners and people when using the public
      facilities and common areas; and shall educate the staff to protect the
      public property and pay compensation according to price if damaged.

7.    If Party B alters the leased factory, dormitory, canteen, kitchen and
      other building structure and facilities without the prior consent of Part
      A, Party B shall pay Party A a compensation equivalent to 100% of the
      value of the altered facilities.

      If Party B is seriously in breach of sub-articles 1,3,4,7, of Article Six
      (Party B's duties), Party A is entitled to dissolve this tenancy
      relationship, terminate this tenancy contract, and repossess the property.
      Party B's security deposit shall be forfeited by Party A for no
      consideration. Party B shall bear all the consequences arising there from.


                                       3
<PAGE>

      If Party A is seriously in breach of its duties under Article Six (Part
      A's duties) and does not deal with in promptly, Party B is entitled to
      investigate and affix responsibility.

ARTICLE SEVEN: LIABILITIES OF BREACH OF CONTRACT

Liabilities of Party A for breach of this tenancy contract:

1.    Fail to deliver possession of the leased property to the lessee as
      scheduled in contract.

2.    Fail to provide the relevant equipment to lessee as scheduled in contract.

Liabilities of Party B for breach of this tenancy contract:

1.    To be responsible for the necessary repair or compensation for damage to
      the leased property due to the improper use or maintenance by the lessee.

2.    To be responsible for the compensation of all losses arising from the
      unauthorized alterations of the leased property and equipment.

3.    Fail to return the leased property according to schedule after terminating
      the contract. Apart from the rent payable, the lessee shall pay the
      contractual penalty. Penalty for every day of delay is 0.1% of the monthly
      rent with a maximum delay of 30 days.

4.    Fail to pay the rent and expenses as scheduled. Unless paid on or before
      the due date, penalty shall be calculated according to the total
      outstanding amount owed by the lessee, with 0.1% of the total overdue
      amount per day as the overdue penalty.

      Calculating method:

      Total amount of the overdue penalty = total amount of rent and expense per
                                             month x No. of days overdue x 0.1%

Party A has the right to take the following actions if the Party B has breached
the contract according to the situation:

1.    Impose a fine of two month's rent and expense as the penalty for breach of
      contract;

2.    Order the lessee to move out and surrender the factory;

3.    If Party B fails to pay the rent and expense for 2 months, Party A is
      entitled to take legal action against Party B and claims back the entire
      unpaid fees.



                                       4
<PAGE>


ARTICLE EIGHT: EXEMPTION PROVISION

      Party B shall not be liable for any repairs or compensations to Party A if
the damages or losses of the leased property are caused by the force majeure.
However, Party B shall report and explain the situation to Party A and give the
legal documents from the relevant departments to Party A if necessary.

ARTICLE NINE: DISPUTE RESOLUTION

      If a dispute arises during the performance of this contract, both parties
shall resolve the dispute through consultation. If the dispute cannot be
resolved through consultation, the dispute shall be submitted to the authority
in charge of this contract for arbitration or to a People's Court with competent
jurisdiction for adjudication.

ARTICLE TEN: OTHER MATTERS

1.    During the term of this contract, if any party proposes to terminate this
      contract before its expiration, that party shall give a written report to
      the other party 6 months in advance. If both parties agree to the
      termination after negotiation, this contract may be terminated. The party
      proposing to terminate this contact shall pay the other party 3 months'
      rent as penalty for breach of contract.

2.    If Party B does not extend this contract after its expiration, Party B
      shall repair and restore the leased property according to the relevant
      standards and pay all the fees. Then Party B shall return all the security
      deposits to Party B once and for all. If the repair is done by Party A,
      the costs of repair shall be deducted from the deposits.

3.    If the lessee wishes to extend the tenancy, the lessee shall submit a
      written application to the lessor within 6 months before the expiration of
      this lease. The lessee shall have the preferential right to lease the
      property under equal conditions, but a new contract needs to be executed
      by both parties.

4.    Any matters not clearly stated in this contract will follow the relevant
      regulations in the Economic Contract Law of the People's Republic of
      China. Supplementary regulations may be made by agreement between both
      parties through consultation and such supplementary regulations shall have
      the equal legal effect as this contract.

5.    The terms of this contract is originally written in Chinese characters.
      This contract is in a form of four copies. Party A and B have two copies
      respectively having the same legal effect. It comes into effect after it
      has been signed and stamped by the representative from both parties.


                                       5
<PAGE>

Lessor(stamp)                       (Chop of Shenzhen Land & Sun Industrial &
                                    Trade Co., Ltd.)

Unit address:

Legal Representative:               (Signature)

Agent:

Telephone no:

Bank account:

Number of bank account:

Lessee (stamp):                     (Chop of Shenzhen Long Cheng Industrial Co.,
                                    Ltd. Plastic Metal Fty.)

                                    (Chop of China Bao An Long Cheng Hi-Lite
                                    Electronic Factory)

                                    (Chop of Shenzhen Long Cheng Nissin
                                    Precision Metal Plastic Factory)

Unit Address:

Legal Representative:               (Signature)

Agent:

Telephone no:

Bank account:

Number of bank account:



                                       6

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.6
<SEQUENCE>4
<FILENAME>v04060_ex4-6.txt
<TEXT>

EXHIBIT 4.6

Longcheng Industrial Area Common Property Tenancy Contract

Contract No:      WJ-005

Lessor (Party A): Shenzhen Land & Sun Industrial & Trade Co., Ltd.

Lessee(Party B):  China Bao An Long Cheng Hi-Lite Electronic Factory, Shenzhen
                  Long Cheng Industrial Co., Ltd Plastic Metal Fty, Shenzhen
                  Long Cheng Nissin Precision Metal Plastic Factory

Place:            Shenzhen City, Longhua Zhen

Date:             11th December, 2003

      In accordance with The Contract Law of the People's Republic of China and
the relevant regulations, for the purpose of clarifying the rights and duties of
the lessor and lessee, after negotiation, both parties have come to an agreement
and this contract is made.

ARTICLE ONE: NAME AND AREA (BY CONSTRUCTION FLOOR AREA) OF THE LEASED PROPERTY:

      Party A provides the J-1 factory, the total construction area is 1,596
square meters.

ARTICLE TWO: PAYMENT OF RENT AND OTHER EXPENSES

      Party B shall pay the rent and management fee in the amount of
Rmb20,748--(equivalent to Rmb13 per square meter) to party A every month. The
rent shall be settled every month. Party B shall pay the rent of the month
before the 10th day of the month by cash or by transferring accounts to Party A
or by remittance to Party's account. Rental fee will be increased by 1% per
year.

ARTICLE THREE: DEPOSIT

      Party B shall pay two month's deposit of rent and management fee in the
amount of Rmb41,496---- to party A. After deducting any unpaid rent and
renovation fee from the deposit, Party A shall return the balance to party B.

ARTICLE FOUR: TERM OF TENANCY

      The term of this lease is starting from January 1st, 2004 to February
28th, 2009 with effect on January 1st, 2004.


                                       1

<PAGE>

ARTICLE FIVE: MAINTENANCE OF THE LEASED PROPERTY DURING THE TERMS OF THE LEASE

      During the terms of this contract, with the approval of Party A to alter
the structure of the leased property, Party B shall be responsible the cost of
the alternation. It is the responsibility of Party A to maintain the leased
property in good condition. Party B is responsible for the maintenance cost of
the leased property due to natural damage.

The terms of maintaining the leased property:

1.    The main structure of the leased property should be kept in good
      conditions. For any change of the structure of the leased property, Party
      B should get the approval from Party A.

2.    The leased property and all accessory facilities cannot be changed and
      damaged.

3.    The doors and glass should be maintained in good conditions. The windows
      should not be painted by any colour paint.

4.    To ensure the supply of water and electricity is sufficient for the leased
      property. The drainage system and the fire exit should not be blocked.

ARTICLE SIX: DUTIES FOR BOTH PARTY A AND PARTY B:

Party A's duties:

1.    To deliver the factory, dormitory, apartments, and canteen to Party B as
      scheduled and be responsible for the water supply, road access, and
      electricity supply .

2.    To assist Party B in handling the formalities of obtaining business
      license, tax registration (all necessary expense to be borne by Party B)

3.    During the term of this contract, Party A shall use its best endevaours to
      assist Party B in resolving some difficulties in the actual operations.

4.    To guarantee the safety from fire, the good hygienic condition of the
      environment and deal with the complaints promptly.



                                       2
<PAGE>


Party B's Duties:

1.    To pay the rent and other related expense as scheduled.

2.    To be responsible for the water, electricity and other charges for the
      leased factory, apartments, canteen and dormitory (including public
      facilities such as kitchen, etc.) Party B shall also be liable to the
      maintenance of the leased factory, dormitory, apartments, canteen, kitchen
      and other facilities during the period of tenancy (Party A can provide
      services for consideration)

3.    Party B shall, during the term of this lease, comply with the relevant
      laws, orders of China and the relevant regulations and shall obey the
      unified management rules and regulations of the industrial area. Shall not
      conduct any activities in violation of the laws, damaging the public
      interests or changing the contents stipulated in this contract.

4.    Not to sub-lease the leased factory, apartments, dormitory or canteen to a
      third party operator.

5.    Factory owners shall designate a person to be responsible for fire
      prevention and shall establish a fire prevention team of 5-7 persons,
      install fire fighting equipment in the factory as required by the
      regulations. Fire exits of the factory and dormitory shall not be blocked
      and offenders of this rule will be dealt with as offenders of the fire
      prevention regulations. The fixed fire fighting equipment, water tank,
      factory owners shall not install iron door in the leased factory or
      dormitory, use the water in the fire-fighting water tank and the fire
      hydrant improperly such as to clean the floor. Offenders shall be fined
      and shall be dealt with according to the fire prevention regulations.

6.    Party B shall not, during the term of this lease affect the normal
      business of other factory owners and people when using the public
      facilities and common areas; and shall educate the staff to protect the
      public property and pay compensation according to price if damaged.

7.    If Party B alters the leased factory, dormitory, canteen, kitchen and
      other building structure and facilities without the prior consent of Part
      A, Party B shall pay Party A a compensation equivalent to 100% of the
      value of the altered facilities.

      If Party B is seriously in breach of sub-articles 1,3,4,7, of Article Six
      (Party B's duties), Party A is entitled to dissolve this tenancy
      relationship, terminate this tenancy contract, and repossess the property.
      Party B's security deposit shall be forfeited by Party A for no
      consideration. Party B shall bear all the consequences arising there from.


                                       3
<PAGE>


      If Party A is seriously in breach of its duties under Article Six (Part
      A's duties) and does not deal with in promptly, Party B is entitled to
      investigate and affix responsibility.

ARTICLE SEVEN: LIABILITIES OF BREACH OF CONTRACT

Liabilities of Party A for breach of this tenancy contract:

1.    Fail to deliver possession of the leased property to the lessee as
      scheduled in contract.

2.    Fail to provide the relevant equipment to lessee as scheduled in contract.

Liabilities of Party B for breach of this tenancy contract:

1.    To be responsible for the necessary repair or compensation for damage to
      the leased property due to the improper use or maintenance by the lessee.

2.    To be responsible for the compensation of all losses arising from the
      unauthorized alterations of the leased property and equipment.

3.    Fail to return the leased property according to schedule after terminating
      the contract. Apart from the rent payable, the lessee shall pay the
      contractual penalty. Penalty for every day of delay is 0.1% of the monthly
      rent with a maximum delay of 30 days.

4.    Fail to pay the rent and expenses as scheduled. Unless paid on or before
      the due date, penalty shall be calculated according to the total
      outstanding amount owed by the lessee, with 0.1% of the total overdue
      amount per day as the overdue penalty.

      Calculating method:

      Total amount of the overdue penalty = total amount of rent and expense per
                                            month x No. of days overdue x 0.1%

Party A has the right to take the following actions if the Party B has breached
the contract according to the situation:

1.    Impose a fine of two month's rent and expense as the penalty for breach of
      contract;

2.    Order the lessee to move out and surrender the factory;

3.    If Party B fails to pay the rent and expense for 2 months, Party A is
      entitled to take legal action against Party B and claims back the entire
      unpaid fees.



                                       4
<PAGE>


ARTICLE EIGHT: EXEMPTION PROVISION

      Party B shall not be liable for any repairs or compensations to Party A if
the damages or losses of the leased property are caused by the force majeure.
However, Party B shall report and explain the situation to Party A and give the
legal documents from the relevant departments to Party A if necessary.

ARTICLE NINE: DISPUTE RESOLUTION

      If a dispute arises during the performance of this contract, both parties
shall resolve the dispute through consultation. If the dispute cannot be
resolved through consultation, the dispute shall be submitted to the authority
in charge of this contract for arbitration or to a People's Court with competent
jurisdiction for adjudication.

ARTICLE TEN: OTHER MATTERS

1.    During the term of this contract, if any party proposes to terminate this
      contract before its expiration, that party shall give a written report to
      the other party 6 months in advance. If both parties agree to the
      termination after negotiation, this contract may be terminated. The party
      proposing to terminate this contact shall pay the other party 3 months'
      rent as penalty for breach of contract.

2.    If Party B does not extend this contract after its expiration, Party B
      shall repair and restore the leased property according to the relevant
      standards and pay all the fees. Then Party B shall return all the security
      deposits to Party B once and for all. If the repair is done by Party A,
      the costs of repair shall be deducted from the deposits.

3.    If the lessee wishes to extend the tenancy, the lessee shall submit a
      written application to the lessor within 6 months before the expiration of
      this lease. The lessee shall have the preferential right to lease the
      property under equal conditions, but a new contract needs to be executed
      by both parties.

4.    Any matters not clearly stated in this contract will follow the relevant
      regulations in the Economic Contract Law of the People's Republic of
      China. Supplementary regulations may be made by agreement between both
      parties through consultation and such supplementary regulations shall have
      the equal legal effect as this contract.

5.    The terms of this contract is originally written in Chinese characters.
      This contract is in a form of four copies. Party A and B have two copies
      respectively having the same legal effect. It comes into effect after it
      has been signed and stamped by the representative from both parties.



                                       5
<PAGE>


Lessor(stamp)                       (Chop of Shenzhen Land & Sun Industrial &
                                    Trade Co., Ltd.)

Unit address:

Legal Representative:               (Signature)

Agent:

Telephone no:

Bank account:

Number of bank account:

Lessee (stamp):                     (Chop of Shenzhen Long Cheng Industrial Co.,
                                    Ltd. Plastic Metal Fty.)

                                    (Chop of China Bao An Long Cheng Hi-Lite
                                    Electronic Factory)

                                    (Chop of Shenzhen Long Cheng Nissin
                                    Precision Metal Plastic Factory)

Unit Address:

Legal Representative:               (Signature)

Agent:

Telephone no:

Bank account:

Number of bank account:


                                       6

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.7
<SEQUENCE>5
<FILENAME>v04060_ex4-7.txt
<TEXT>

EXHIBIT 4.7

Longcheng Industrial Area Common Property Tenancy Contract

Contract No:      HTHT-006

Lessor (Party A): Shenzhen Land & Sun Industrial & Trade Co., Ltd.

Lessee(Party B):  China Bao An Long Cheng Hi-Lite Electronic Factory, Shenzhen
                  Long Cheng Industrial Co., Ltd Plastic Metal Fty, Shenzhen
                  Long Cheng Nissin Precision Metal Plastic Factory

Place:            Shenzhen City, Longhua Zhen

Date:             12th December, 2003

      In accordance with The Contract Law of the People's Republic of China and
the relevant regulations, for the purpose of clarifying the rights and duties of
the lessor and lessee, after negotiation, both parties have come to an agreement
and this contract is made.

ARTICLE ONE: NAME AND AREA (BY CONSTRUCTION FLOOR AREA) OF THE LEASED PROPERTY:

      Party A provides third to fifth floor of factory building number seven,
the total construction area is 3,180 square meters.

ARTICLE TWO: PAYMENT OF RENT AND OTHER EXPENSES

      Party B shall pay the rent and management fee in the amount of
Rmb36,570--(equivalent to Rmb11.5 per square meter) to party A every month. The
rent shall be settled every month. Party B shall pay the rent of the month
before the 10th day of the month by cash or by transferring accounts to Party A
or by remittance to Party's account. Rental fee will be increased by 1% per
year.

ARTICLE THREE: DEPOSIT

      Party B shall pay two month's deposit of rent and management fee in the
amount of Rmb73,140---- to party A. After deducting any unpaid rent and
renovation fee from the deposit, Party A shall return the balance to party B.


                                       1
<PAGE>


ARTICLE FOUR: TERM OF TENANCY

      The term of this lease is starting from February 1st, 2004 to February
28th, 2009 with effect on February 1st, 2004.

ARTICLE FIVE: MAINTENANCE OF THE LEASED PROPERTY DURING THE TERMS OF THE LEASE

      During the terms of this contract, with the approval of Party A to alter
the structure of the leased property, Party B shall be responsible the cost of
the alternation. It is the responsibility of Party A to maintain the leased
property in good condition. Party B is responsible for the maintenance cost of
the leased property due to natural damage.

The terms of maintaining the leased property:

1.    The main structure of the leased property should be kept in good
      conditions. For any change of the structure of the leased property, Party
      B should get the approval from Party A.

2.    The leased property and all accessory facilities cannot be changed and
      damaged.

3.    The doors and glass should be maintained in good conditions. The windows
      should not be painted by any colour paint.

4.    To ensure the supply of water and electricity is sufficient for the leased
      property. The drainage system and the fire exit should not be blocked.

ARTICLE SIX: DUTIES FOR BOTH PARTY A AND PARTY B:

Party A's duties:

1.    To deliver the factory, dormitory, apartments, and canteen to Party B as
      scheduled and be responsible for the water supply, road access, and
      electricity supply .

2.    To assist Party B in handling the formalities of obtaining business
      license, tax registration (all necessary expense to be borne by Party B)

3.    During the term of this contract, Party A shall use its best endevaours to
      assist Party B in resolving some difficulties in the actual operations.

4.    To guarantee the safety from fire, the good hygienic condition of the
      environment and deal with the complaints promptly.


                                       2
<PAGE>

Party B's Duties:

1.    To pay the rent and other related expense as scheduled.

2.    To be responsible for the water, electricity and other charges for the
      leased factory, apartments, canteen and dormitory (including public
      facilities such as kitchen, etc.) Party B shall also be liable to the
      maintenance of the leased factory, dormitory, apartments, canteen, kitchen
      and other facilities during the period of tenancy (Party A can provide
      services for consideration)

3.    Party B shall, during the term of this lease, comply with the relevant
      laws, orders of China and the relevant regulations and shall obey the
      unified management rules and regulations of the industrial area. Shall not
      conduct any activities in violation of the laws, damaging the public
      interests or changing the contents stipulated in this contract.

4.    Not to sub-lease the leased factory, apartments, dormitory or canteen to a
      third party operator.

5.    Factory owners shall designate a person to be responsible for fire
      prevention and shall establish a fire prevention team of 5-7 persons,
      install fire fighting equipment in the factory as required by the
      regulations. Fire exits of the factory and dormitory shall not be blocked
      and offenders of this rule will be dealt with as offenders of the fire
      prevention regulations. The fixed fire fighting equipment, water tank,
      factory owners shall not install iron door in the leased factory or
      dormitory, use the water in the fire-fighting water tank and the fire
      hydrant improperly such as to clean the floor. Offenders shall be fined
      and shall be dealt with according to the fire prevention regulations.

6.    Party B shall not, during the term of this lease affect the normal
      business of other factory owners and people when using the public
      facilities and common areas; and shall educate the staff to protect the
      public property and pay compensation according to price if damaged.

7.    If Party B alters the leased factory, dormitory, canteen, kitchen and
      other building structure and facilities without the prior consent of Part
      A, Party B shall pay Party A a compensation equivalent to 100% of the
      value of the altered facilities.

      If Party B is seriously in breach of sub-articles 1,3,4,7, of Article Six
      (Party B's duties), Party A is entitled to dissolve this tenancy
      relationship, terminate this tenancy contract, and repossess the property.
      Party B's security deposit shall be forfeited by Party A for no
      consideration. Party B shall bear all the consequences arising there from.


                                       3
<PAGE>

      If Party A is seriously in breach of its duties under Article Six (Part
      A's duties) and does not deal with in promptly, Party B is entitled to
      investigate and affix responsibility.

ARTICLE SEVEN: LIABILITIES OF BREACH OF CONTRACT

Liabilities of Party A for breach of this tenancy contract:

1.    Fail to deliver possession of the leased property to the lessee as
      scheduled in contract.

2.    Fail to provide the relevant equipment to lessee as scheduled in contract.

Liabilities of Party B for breach of this tenancy contract:

1.    To be responsible for the necessary repair or compensation for damage to
      the leased property due to the improper use or maintenance by the lessee.

2.    To be responsible for the compensation of all losses arising from the
      unauthorized alterations of the leased property and equipment.

3.    Fail to return the leased property according to schedule after terminating
      the contract. Apart from the rent payable, the lessee shall pay the
      contractual penalty. Penalty for every day of delay is 0.1% of the monthly
      rent with a maximum delay of 30 days.

4.    Fail to pay the rent and expenses as scheduled. Unless paid on or before
      the due date, penalty shall be calculated according to the total
      outstanding amount owed by the lessee, with 0.1% of the total overdue
      amount per day as the overdue penalty.

      Calculating method:

      Total amount of the overdue penalty = total amount of rent and expense per
                                            month x No. of days overdue x 0.1%

Party A has the right to take the following actions if the Party B has breached
the contract according to the situation:

1.    Impose a fine of two month's rent and expense as the penalty for breach of
      contract;

2.    Order the lessee to move out and surrender the factory;

3.    If Party B fails to pay the rent and expense for 2 months, Party A is
      entitled to take legal action against Party B and claims back the entire
      unpaid fees.


                                       4
<PAGE>


ARTICLE EIGHT: EXEMPTION PROVISION

      Party B shall not be liable for any repairs or compensations to Party A if
the damages or losses of the leased property are caused by the force majeure.
However, Party B shall report and explain the situation to Party A and give the
legal documents from the relevant departments to Party A if necessary.

ARTICLE NINE: DISPUTE RESOLUTION

      If a dispute arises during the performance of this contract, both parties
shall resolve the dispute through consultation. If the dispute cannot be
resolved through consultation, the dispute shall be submitted to the authority
in charge of this contract for arbitration or to a People's Court with competent
jurisdiction for adjudication.

ARTICLE TEN: OTHER MATTERS

1.    During the term of this contract, if any party proposes to terminate this
      contract before its expiration, that party shall give a written report to
      the other party 6 months in advance. If both parties agree to the
      termination after negotiation, this contract may be terminated. The party
      proposing to terminate this contact shall pay the other party 3 months'
      rent as penalty for breach of contract.

2.    If Party B does not extend this contract after its expiration, Party B
      shall repair and restore the leased property according to the relevant
      standards and pay all the fees. Then Party B shall return all the security
      deposits to Party B once and for all. If the repair is done by Party A,
      the costs of repair shall be deducted from the deposits.

3.    If the lessee wishes to extend the tenancy, the lessee shall submit a
      written application to the lessor within 6 months before the expiration of
      this lease. The lessee shall have the preferential right to lease the
      property under equal conditions, but a new contract needs to be executed
      by both parties.

4.    Any matters not clearly stated in this contract will follow the relevant
      regulations in the Economic Contract Law of the People's Republic of
      China. Supplementary regulations may be made by agreement between both
      parties through consultation and such supplementary regulations shall have
      the equal legal effect as this contract.

5.    The terms of this contract is originally written in Chinese characters.
      This contract is in a form of four copies. Party A and B have two copies
      respectively having the same legal effect. It comes into effect after it
      has been signed and stamped by the representative from both parties.


                                       5
<PAGE>

Lessor(stamp)

                                    (Chop of Shenzhen Land & Sun Industrial &
                                    Trade Co., Ltd.)

Unit address:

Legal Representative:               (Signature)

Agent:

Telephone no:

Bank account:

Number of bank account:

Lessee (stamp):

                                    (Chop of Shenzhen Long Cheng Industrial Co.,
                                    Ltd. Plastic Metal Fty.)

                                    (Chop of China Bao An Long Cheng Hi-Lite
                                    Electronic Factory)

                                    (Chop of Shenzhen Long Cheng Nissin
                                    Precision Metal Plastic Factory)

Unit Address:

Legal Representative:               (Signature)

Agent:

Telephone no:

Bank account:

Number of bank account:


                                       6

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.8
<SEQUENCE>6
<FILENAME>v04060_ex4-8.txt
<TEXT>


EXHIBIT 4.8

Longcheng Industrial Area Common Property Tenancy Contract

Lessor (Party A): Shenzhen Land & Sun Industrial & Trade Co., Ltd.

Lessee(Party B):  China Bao An Long Cheng Hi-Lite Electronic Factory, Shenzhen
                  Long Cheng Industrial Co., Ltd Plastic Metal Fty, Shenzhen
                  Long Cheng Nissin Precision Metal Plastic Factory

Place:            Shenzhen City, Longhua Zhen

Date:             29th December, 2003

      Party A provides the land to Party B for the production need, for the
purpose of clarifying the rights and duties of the lessor and lessee, after
negotiation, both parties have come to an agreement and this contract is made.

1.    To deliver the factory, dormitory, apartments, and canteen to Party B as
      scheduled and be responsible for the water supply, road access, and
      electricity supply .

1.    NAME AND AREA OF THE LEASED PROPERTY: The rented land is located at the
      north of J-1 factory, the total construction area of the land is 181.50
      square meters.

2.    TERM OF TENANCY: The term of this lease is starting from January 1st, 2004
      to February 28th, 2009. 3. RENT AND DEPOSIT: Party B shall pay the rent
      and management fee in the amount of Rmb907.50 to party A

      every month (equivalent to Rmb5 per square meters). Party B shall pay two
      month's deposit or rent and management fee in the amount of Rmb1,815--.
      After deducting any unpaid rent and renovation fee from the deposit, Party
      A shall return the balance to party B.

4.    PAYMENT OF RENT: The rent shall be settled every month. Party B shall pay
      the rent of the month before the 10th day of the month by cash or by
      transferring accounts to Party A or by remittance to Party's account.

5.    DUTIES OF PARTY A: To deliver the land to party B as scheduled, to assist
      party B in resolving some difficulties in the actual operation. Party A
      cannot sub-lease the leased land to other parties before the expiry of the
      tenancy.

6.    DUTIES OF PARTY B: Party B is responsible to handle all the environmental
      issues. Party B shall, during the term of this lease, comply with the
      relevant laws, orders of China and the relevant regulations and shall obey
      the unified management rules and regulations of the industrial area. Party
      B is responsible to pay the fee of the usage of the land to the concerned
      governmental bodies. (equivalent to annual fee of Rmb5 per square meters)
      Party B cannot sub-lease the leased land to other parties. Party B has to
      keep the land in the original condition after the expiry of the lease.


<PAGE>


7.    OTHERS: Any matters not clearly stated in this contract will follow the
      relevant regulations in the Economic Contract Law of the People's Republic
      of China. The terms of this contract is originally written in Chinese
      characters. This contract is in a form of four copies. Party A and B have
      two copies respectively having the same legal effect. It comes into effect
      after it has been signed and stamped by the representative from both
      parties.

Lessor(stamp)

                                    (Chop of Shenzhen Land & Sun Industrial &
                                    Trade Co., Ltd.)

Unit address:

Legal Representative:               (Signature)

Agent:

Telephone no:

Bank account:

Number of bank account:

Lessee (stamp):                     (Chop of Shenzhen Long Cheng Industrial Co.,
                                    Ltd. Plastic Metal Fty.)

                                    (Chop of China Bao An Long Cheng Hi-Lite
                                    Electronic Factory)

                                    (Chop of Shenzhen Long Cheng Nissin
                                    Precision Metal Plastic Factory)

Unit Address:

Legal Representative:               (Signature)

Agent:

Telephone no:

Bank account:

Number of bank account:


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.9
<SEQUENCE>7
<FILENAME>v04060_ex4-9.txt
<TEXT>


EXHIBIT 4.9


                       Dated the 30th day of October, 2003

                            SHK SHEUNG SHUI LANDMARK

                               INVESTMENT LIMITED

                                       and

                             NISSIN PRECISION METAL

                              MANUFACTURING LIMITED

                         _______________________________

                                TENANCY AGREEMENT

                                       of

                 Office No. 10 on Level 8 of "Landmark North," No. 39
                 Lung Sum Avenue, Shek Wu Hui, Sheung Shui, New
                 Territories, Hong Kong erected on Fanling Sheung Shui
                 Town Lot No. 94.

                         _______________________________


                            JOHNSON STOKES & MASTER,

                                 SOLICITORS & C.

                                    HONK KONG

                               SPCC/6545461/0/log
                             pc/jfd44488.w (310702)


<PAGE>


                                TENANCY AGREEMENT

                                    SECTION I

                                   PARTICULARS

1.1   PARTIES

      An Agreement made this 30th day of October, 2003:

      BETWEEN the company detailed as the Landlord in Part I of the First
Schedule hereto (hereinafter called "the Landlord") of the one part and the
person firm or company detailed as the Tenant in Part I of the First Schedule
hereto (hereinafter called "the Tenant") of the other part.

      WHEREBY:

1.2   PREMISES, TERM, RENT & USER

      The Landlord hereby lets to the Tenant ALL THOSE the premises (hereinafter
referred to as "the Premises") forming part of all that building (hereinafter
referred to as "the Building") which said premises and said building are more
particularly described and set out in Part II of the First Schedule hereto
together with the use in common with the Landlord and all others having the like
right of the entrances staircases landings passages and toilets in the said
building in so far as the same are necessary for the proper use and enjoyment of
the Premises and except in so far as the Landlord may from time to time restrict
such use And together with the use in common as aforesaid of the lift service
escalators in the Building (if any and whenever the same shall be operating) for
the term set forth in Part III of the First Schedule hereto YIELDING AND PAYING
therefor throughout such term rent and other charges as are from time to time
payable in accordance with the provisions set out in Part I and Part II of the
Second Schedule hereto which sums shall be payable exclusive of rates clear of
all deductions on the first day of each calendar month the first and last of
such payments to be apportioned according to the number of days in the month
included in the said term and the Tenant agrees to use the Premises only for the
purpose as set forth in Part V of the First Schedule hereto and not for the sale
or provision of any other kind of goods service or other purpose whatsoever
without the express permission of the Landlord in writing.

1.3   DEMOLITION OR REFURBISHMENT

      If the Landlord shall at any time. enter into a contract for the sale of
the Premises or the Building or any part thereof which include the Premises or
shall at any time resolve to demolish, re-build or refurbish the Building or any
part thereof which include the Premises (which resolution and the intention so
to do shall be conclusively evidenced by a copy of a resolution of its board of
directors certified by any one of its directors or its secretary to be a true
copy) then in such event the Landlord shall be entitled to give not less than 6
calendar months' notice in writing to expire at any time to terminate this
Agreement, and immediately upon the expiration of such notice this Agreement
shall terminate hut without prejudice to the rights and remedies of either party
against the other in respect of any antecedent claim or breach of any of the
agreements restrictions stipulations or conditions herein contained. "Demolish"
and/or "rebuild" for the purposes of this Clause shall mean the demolition
and/or rebuilding of the whole of the Building or a part or parts thereof
whether or not including any main walls exterior walls or roof of the Premises
and whether or not any part thereof is to be re-built or reconstructed in the
same or any other manner. "Refurbish" may or may not include demolition of the
Building or any part thereof.


                                       2
<PAGE>


                                   SECTION II

                             RENT AND OTHER CHARGES

      The Tenant covenants with the Landlord as follows:

2.1   RENT

      To pay on the days and in the manner hereinbefore provided the said rent.

2.2   MANAGEMENT CHARGES AND AIR-CONDITIONING

      To pay to the Landlord punctually throughout the said term contributions
towards the costs and expenses or charges for the maintenance and supply of
central air-conditioning (if any) and the provision of management services to
the Premises the current rate of which is set forth in Part II of the Second
Schedule hereto subject to the following

            (a) Such contributions shall be paid by the Tenant to the Landlord
in advance on the first day of each and every calendar month without deduction
whatsoever,

            (b) In the event of a deficiency occurring or seeming to the
Landlord likely to occur, the Landlord shall he entitled to demand collect and
recover from the Tenant such additional contributions or charges as the Landlord
may determine. The Landlord's assessment of the amount of deficiency and the
amounts of additional contributions or charges shall be conclusive and binding
on the Tenant.

            (c) If the Tenant shall require air-conditioning outside the hours
set out in Part I of the Third Schedule hereof, the same may be provided on
reasonable advance notice to the Landlord at such rate as the Landlord may from
time to time charge for providing the same. The Tenant shall pay the cost of the
additional air-conditioning on receipt of the demand note therefor which may be
rendered weekly or at such other intervals as the Landlord may decide.

            (d) The Landlord shall be entitled from time to time to increase the
contributions or charges provided for in this Clause if in the opinion of the
Landlord there is or is likely to be an increase in the costs including overhead
costs of the Landlord for the provision of air-conditioning or management
services. If the increased contributions or charges exceed the last applicable
contributions or charges. by more than ten per cent, the Landlord may give the
Tenant a brief explanatory memorandum of such increases but in any event the
Landlord's assessment of the increases shall be conclusive and binding on the
Tenant.


                                       3
<PAGE>


2.3   RATES

      To pay and discharge all rates taxes assessments duties impositions
charges and outgoings whatsoever now or hereafter to be imposed or levied on the
Premises or upon the owner or occupier in respect thereof by the Government of
the Hong Kong Special Administrative Region of the People's Republic of China or
Other lawful authority (Property Tax alone excepted). Without prejudice to the
generality of this Clause the Tenant shall unless the Landlord otherwise directs
pay all rates imposed on the Premises in the first place to the Landlord who
shall settle the same with the Government of the Hong Kong Special
Administrative Region of the People's Republic of China and in the event of the
Premises not yet having been assessed to rates the Tenant shall pay to the
Landlord a sum equal to the rates which would be charged by the Government of
the Hong Kong Special Administrative Region of the People's Republic of China on
the basis of a notional rateable value equal to twelve months' rent payable by
the Tenant on account of the Tenant's liability under this Clause which sum
shall be payable on a quarterly basis in advance and any overpayment or
underpayment by the Tenant shall be adjusted when the Premises have been
assessed to rates.

2.4   UTILITY CHARGES AND DEPOSITS

      To pay and discharge all deposits and charges in respect of gas water
electricity air-conditioning and telephone as may be shown by or operated from
the Tenant's own metered supply or by accounts rendered to the Tenant in respect
of all such utilities consumed on or in the Premises.

                                  SECTION III

                              TENANT'S OBLIGATIONS

      The Tenant further covenants with the Landlord:

3.1   COMPLIANCE WITH ORDINANCES

      To obey and comply with and to indemnify the Landlord against the breach
of all Ordinances, regulations, bye-laws, rules and requirements of any
Governmental or other competent authority relating to the use and occupation of
the Premises, or to any other act, deed, matter or thing done, permitted,
suffered or omitted therein or thereon by the Tenant or any employee, agent or
licensee of the Tenant and without prejudice to the foregoing to obtain any
licence approval or permit required by any Governmental or other competent
authority in connection with the Tenant's use or occupation of the Premises
prior to the commencement of. the Tenant's business and to maintain the same in
force during the currency of this tenancy and to indemnify the Landlord against
the consequences of a breach of this provision and to notify the Landlord
forthwith in writing of any notice received from any statutory or public
authority concerning or in respect of a possible breach of this Clause.


                                       4
<PAGE>


3.2   FITTING OUT

      To accept the condition of the Premises as at the commencement of this
Agreement and to fit out the interior of the Premises in a good and proper
workmanlike fashion using good quality materials and in accordance with the
requirements and provisions of Section XI hereof and to maintain the same
throughout the said term in good condition and repair to the satisfaction of the
Landlord. In carrying out any approved work hereunder, the Tenant shall, and
shall cause his servants agents contractors and workmen to co-operate fully with
the Landlord and all servants agents and workmen of the Landlord and with other
tenants or contractors carrying out any work in the Building. The Tenant shall
obey and cause his servants agents contractors and workmen to obey and comply
with all instructions and directions which may be given by the Landlord's
servants or agents or other authorised representatives in connection with the
carrying out of such work.,

3.3   INSTALLATION OF TELEPHONE CABLES

      The Tenant shall make his own arrangements with the relevant
telecommunications companies with regard to the installation of telephones and
other communication systems in the Premises, but the installation of telephone
lines and communication lines outside the Premises must be in accordance with
the Landlord's directions.

3.4   GOOD REPAIR OF INTERIOR

      To keep all the interior of the Premises including the flooring and
interior plaster or other finishing material or rendering to walls floors and
ceilings and the Landlord's fixtures and fittings therein and all additions
(whether of the Landlord or the Tenant) thereto including all doors windows
electrical installations and wiring light fittings suspended ceilings fire
fighting apparatus and air-conditioning plant and ducting in good clean
tenantable substantial and proper repair and condition and as may be appropriate
from time to time properly painted and decorated and so to maintain the same at
the expense of the Tenant, and to deliver up the same to the Landlord at the
expiration or sooner determination of the said term in like condition and
without prejudice to the generality of the foregoing during the last year of the
term hereby reserved to repaint and decorate the interior of the Premises.

3.5   REPLACEMENT OF WINDOWS

      To pay to or reimburse the Landlord the cost of replacing all broken or
damaged windows or glass of the premises (or elsewhere if used exclusively by
the Tenant) whether the same be broken or damaged by the negligence of the
Tenant or owing to circumstances beyond the control of the Tenant.

3.6   REPAIR OF ELECTRICAL INSTALLATIONS

      To repair or replace if so required by the appropriate Company or
authority under the terms of the Electricity Supply Ordinance or any statutory
modification or re-enactment thereof or any Regulations made thereunder or if
the same becomes dangerous or unsafe all the electricity wiring installations
and fittings within the Premises and the wiring from the Tenant's meter or
meters to and within the same and the Tenant shall permit the Landlord and its
authorised representatives to test the same at any time upon request being made.


                                       5
<PAGE>


3.7   GOOD REPAIR OF TOILETS AND WATER APPARATUS

      At the expense of the Tenant to maintain toilets and water apparatus as
are located within the Premises (or elsewhere if used exclusively by the Tenant
or its licensees) in good clean and tenantable state and in proper repair and
condition at all times during the said term to the satisfaction of the Landlord
and in accordance with the Regulations of the Public Health or other Government
Authority concerned and not to use or permit or suffer to be used any toilet
facilities whether shared with other tenants or occupiers of the Building or
reserved exclusively for the use of the Tenant for any purpose other than that
for which they are intended and not to throw or permit or suffer to be thrown
into any W.C. pan, urinal, basin sink or other toilet fitting any foreign or
deleterious substance of any kind and to pay to the Landlord on demand the cost
of any breakage, blockage or damage resulting from a breach of this provision.

3.8   CLEANING AND CLEANING CONTRACTORS

      To keep the Premises. including all external windows lights at all times
in a clean and sanitary state, and condition and for the better observance
hereof the Tenant shall only employ as cleaners of the Premises such persons or
firms as may be approved by the Landlord. Such cleaners shall be employed at the
expense of the Tenant,

3.9   CLEANING OF DRAINS

      To pay on demand to the Landlord the cost incurred by the Landlord in
cleansing and clearing any of the drains choked or stopped up owing to improper
or careless use by the Tenant or his employees invitees or licensees.

3.10  TO PERMIT LANDLORD TO ENTER

      To permit the Landlord its agents and all persons authorised by it with or
without workmen or others and with or without appliances at all reasonable times
to enter upon the Premises to view the condition thereof or so as to gain access
to any common areas or common facilities whether or not serving the Premises
exclusively and upon prior notice to the Tenant to take inventories of the
fixtures fittings and common facilities therein and to carry out any work or
repair required to be done. In the event of an emergency, the Landlord its
servants or agents will enter the Premises without notice and forcibly provided
that the Tenant cannot be reached by the Landlord.

3.11  TO EXECUTE REPAIR ON RECEIPT OF NOTICE

      To make good all defects and wants of repair to the Premises for which the
Tenant may be responsible hereunder within the space of one month from the
receipt of written notice from the Landlord to amend and make good the same, and
if the Tenant shall fail to execute such works or repairs as aforementioned to
permit the Landlord to enter upon the Premises and execute the same and the cost
thereof shall be a debt from the Tenant to the Landlord and be recoverable
forthwith by action.


                                       6
<PAGE>


3.12  INFORM LANDLORD OF DAMAGE

      To give notice to the Landlord or its agent of any damage that may be
suffered to the Premises and of any accident to or defects in the water and gas
pipes (if any) electrical wiring or fittings, fixtures or Other services or
facilities within the Premises.

3.13  PROTECTION FROM TYPHOON

      To take all reasonable precautions to protect the interior of the Premises
from storm or typhoon damage.

3.14  INDEMNIFICATION OF LANDLORD

      To be wholly responsible for any damage or injury caused to any person
whomsoever directly or indirectly through the defective or damaged condition of
any part of the interior of the Premises or any machinery or plant or fixtures
or fittings or wiring or piping therein for the repair of which the Tenant is
responsible hereunder or in any way owing to the spread of fire or smoke or the
overflow of water from the Premises or any part thereof or through the act
default or neglect of the Tenant his servants agents contractors licensees
partners or customers and to make good the same by payment or otherwise and to
indemnify the Landlord against all costs claims demands actions and legal
proceedings whatsoever made upon the Landlord by any person in respect of any
such loss damage or injury and all costs and expenses incidental thereto, and to
effect adequate insurance cover in respect of such risks in accordance with the
provisions of Clause 3.15 hereof.

3.15  TENANT'S INSURANCES

      To effect and maintain during the currency of this tenancy insurance
,cover in respect of the following:

            (a)   THIRD PARTY

      In respect of liability for loss injury or damage to any person or
property whatsoever caused through or by any act default or neglect of the
Tenant which might give rise to a claim for indemnity pursuant to Clause 3.14
hereof. The policy of insurance shall be effected with a reputable insurance
company and shall be endorsed to show the Landlord as owner of the Premises and
shall be in an amount of not less than HK$1,000,000.00 (in the case of the
Premises being less than 5,000 square feet in area) or not less than
HK$2,500,000.00 (in the case of the Premises being not less than 5,000 square
feet in area) or in such Other amount as the Landlord may from time to time ,
reasonably require. The Tenant hereby further undertakes to produce to the
Landlord as and when required by the Landlord such policy of insurance together
with a receipt for the last payment of premium and a certificate from the
insurance company that the policy is in all respects valid and subsisting.

            (b)   GLASS

      All glass now or hereafter on or in the Premises for its full replacement
value.


                                       7
<PAGE>

            (c)   WATER DAMAGE

      Against damage to stock fixtures and fittings for the full insurable value
occurring in respect of the use or misuse of. the fire .sprinkler system
installed within the Premises or the incursion of water therein.

            (d)   TENANT'S FITTINGS STOCK

      The Tenant's fittings stock and equipment within the Premises against fire
and extraneous perils for their full replacement value.

3.16  AIR-CONDITIONING OF PREMISES

      Where any plant machinery or equipment for cooling ventilation or
circulating air is installed in or about the Premises (whether by: the Landlord
or the Tenant) the Tenant will to the extent of the Tenant's control over the
same at all times use and regulate the same to ensure that the air-conditioning
plant is employed to best advantage in the conditions from time to time
prevailing and without prejudice to the generality of the foregoing will operate
and maintain such air-conditioning plant machinery and equipment within the
Premises as the Landlord may reasonably determine to ensure a reasonably uniform
standard of air cooling or ventilation throughout the Building.

3.17  REFUSE AND GARBAGE REMOVAL

      To be responsible for the removal of refuse and garbage from the Premises
to such location as shall be specified by the Landlord from time to time and to
use only that type of refuse container as is specified by the Landlord from time
to time. In the event of the Landlord providing a collection service for refuse
and garbage the same shall be used by the Tenant to the exclusion of any other
similar service and the use of such service provided by the Landlord shall be at
the sole cost of the Tenant. If wet garbage is removed from the Premises, any
extra costs charged by the" relevant governmental department for removal of the
same shall be borne by the Tenant.

3.18  SERVICE ENTRANCES

      To load and unload goods only at such times and through such entrances and
by such service lifts (if any) as shall he designated by the Landlord for this
purpose from time to time.

3.19  COMMON AREAS

      To pay to or reimburse to the Landlord the cost of any damage caused to
any part of the common areas and common services and facilities of the Building
occasioned by the Tenant his licensees employees agents or contractors or any
other person claiming through or under the Tenant.


                                       8
<PAGE>


3.20  CONTRACTORS EMPLOYEES INVITEES AND LICENSEES

      To be liable for any act default negligence or omission of the Tenant's
contractors, employees, invitees, agents, partners, customers or licensees as if
it were the act, default negligence or omission of the Tenant and to indemnify
the Landlord against all costs claims demands expenses or liability to any third
party in connection therewith.

3.21  DIRECTORY BOARDS

      To pay the Landlord immediately upon demand the cost of affixing repairing
or replacing as necessary the Tenant's name in lettering to the directory boards
(if any) at the Building.

3.22  OUTSIDE WINDOWS

      To keep all windows of the Premises closed at all tunes and not to open
any of the windows of the Premises save when the air-conditioning system is not
in operation.

3.23  KEEP PREMISES OPEN

      To keep the Premises open for business at all times of the year during the
normal business hours for office premises of the Building namely the hours set
forth in Part I of the Third Schedule and without prejudice to the generality of
the foregoing any suspension of the Tenant's business for a period of more than
fourteen days without the prior consent of the Landlord shall constitute a
material breach of this provision entitling the Landlord to determine this
Agreement and to regain possession of the Premises,

3.24  CONDUCTING OF BUSINESS

      To conduct the business of the Tenant so as not to prejudice the goodwill
and reputation of the Building as a first class commercial and office complex
with shopping centre.

3.25  REGULATIONS

      To obey and comply with such Regulations as may from time to time be made
or adopted by the Landlord in accordance with Section X hereof.

3.26  SECURITY SYSTEM

      To ensure that its own security system within and at the entrance of the
Premises is at all times compatible with and linked up to the security system
for the Building (if any) provided and operated by the Landlord..

3.27  YIELD UP PREMISES AND HANDOVER

      To yield up the Premises with all fixtures fittings and additions therein
and thereto at the expiration or sooner determination of this Agreement in good
clean and tenantable repair and condition in accordance with the stipulations
herein contained Provided That where the Tenant has made any alterations or
installed any fixtures or additions to the Premises with or without the
Landlord's written consent the Landlord may at its discretion require the Tenant
to reinstate remove or do away with such alterations fixtures or. additions or
any part or portion thereof and make good and repair in a proper and workmanlike
manner any damage to the Premises and the Landlord's fixtures and fittings
therein as a result thereof before delivering up the Premises to the Landlord.


                                       9
<PAGE>


3.28  ADJACENT EXCAVATION OR SHORING

      If any excavation or other building works shall be made or authorised in
the vicinity of the Building, the Tenant shall permit the Landlord its servants
or agents to enter the Premises UPON prior notice to the Tenant to do such work
as may be deemed necessary to preserve the exterior walls of the Building from
injury or damage without any claim for damages or indemnity against the
Landlord.

3.29  RE-DECORATION OF PREMISES

      At the expiration of each period of three years during the said term of
this Agreement (if the said term exceeds three years) and also in the last three
months thereof whether determined by effluxion of time or otherwise to paint,
french polish or otherwise treat as the case may be all the inside wood and
metal work of the Premises in a workmanlike manner and grain varnish and clean
the parts of the Premises usually grained, varnished and cleaned and to paint or
paper with good quality materials in a workmanlike manner all walls and ceilings
of the Premises usually painted or papered as the case may be, such decoration
in the last three months of the said term to be executed in such colours
patterns and materials as the Landlord may require.

3.30  SECURITY GUARDS

      To employ as security guards of the Premises only such persons or such
firm as may be approved by the Landlord. Such security guards shall be employed
at the sole expense of the Tenant.

3.31  PIPES AND CONDUITS

      To permit the Landlord to erect use and maintain pipes and conduits in and
through the Premises. The Landlord or its agents shall have the right to enter
the Premises at all reasonable times to examine the same upon the prior notice
to the Tenant. Provided that the permission to the Landlord to use such pipes
and conduits shall extend to the use of such pipes and conduits by the
Landlord's authorised tenants and licensees, as the case may be. The Tenant
accepts that there may exist in the Premises ducts pipes cables wires meters and
facilities not serving the Premises exclusively and no claim or objection
thereto shall be made by the Tenant.


                                       10
<PAGE>


                                   SECTION IV

                             LANDLORD'S OBLIGATIONS

      The Landlord covenants with the Tenant as follows:

4.1   QUIET ENJOYMENT

      To permit the Tenant (duly paying the rent and other charges hereby agreed
to be paid on the days and in manner herein provided for payment of the same and
rates and observing and performing the agreements stipulations terms conditions
covenants and obligations herein contained) to have quiet possession and
enjoyment of the Premises during the said term without any interruption by the
Landlord or any person lawfully claiming under or through or in trust for the
Landlord.

4.2   PROPERTY TAX

      To pay the Properly Tax attributable to or payable in respect of the
Premises.

                                   SECTION V

                          RESTRICTIONS AND PROHIBITIONS

      The Tenant hereby covenants with the Landlord as follows:

5.1   INSTALLATION AND ALTERATIONS

            (a) Not without the previous written consent of the Landlord, to.
erect install or alter any fixtures partitioning or other erection or
installation in the Premises or to make suffer or permit to be made any
disturbance alterations or additions to the mechanical or electrical wiring
installation air-conditioning ducting pipes and conduits (if any) and lighting
fixtures or any part thereof or which may affect or be likely to affect the
supply of water, electricity or other utility or service to or in the Building
nor without the like consent to install or permit or suffer to be installed any
equipment apparatus or machinery including any safe which imposes a weight on
any part of the flooring in excess of that for which it was designed or in
excess of the loading of the electrical installations in the Building. The
Landlord shall be entitled to prescribe the maximum loading of the electrical
main or wiring and the maximum weight and permitted location of safes and other
heavy equipment and to require that the same stand on supports of such
dimensions and material to distribute the weight as the Landlord may deem
necessary.

            (b) In carrying out any approved work hereunder the Tenant its
servants agents contractors and workmen shall obey and comply with all
instructions and directions which may be given by the Landlord or its authorised
representatives in connection with tile carrying out of such work.

            (c) Any fees or expenses incurred by the Landlord in connection with
the giving of consents hereunder shall be borne by the Tenant.

5.2   INJURY TO MAIN WALLS

      Not without the previous written consent of the Landlord to cut maim or
injure or permit or suffer to be cut maimed or injured any doors windows walls
beams structural members or other part of the fabric of the Premises.


                                       11
<PAGE>


5.3   ALTERATION TO EXTERIOR

      Not to affix anything or paint or make any alteration whatsoever to the
exterior of the Premises save as provided in Clause 5.6 hereof.

5.4   OBSTRUCTION TO OUTSIDE WINDOWS

      Not to block up darken or obstruct or obscure any of the windows or lights
belonging to the Premises without having obtained the express written consent of
the Landlord which consent may be given subject to such conditions as the
Landlord may in its absolute discretion consider fit to impose.

5.5   NOISE

      Not to cause or produce or suffer or permit to be produced on or in the
Premises any sound or noise (including sound produced by broadcasting from
television, radio and any apparatus or instrument capable of producing or
reproducing music and sound) or other acts or things in or on the Premises which
is or are or may be a nuisance or annoyance to the tenants or occupiers of
adjacent or neighbouring premises or to users and customers of the same or to
the Landlord.

5.6   SIGNS

      Not without the written consent of the Landlord to exhibit or display on
or affix to the exterior of the Premises any writing sign signboard or other
device whether illuminated or not nor to affix any writing sign signboard or
other device in at or above any common area lobby landing or corridor of the
Building. Provided always that the Tenant shall be entitled to have its name and
business displayed in lettering and/or characters to a design and standard of
workmanship approved by the Landlord on a signboard upon the front of the
Premises. If the Tenant carries on business under a name other than its own name
he shall be entitled to have that name displayed as aforesaid but the Tenant
shall not be entitled to change the business name without previous written
consent of the Landlord and without prejudice to the foregoing the Landlord may
in connection with any application for consent under this Clause require the
Tenant to produce such evidence as it may think fit to show that no breach of
Clause 5.18 has taken place or is about to take place.

5.7   AUCTIONS AND SALES

      Not to conduct or permit any auction fire bankruptcy close out or similar
sale of things or properties of any kind to take place on the Premises.

5.8   ILLEGAL IMMORAL OR IMPROPER USE

      Not to use or cause permit or suffer to be used any part of the Premises
for gambling or for any, illegal immoral or improper purposes or in any way so
as to cause nuisance annoyance inconvenience or damage or danger to the Landlord
or the tenants or occupiers of adjacent or neighbouring premises.


                                       12
<PAGE>


5.9   NO TOUTING

      Not to permit any touting or soliciting for business or the distributing
of any pamphlets notice or advertising matter outside the Premises or anywhere
within the Building by any of the Tenant's servants agents or licensees,

5.10  SLEEPING OR DOMESTIC USE

      Not to use the Premises or any part thereof as sleeping quarters or as
domestic premises within the meaning of any Ordinance for the time being in
force or to allow any person to remain on the Premises overnight unless with the
Landlord's prior permission in writing. Such permission shall only be given to
enable the Tenant to post watchmen to look after the contents of the Premises
and the names of the watchmen shall first be registered with the Landlord prior
to its giving such permission.

5.11  MANUFACTURE AND STORAGE OF MERCHANDISE

      Not to use the Premises for the manufacture of goods or merchandise or for
the storage of goods or merchandise other than stock or materials in small
quantities reasonably required in connection with and consistent with the
Tenant's trade or business carried on therein by way of samples and exhibits nor
to keep or store or cause or permit or suffer to he kept or stored any extra
hazardous or dangerous goods within the meaning of the Dangerous Goods Ordinance
and the regulations thereunder or any statutory modification or re-enactment
thereof.

5.12  OBSTRUCTIONS IN PASSAGES

      Not to place or leave or suffer or permit to be placed or left by any
agent contractor employee invitee or licensee of the Tenant any boxes furniture
articles or rubbish in the entrance or any of the staircases passages or
landings of the Building used in common with other tenants or the Landlord or
otherwise encumber the same.

5.13  PARKING AND LOADING OUTSIDE PREMISES

      Not to park in obstruct or otherwise use nor permit to be parked in
obstructed or otherwise used by any employee agent contractor invitee or
licensee of the Tenant those areas (if any) of the Building allocated to parking
the movement of or access for vehicles or designated as loading/unloading areas
other than in accordance with the Regulations made from time to time by the
Landlord.

5.14  GOODS AND MERCHANDISE OUTSIDE THE PREMISES

      Not to place expose or leave or permit to be placed exposed or left for
display sale or otherwise any goods or merchandise whatsoever upon or over the
ground outside the Premises without the prior permission of the Landlord.


                                       13
<PAGE>


5.15  PREPARATION OF FOOD AND PREVENTION OF ODOURS

      Not to cook or prepare or permit or suffer to be cooked or prepared any
food in the Premises or to cause or permit any offensive or unusual odours to be
produced upon or emanated from the Premises.

5.16  FOOD BY SERVICEWAYS

      Not to permit or allow any, food or food containers or furniture or other
large or heavy objects to be brought onto or removed from the Premises except by
way of service entrances service exits and (if any) service lifts or otherwise
as may be directed by the Landlord from time to time and at such times as the
Landlord shall direct and not to permit passenger or service or cargo lifts to
be overloaded by weight in excess of the weight which such passenger or service
or cargo lifts are designed or permitted to carry.

5.17  ANIMALS, PETS AND INFESTATION

      Not to keep or permit or suffer to be kept any animals or pets inside the
Premises and to take all such steps and precautions to the satisfaction of the
Landlord to prevent the Premises or any part thereof from becoming infested by
termites rats mice roaches or any other pests or vermin and for the better
observance hereof the Landlord may require the Tenant to employ at the Tenant's
cost such pest extermination contractors as the Landlord may nominate and at
such intervals as the Landlord may direct.

5.18  SUBLETTING, ASSIGNING

      Not to assign underlet or otherwise part with the possession of the
Premises or any part thereof in any way whether by way of subletting lending
sharing or other means whereby any person or persons not named as a party to
this Agreement obtains the use or possession of the Premises or any part thereof
irrespective of whether any rental or other consideration is given for such use
or possession and in the event of any such transfer sub-letting sharing
assignment or parting with the possession of the Premises (whether for monetary
consideration or not) this Agreement shall absolutely determine and the Tenant
shall forthwith vacate the Premises on notice to that effect from the Landlord.
The Tenancy shall be personal to the Tenant named in the First Schedule to this
Agreement and without in any way limiting the generality of the foregoing the
following acts and events shall, unless approved in writing by the Landlord, be
deemed to be breaches of this Clause:-

            (a) In the case of a tenant which is a partnership the taking in of
one or more new partners whether on the death or retirement of an existing
partner or otherwise.

            (b) In the case of a tenant who is an individual (including a sole
surviving partner of a partnership tenant) the death insanity or disability of
that individual to the intent that no right to use possess occupy or enjoy the
Premises or any part thereof shall vest in the executors administrators personal
representatives next of kin trustee or committee of any such individual.


                                       14
<PAGE>


            (c) In the case of a tenant which is a corporation any take-over
reconstruction amalgamation merger voluntary liquidation or change in the person
or persons who owns or own a majority of its voting shares or who otherwise has
or have effective control thereof.

            (d) The giving by the Tenant of a Power of Attorney or similar
authority whereby the donee of the Power obtains the right to use possess occupy
or enjoy the Premises or any part thereof or does in fact use possess occupy or
enjoy the same.

            (e) The change of the Tenant's business name without the previous
written consent of the Landlord which consent the Landlord may give or withhold
at its discretion.

5.19  BREACH OF GOVERNMENT AGREEMENT, DEED OF MUTUAL CONVENANT, ETC.

      Not to cause suffer or permit any contravention of the provisions of the
Government Agreement or Conditions under which Landlord holds the Premises, the
Deed of Mutual Covenant (if any) and any Sub-Deed of Mutual Covenant in respect
of the Building, and to indemnify the Landlord against any such breach.

5.20  BREACH OF INSURANCE POLICY

      Not to cause or suffer or permit to. be done any act or thing whereby the
policy or policies of insurance on the Premises against damage by fire or
liability to third parties for the time being subsisting may become void or
voidable or whereby the rate of premium or premiums thereon may be increased,
and to repay to the Landlord on demand all sums paid by the Landlord by way of
increased premium or premiums thereon: and all expenses incurred by the Landlord
in and about any renewal of such policy or policies arising from or rendered
necessary by a breach of this Clause.

5.21  LOCKS

      Not, without the previous written consent of the Landlord, to alter the
existing locks bolts and fittings on the entrance doors to the Premises nor to
install any additional hocks bolts or fittings thereon nor to alter or erect or
install any fixtures partitions doors gates metal grilles shutters, or other
similar erection or installation whatsoever whether of a temporary or permanent
nature in the Premises or in or at the doorway or entrance of the Premises or at
any of the fire exits therefrom or carry out any alteration erection or
installation works that might in any way contravene the regulations from time to
time in force of the Fire Services Department or other competent authority
concerned, nor in any other respect to contravene the said regulations.

5.22  AERIALS

      Not to erect any aerial on the roof or walls of the Building nor the
ceiling or walls of the Premises.

5.23  NO GAMBLING

      Not to permit gambling of any description whatsoever upon the Premises.


                                       15
<PAGE>


5.24  TENANT'S ASSOCIATION

      Not to form or organise or attempt or make any effort to form or organise
any tenant's association or union jointly with any tenants of the Building for
whatever objects or purposes during the continuance of the tenancy.

5.25  FIRE SHUTTERS

      Not at any time during the term of this Agreement cause or permit or
suffer the area under the fire shutter if any or any is to be installed in the
Premises to be obstructed in any way whatsoever and to ensure that the design
and layout of the Premises shall be in such manner so as not to be in breach of
this Clause.

                                   SECTION VI

                                   EXCLUSIONS

      The Landlord shall not in any circumstances be liable to the Tenant or any
other person whomsoever:

6.1   LIFTS, AIR-CONDITIONING, UTILITIES

      In respect of any toss of profit or of business or boss of life or loss or
damage or injury to person or property sustained by the Tenant or any other
person. or any disruption or inconvenience suffered by the Tenant or any other
person caused by or through or in any way owing to any defect in or breakdown of
the lifts escalators and air-conditioning system (if any) condenser water supply
system (if any) electric power and water supplies, or any other service provided
in the Building, or

6.2   FIRE AND OVERFLOW OF WATER

      In respect of any loss of profit or of business or loss of life or loss or
damage or injury to person or property sustained by the Tenant or any other
person or any disruption or inconvenience suffered by the Tenant or any other
person caused by or through or in any way owing to the escape of fumes smoke
fire odours or any other substance or thing or the overflow or leakage of water
from anywhere within the Building or the leakage or overflow of water into the
Building or any part thereof from anywhere outside the Building (whether the
overflow or leakage is from any pipes, drains, water tanks, water apparatus,
sprinkler system or other fire prevention or control apparatus) or the
decoration or fitting out of any part of the Building carried out by the
Landlord or any other tenants or occupiers of the Building, or

6.3   SECURITY

      For the security and safekeeping of the Premises or any contents therein
and in particular but without prejudice to the generality of the foregoing the
provision (if any) by the Landlord of watchmen and caretakers or any mechanical
or electrical systems of alarm of whatever nature shall not create any
obligation on the part of the Landlord as to the security of the Premises or any
contents therein and the responsibility for the safety of the Premises and the
contents thereof shall at all times rest with the Tenant, or


                                       16
<PAGE>


6.4   CAUSES OTHER THAN LANDLORD'S WILFUL DEFAULT

      In respect of any loss of profit or of business or loss of life or loss or
damage or injury to person or property sustained by the Tenant or any other
person or any disruption or inconvenience suffered by the Tenant or any other
person unless. the same is caused by the wilful default or gross negligence of
the Landlord and the Landlord is otherwise liable for the same,

nor shall the rent and other charges hereinbefore mentioned or any part thereof
abate or cease to be payable on account of any of the foregoing.

                                  SECTION VII

                                ABATEMENT OF RENT

7.1   SUSPENSION OF RENT IN CASE OF FIRE ETC.

      If the Premises or the Building or any part thereof shall at anytime
during the tenancy be destroyed or damaged or become unfit for occupation not
due to any default of the Tenant but owing to fire earthquake subsidence of the
ground or Acts of God and the policy or policies of insurance effected by the
Landlord shall not have been vitiated or payment of policy moneys refused in
whole or in part. in consequence of any act or default of the Tenant or if at
any time during the continuance of this Tenancy the Premises or the Building
shall be condemned as a dangerous structure or a demolition order or closing
order shall become operative in respect of the Premises or the Building then the
rent hereby reserved or a fair proportion thereof according to the nature and
extent of the damage sustained or order made shall after the expiration of the
then current month be suspended until the Premises or Building shall again be
rendered fit for occupation provided that should the Premises or the Building
not have been reinstated in the meantime either the Landlord or the Tenant may
at any time after six months from the occurrence of such damage or destruction
or order give to the other of them notice in writing to determine this present
tenancy and thereupon the same and everything herein contained shall cease and
be void as from the date of the occurrence of such destruction or damage or
order or of the Premises becoming unfit for occupation but without prejudice to
the rights and remedies of either party against the other in respect of any
antecedent claim or breach of the agreements stipulations covenants terms and
conditions herein contained or of the Landlord in respect of the rent payable
hereunder prior to the coming into effect of the suspension.


                                       17
<PAGE>


                                  SECTION VIII

                                     DEFAULT

      It is hereby expressly agreed and declared as follows:

8.1   DEFAULT

      If the rent and/or any charges payable hereunder or any part thereof shall
be in arrear for 15 days after the same shall have become payable (whether
formally demanded or not) or if there shall be any other breach or
non-performance of any of the stipulations conditions covenants or agreements
herein contained and on the part of the Tenant to be observed or performed or if
the Tenant shall become bankrupt or being a corporation go into liquidation
(save for the purposes of amalgamation or reconstruction) or if the Tenant shall
suffer execution to be levied upon the Premises or otherwise on the Tenant's
goods then and in any such case it shall be lawful for the Landlord at any time
thereafter to re-enter on and upon the Premises or any part thereof in the name
of the whole and thereupon this Agreement shall absolutely determine but without
prejudice to any right of action by the Landlord in respect of any outstanding
breach or non-observance or non-performance by the Tenant of any of the terms of
this Agreement. All costs and expenses incurred by the Landlord in demanding
payment of the rent and other charges aforesaid (if the Landlord elects to
demand) or the extent of any loss to the Landlord arising out of this Clause
shall. be paid by the Tenant on a full indemnity basis and shall be recoverable
from the Tenant as a debt or be deductible by the Landlord from any deposit held
by the Landlord hereunder.

8.2   ACCEPTANCE OF RENT

      The acceptance of any rent by the Landlord hereunder shall not operate and
shall not be regarded by the Tenant as a waiver by the Landlord of any right to
proceed against the Tenant in respect of any breach non-observance or
non-performance by the Tenant of any of the agreements stipulations terms
covenants and conditions herein contained and on the part of the Tenant to be
observed and performed.

8.3   INTEREST

      Notwithstanding anything hereinbefore contained in the event of default in
payment of rent or other sums payable under this Agreement for a period of 15
days from the date on which the same falls due for payment, the Tenant shall
further pay to the Landlord on demand interest on the amount in arrears at the
rate of 1.25% per month calculated from the date on which the same becomes due
for payment until the date of payment as liquidated damages and not as penalty
provided that the demand and/or receipt by the Landlord of interest pursuant to
this provision shall be without prejudice to and shall not affect the right of
the Landlord to exercise any other right or remedy hereof (including the right
of re-entry) exercisable under the terms of this Agreement.

8.4   DISCONNECTION OF ELECTRICITY SUPPLY

      In addition and without prejudice to the Landlord's right under Clauses
8.1 and 8.3 hereof, the Landlord may, and the Tenant hereby specifically
authorises the Landlord, in the event of a default by the Tenant under this
Agreement, to cut off the supply of water, electricity and air-conditioning
chilled water to the Premises and to dispose of all objects including goods
merchandise equipment furniture and fixtures in or at the Premises in such
manner as the Landlord shall deem fit, and any expenses in connection therewith
shall be paid by the Tenant and shall he recoverable from it as a debt.


                                       18
<PAGE>


8.5   ACTS OF EMPLOYEES INVITEES AND LICENSEES

      For the purpose Of this Agreement any act default neglect or omission of
any guest visitor servant contractor employee agent partner invitee customer or
licensee of the Tenant shall be deemed to be the act default neglect or omission
of the Tenant.

8.6   RE-ENTRY

      A written notice served by the Landlord on the Tenant in manner
hereinafter mentioned to the effect that the Landlord thereby exercises the
power of re-entry herein contained shall be a full and sufficient exercise of
such power without actual entry on the part of the Landlord.

8.7   DISTRAINT

      For the purposes of Part III of the Landlord and Tenant (Consolidation)
Ordinance (Chapter 7) and of this Agreement, the rent payable in respect of the
Premises shall be and be deemed to be in arrear if not paid in advance at the
times and in the manner hereinbefore provided for payment thereof.

8.8   EXPENSES OF NOTICE OF DEFAULT

      The Tenant shall pay all expenses (including surveyor's fees and
Solicitor's costs on a solicitor and own client basis) incurred by the Landlord
incidental to the preparation and service of a notice under Section 58 of the
Conveyancing and Property Ordinance (Cap.219) notwithstanding forfeiture is
avoided otherwise than by relief granted by the court.

                                   SECTION IX

                                     DEPOSIT

9.1   DEPOSIT

      The Tenant shall on the signing hereof and at such other times (if any)
during the term of tenancy hereby created as are specified in Part III of the
First Schedule hereto deposit with the Landlord the sum or sums specified in
Part IV of the First Schedule to secure the due observance and performance by
the Tenant of the agreements stipulations terms and conditions herein contained
and on the part of the Tenant to be observed and performed which said deposit
shall be held by the Landlord throughout the currency of this Agreement free of
any interest to the Tenant with the right for the Landlord (without prejudice to
any other right or remedy hereunder) to deduct .therefrom the amount of ally
rent rates and other contributions or charges payable hereunder and any costs
expenses loss or damage sustained by the Landlord as the result of any
non-observance or non-performance by the Tenant of any of the said agreements
stipulations obligations or conditions in the event of any deduction being made
by the Landlord from the said deposit in accordance herewith during the currency
of this Agreement the Tenant shall forthwith on demand by the Landlord make a
further deposit equal to the amount so deducted and failure by the Tenant so to
do shall entitle the Landlord forthwith to re-enter upon the Premises and to
determine this Agreement as hereinbefore provided.


                                       19
<PAGE>


9.2   REPAYMENT OF DEPOSIT

      Subject as aforesaid the said deposit shall be refunded to the Tenant by
the Landlord without interest within reasonable time after the expiration or
sooner determination of this Agreement and delivery of vacant possession to the
Landlord and after settlement of the last outstanding claim by the Landlord
against the Tenant for any arrears of rent rates and other charges and for any
breach non-observance or non-performance of any of the agreements stipulations
terms and conditions herein contained and on the part of the Tenant to he
observed or performed whichever shall be the later.

                                   SECTION X

                                   REGULATIONS

10.1  INTRODUCTION OF REGULATIONS

      The Landlord shall be entitled from time to time and by notice in writing
to the Tenant to make introduce and subsequently amend adopt or abolish if
necessary such Regulations as it may consider necessary for the proper operation
and maintenance or management of the Building or any part thereof.

10.2  CONFLICT

      Such Regulations shall be supplementary to the terms and conditions
contained in this Agreement and shall not in any way derogate from such terms
and conditions. In the event of conflict between such Regulations and the terms
and conditions of this Agreement the terms and conditions of this Agreement
shall prevail.

10.3  NOT LIABLE FOR LOSS

      The Landlord shall not he liable for any loss or damage however caused
arising from any non-enforcement of the Regulations or non-observance thereof by
any third party.

                                   SECTION XI

                        SUBMISSION AND APPROVAL OF PLANS

11.1  SUBMISSION OF TENANTS PLANS

      Prior to the commencement of decoration or fitting out works to the
Premises the Tenant shall at its own cost prepare and submit to the Landlord
suitable drawings, plans and specifications of the works to be carried out by
the Tenant together with schematic sketches showing intent as to the Tenant's
design and layout proposals and together with the programme of work showing
their duration and work progress (hereinafter collectively called "the Tenant's
Plans") to enable the Premises to be fitted out and completed for the purposes
specified in this Agreement and in all respects in a style and manner
appropriate to first class commercial and office buildings. The Tenant s Plans
shall, without limitation:


                                       20
<PAGE>


            (a) Include detailed drawings, plans and specifications for all
interior layout, decorations, fittings, installations, partitionings and floor
coverings;

            (b) Include detailed drawings, plans and specifications of all
electrical installations which shall be connected to the electrical systems
installed by the Landlord;

            (c) Include details of any proposed amendments, additions or
alterations to any electrical mechanical or other building services;

            (d) Comply with all relevant Ordinances, regulations and bye-laws
from time to time issued by the Government of the Hong Kong Special
Administrative Region of the Peoples Republic of China.

11.2  ALTERATION TO BUILDING SERVICES

      In order to enable the building services of the Building to be effectively
co-ordinated and controlled the Tenant agrees that all approved alterations to
the building services - (including drainage, air-conditioning, plumbing,
security and fire services) in or for the Premises shall be carried out at the
Tenant's expense only by the Landlord's contractor. For the avoidance of doubt,
the Tenant shall at his own cost and expenses be responsible for the application
and installation of all electricity meters, water meters and telephone and other
communication appliances and installations for the Premises. The Tenant shall at
the expiration or sooner determination of this Agreement if so required by the
Landlord at the Tenant's own expense reinstate the whole or any part of the
Premises in accordance with the Landlord's requirements.

11.3  APPROVAL OF PLANS

      The Landlord will consider the Tenant's Plans and may in its absolute
discretion accept or reject the Tenant's Plans or any part of them as it thinks
fit within 7 days after submission.

                                  SECTION XII

                        INTERPRETATION AND MISCELLANEOUS

12.1  NAME OF BUILDING

      The Landlord reserves the right subject to any relevant provisions of the
Deed of Mutual Covenant (if any) and/or the Sub-Deed of Mutual Covenant in
respect of the Building to name the Building with any such name or style as it
in its sole discretion may determine and at any time and from time to time to
change, alter, substitute or abandon any such name without the same constituting
an actual or constructive eviction of the Tenant and without incurring any
liability to the Tenant therefor.


                                       21
<PAGE>


12.2  LANDLORD'S RIGHTS REGARDING COMMON AREAS AND COMMON FACILITIES

            (a) Notwithstanding anything herein contained and in particular
Section IV above, the Landlord shall have the right to remove, cancel, relocate
or otherwise change or carry out any alteration or addition or other works to
the common areas (including but not limited to entrances, passages, corridors
and staircases) and common facilities (including but not limited to lifts,
escalators and toilets) of the Building and such other part or parts of the
Building (other than the Premises) from time to time and in such manner as the
Landlord may in its absolute discretion deem fit without the same constituting
an actual or constructive eviction of the Tenant and without incurring any
liability whatsoever to the Tenant therefor. In particular, the Landlord hereby
expressly reserves the right at any time at its sole discretion to renovate or
refurbish the shopping arcade of the Building of which the Premises form part
and to change, alter, amend, vary, add, to and re-locate the layout of the
shopping arcade including but not limited to the external walls, entrance
lobbies, staircases, landings, passages, corridors, toilets, lifts and
escalators and to carry out works to effect such renovation, refurbishment,
change, alteration, amendment, variation, addition and re-location Provided that
the size of the Premises shall not be affected or reduced in any way And
Provided further that the Tenant shall not be entitled to object to the
renovation, refurbishment, change, alteration, amendment, variation, addition,
re-location or any works thereof and shall have no right of action or claim for
compensation whatsoever in connection with any matters arising from this Clause.

            (b) The Landlord reserves its right of free and uninterrupted
passage egress from and ingress to the common service of the Building in or
under above or through the Premises. In particular, but without affecting the
generality of the aforesaid, the Landlord shall have the right to install,
affix, erect or permit to be installed, affixed or erected any aerial,
transmitter or other telecommunication cable wiring or equipment on or above the
false ceiling or otherwise over or tinder the Premises and the Tenant shall
permit the Landlord or its authorized agent or contractor to enter the Premises
to install affix erect maintain or repair such aerial transmitter cable wiring
or equipment at all reasonable time upon prior appointment and shall not remove
alter or otherwise cause damage to such aerial transmitter cable wiring or
equipment at the Premises and shall indemnify the Landlord against all claims
demands actions proceeding loss or damages costs- and expenses arising from the
breach of this provision by the Tenant.

12.3  PUBLIC ADDRESS SYSTEM

      Notwithstanding anything herein contained or implied to the contrary the
Landlord may subject to any relevant provisions of the Deed of Mutual Covenant
(if any) and/or the Sub-Deed of Mutual Covenant in respect of the Building
provide and install a public address system throughout the common areas and may
play relay or broadcast or permit any other person to play relay or broadcast
recorded music or public announcement therein.

12.4  CONDONATION NOT A WAIVER

      No condoning, excusing or overlooking by the Landlord of any default,
breach or non-observance or non-performance by the Tenant at any time or times
of any of the agreements stipulations terms covenants and conditions herein
contained shall operate or be regarded by the Tenant as a waiver of the
Landlord's rights hereunder in respect of any continuing or subsequent default,
breach or non-observance or non-performance or so as to defeat or affect in any
way the rights and remedies of the Landlord hereunder in respect of any such
continuing or subsequent default or breach and no waiver by the Landlord shall
be inferred from or implied by anything done or omitted by the Landlord, unless
expressed in writing and signed by the Landlord.


                                       22
<PAGE>


      Any consent given by the Landlord shall operate as a consent only for the
particular matter to which it relates and shall in no way be considered as a
waiver or release of any of the provisions hereof nor shall it be construed as
dispensing with the necessity of obtaining the specific written consent of the
Landlord in the future, unless expressly so provided.

12.5  LETTING NOTICES AND ENTRY

      During the three months immediately before the expiration or sooner
determination of the said term of tenancy the Tenant shall permit all persons
having written authority from the Landlord to enter and view the Premises and
every part thereof at all reasonable times upon the prior notice to the Tenant
Provided Further that the Landlord shall be at liberty to affix and maintain
without interference upon any external part of the Premises a notice stating
that the Premises are to be let and such other information in connection
therewith as the Landlord shall reasonably require during the aforementioned
period of three months.

12.6  SERVICE OF NOTICE

      Any notice required to be served on the Tenant shall be sufficiently
served if delivered to or despatched by registered post or post or left at the.
Premises or at the last known address of the Tenant. A notice sent by registered
post or post shall be deemed to be given at the time and date of posting.

12.7  GENDER

      In this Agreement if the context permits or requires words importing the
singular number shall include the plural number and vice versa and words
importing the masculine feminine or neuter gender, shall include the others of
them.

12.8  MARGINAL NOTES, HEADINGS AND INDEX

      The Marginal Notes, Headings and Index (if any) are intended for guidance
only and do not form a part of this Agreement nor shall any of the provisions of
this Agreement be construed or interpreted by reference thereto or in any way
affected or limited thereby.

12.9  STAMP DUTY AND COSTS

      The legal costs of the Landlord of and incidental to the preparation
execution and registration of this Agreement shall be borne in the manner shown
in Part VI of the First Schedule hereto. The stamp duty and registration fees of
and incidental to this Agreement shall be borne by the Landlord and the Tenant
in equal shares.


                                       23
<PAGE>


12.10 NO FINE

      The Tenant acknowledges that no fine premium key money or other
consideration has been paid by the Tenant to the Landlord for the grant of this
tenancy.

12.11 EXCLUSION OF WARRANTIES

      This Agreement sets out the full agreement between the parties and
supersedes any other commitments, agreements, representations, warranties or
understandings, written or verbal, that the parties may have had with respect to
the Building or the Premises.

12.12 JOINT AND SEVERAL LIABILITY

      Where more than one person is included in the expressions "the Tenant" all
such persons shall be jointly: and severally liable for the performance and
observance of the terms conditions and agreements herein contained and on the
part of the Tenant to be performed and observed.

12.13 SPECIAL CONDITIONS

      The parties hereto further agree that they shall respectively be bound by
and entitled to the benefit of the Special Conditions (if any) set out in Part
II of the Third Schedule hereto.



                                       24
<PAGE>


                      THE FIRST SCHEDULE ABOVE REFERRED TO


                                     PART I

                                  (Clause 1.1)

                                    LANDLORD

      SHK SHEUNG SHUI LANDMARK INVESTMENT LIMITED whose registered office is
situate at 45th Floor, Sun Hung Kai Centre, 30 Harbour Road, Wanchai, Hong Kong.

                                     TENANT

      NISSIN PRECISION METAL MANUFACTURING LIMITED
(_____________________________________) whose registered office is situate at
Room M & N, 6th Floor, Camelpaint Building, Block 111, 60 Hoi Yuen Road, Kwun
Tong, Kowloon, Hong Kong.

                                    PART II

                                  (Clause 1.2)

                                    PREMISES

      All That OFFICE NO.10 on LEVEL 8 of "LANDMARK NORTH", No.39 Lung Sum
Avenue, Shek Wu Hui, Sheung Shui, New Territories, Hong Kong ("the Building")
erected on FANLING SHEUNG SHIJI TOWN LOT NO.94 ("the Lot") which said Office is
for the purpose of identification only more particularly shown on the plan
attached hereto and thereon delineated and coloured Pink.

                                    PART III

                                  (Clause 1.2)

                                      TERM

      For the term of two (2) years commencing on the 1st day of August 2002.

                                    PART IV

                                  (Clause 9.1)

                                     DEPOSIT

      HK$73,134.00 equivalent to the aggregate of three months' rent and three
months' air-conditioning and management charges currently payable in respect of
the Premises.


                                       25
<PAGE>

                                     PART V

                                  (Clause 1.2)

                                      USER

      Restricted to use for the purpose of offices only and for no other purpose
whatsoever provided that the Tenant shall obtain all necessary licences and
approvals required by any Government authority in connection with such use and
the Landlord does not warrant that the Premises are fit to be used for such
purpose or any particular purpose.

                                    PART VI

                                  (Clause 12.9)

                                   LEGAL COSTS

      Each party shall pay its own legal costs of and incidental to the
preparation execution and registration of this Agreement.



                                       26
<PAGE>


                     THE SECOND SCHEDULE ABOVE REFERRED TO

                                     PART I

                                  (Clause 1.2)

                                      RENT

      The monthly rental throughout the said term of two years shall be Hong
Kong Dollars Seventeen Thousand Two Hundred and Eight (HK$17,208.00) exclusive
of rates, air-conditioning and management charges Provided that the rent shall
not commence to be payable until after thirty one (31) days from the
commencement of the said term.

                                    PART II

                                  (Clause 2.2)

                     AIR-CONDITIONING AND MANAGEMENT CHARGES

      HK$7,170.00 per calendar month subject to review in accordance with the
provisions of this Agreement.



                                       27
<PAGE>


                      THE THIRD SCHEDULE ABOVE REFERRED TO

                                     PART I

                              (Clause 2.2 and 3.23)

                              NORMAL BUSINESS HOURS

      The normal business hours of the office premises of the Building means the
hours other than on Sundays and Public Holidays between 8:00 a.m. and 7:00 p.m.
on each Monday to Friday which is not a Public Holiday and between 8:00 a.m. and
2:00 p.m.. on each Saturday which is not a Public Holiday. The Landlord reserves
the right to alter or amend the said business hours from time to time and to
such extent as the Landlord shall in its discretion deem appropriate or
necessary.

                                    PART II

                                 (Clause 12.13)

                               SPECIAL CONDITIONS

1.    HANDOVER CONDITION

      The Premises will be handed over to the Tenant in its "bare shell"
condition at the date of handover (i.e. the Landlord will not be required to do
any decoration work save and except any structural defects within the Premises).

2.    OTHER SPECIAL CONDITIONS

            (a) The Tenant hereby acknowledges that the Landlord shall have the
absolute right at all times to designate or re-designate any toilets, lifts or
common facilities located on any floor(s) to be used by any particular tenant(s)
or occupier(s) of the Building.

            (b) The Tenant hereby further acknowledges that the Landlord shall
have the right to carry out renovation and/or alteration and/or addition works
within, outside and/or above the Building which may result in the making of
noise and vibration and emission of dust and other substances and other forms of
disturbance and that fitting out works will be carried out by the Landlord
and/or other tenants (including but not limited to alteration works and M/E
works) which may cause inconvenience to the Tenant and that the Tenant hereby
agrees that the Tenant shall not make any complaint and shall not be entitled to
any abatement of rent or any claims/compensation of whatever nature against the
Landlord or its agent, Sun Hung Kai Real Estate Agency Limited, or the manager
of the Building in relation to the said works.


                                       28
<PAGE>


            IN WITNESS whereof the Landlord and the Tenant have caused this
Agreement to be duly executed the day and year first above written.


SIGNED by K.M. Chan                          ) For and on behalf of
                                             ) SHK Sheung Shui
                                             ) Landmark Investment
                                             ) Limited
                                             )
                                             )
                                             ) /S/_______________________
for and on behalf of the Landlord            ) Authorised Signature(s)
whose signature is verified by:              )



 /S/____________________________
Yeda Tin Yee Hong
Johnson Stokes & Master
Solicitor, Hong Kong SAR

SIGNED by Mr. Roland Kohl                    ) For and on behalf of
                                             ) NISSIN PRECISION
                                             ) METAL MFG. LTD.
                                             )
                                             )  /S/ _____________________
for and on behalf of the Tenant in           )      Director
the presence of:                             )


Mr. Saito Satoru HKID# XD568682(8)



                                       29
<PAGE>


RECEIVED the day and year first above        )
written of and from the                      )   HK$73,134.00
Tenant the sum of HONG KONG DOLLARS          )   ============
SEVENTY THREE THOUSAND ONE HUNDRED AND       )
THIRTY FOUR ONLY being the deposit money     )   For and on behalf of
above expressed to be paid by the            )   SHK Sheung Shui Landmark
Tenant to the Landlord.                      )   Investment Limited
                                             )
Signature verified by:                       )   /S/_________________________
                                             )      Authorised Signature(s)
                                             )


  /S/ ___________________________
Yeda Tin Yee Hong
Johnson Stokes & Master
Solicitor, Hong Kong SAR



                                       30
<PAGE>



                                February 23, 2004


Nissin Precision Metal Manufacturing Ltd.
Suite No. 810, Level 8 Landmark North
39 Lung Sum Avenue
Sheung Shui
New Territories

         Re:      Tenancy Renewal
                  SUITE NO. 810, LEVEL 8, LANDMARK NORTH

Dear Madam:

         Further to our recent discussion with our Mr. Samuel Kan regarding
renewal of the tenancy in respect of the captioned premises, we would like to
confirm below the basic terms and conditions which the Landlord offers:


          Landlord:                          SHK Sheung Shui Landmark Investment
                                             Limited

          Landlord's Agent:                  Sun Hung Kai Real Estate Agency Ltd

                                             Room 2028, 20/F, Sun Hung Kai
                                             Centre

                                             30 Harbour Road

                                             Wanchai

                                             Hong Kong

          Tenant:                            Nissin Precision Metal
                                             Manufacturing Ltd

          Premises:                          Suite No 810, Level 8, Landmark
                                             North

                                             39 Lung Sum Avenue

                                             Sheung Shui

                                             New Territories

          Gross Area:                        Approx. 1,912 sf(G)

          Term:                              Two (2) years to be commencing on 1
                                             August 2004


<PAGE>

Nissin Precision Metal Manufacturing Ltd.
Page 2



          Rent:                              Yr 1-2 HK$19,120.00 [i.e. approx.
                                             HK$10.00 psf (G)] per month.

                                             Payable monthly in advance,
                                             exclusive of air-conditioning and
                                             management charges, rates and other
                                             outgoings.

          Air-conditioning and
          Management Charges:                Currently estimated at HK$6,500.80
                                             per month, subject to revision.

                                             Payable monthly in advance
                                             including provision of
                                             management service and
                                             standard hours
                                             air-conditioning supply.

          Deposit:                           Three months' rent and
                                             air-conditioning and management
                                             charges at HK$76,862.40. The
                                             existing deposit of HK$73,134.00 to
                                             be transferred and be applied to
                                             pay the deposit payable under the
                                             new Tenancy Agreement and the
                                             balance of deposit of HK$3,728.40
                                             to be paid by the Tenant upon
                                             signing this offer letter ("the
                                             initial deposit"). No interest is
                                             payable on the initial deposit.

          Tenancy Agreement:                 It is a condition of the agreement
                                             constituted by your confirming the
                                             offer made herein that the new
                                             Tenancy Agreement shall be signed
                                             on or before 17 March 2004. if the
                                             new Agreement is not signed by you
                                             and refunded to us on or before the
                                             said date, the proposed Tenancy
                                             will he automatically cancelled and
                                             (if any) the initial deposit paid
                                             will be forfeited as liquidated
                                             damage, but not penalty, to
                                             compensate the loss sustained by
                                             the Landlord in keeping the
                                             captioned premises available to
                                             you, but without prejudice to the
                                             Landlord's right to make claim
                                             against you for damages not being
                                             set off or covered by (if any) any
                                             deposit forfeited.

          Legal Cost, Stamp
          Duty & Disbursement:               Each party shall pay its own legal
                                             costs but stamp duty and
                                             disbursements in connection with
                                             this Agreement shall be
                                             shared equally between the parties.

<PAGE>

Nissin Precision Metal Manufacturing Ltd.
Page 3


          User:                              For Office use only.

          Rent-free Period:                  There will be no rent-free period
                                             during the term of the tenancy.


      Save as aforesaid and the rent-free period, other terms and conditions
will remain the same as the existing Tenancy Agreement.

      Trusting the above terms and conditions are acceptable to you, we shall he
glad if you could confirm by signing and returning the duplicate of this letter
to us together with (if applicable) your cheque payable to "Sun Hung Kai Real
Estate Agency Ltd" for the balance of deposit (i.e. HK$3,728.40) on or before
______________________, after then this offer will lapse automatically. We
stress that time shall he of the essence hereof


                                        Yours faithfully
                                        For and on behalf of
                                        SUN HUNG KAI REAL ESTATE AGENCY LTD


                                        Samson Chu
                                        General Manager - Leasing



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.10
<SEQUENCE>8
<FILENAME>v04060_ex4-10.txt
<TEXT>


EXHIBIT 4.10

                           GENERAL BUSINESS AGREEMENT

<TABLE>
<CAPTION>
<S>                                       <C>
Between the companies                     Kayser Technik Ltd,
                                          Suite No. 810, Level 8, Landmark North, 39
                                          Lung Sum Avenue Sheung Shui, N. T.
                                          Hong Kong
                                          China
                                          (hereinafter referred to as KAYSER)

and                                       and BERGER LAHR GmbH & Co. KG
                                          Breslauer Str. 7
                                          77933 Lahr
                                          Germany
                                          (hereinafter referred to as BERGER)

for the production and supply of technical, customer-specific components / products
</TABLE>

Contents

Preamble

ss.1         Subject of General Business Agreement
ss.2         Execution
ss.3         Delivery instructions / delivery times
ss.4         Delivery conditions
ss.5         Guaranty
ss.6         Tools / Special equipment
ss.7         Availability
ss.8         Prices
ss.9         Payment
ss.10        Quality
ss.11        Competition
ss.12        Initial Sampling
ss.13        Product liability
ss.14        Secrecy / Prohibition of competition
ss.15        General Business Agreement period
ss.16        Final clauses

PREAMBLE

           KAYSER is a manufacturer of technical products in various different
technologies, such as stamping, plastic injection, winding, final assembly, etc.

           KAYSER has many years experience in the manufacture of these
technologies and is fully up-to-date in terms of personnel and production
technology.


<PAGE>


           KAYSER has established a production line in Long Cheng Industrial
Estate Long Hua, Bao An 518109 Shenzhen, China.

           All the following agreements refer exclusively to the abovementioned
manufacturing location.

           Any changes in manufacturing location shall be advised by KAYSER to
BERGER within a three-month-notice. In case of changing the manufacturing
location BERGER gets the right to. order an additional safety stock, to be
manufactured at the current location, in order to avoid any quality problems
eventually caused by qualifying the new manufacturing location.

           BERGER is a manufacturer of motors and electronics in the MOTION
company section of the Schneider Electric company group.

           BERGER requires different technical components and products for brand
labeling and / or in its own production lines in different qualities and
quantities in its business fields.

           KAYSER is interested in producing these components and products
economically for BERGER and in supplying BERGER with these products in the
agreed quality over the long-term.

           The parties hereto, KAYSER and BERGER, covenant as follows:

                                      ss.1

                      SUBJECT OF GENERAL BUSINESS AGREEMENT

           The subject of this agreement is the production and supply to BERGER
of the components and / or products mentioned in Appendix I by KAYSER in
accordance with the terms of quality and delivery of BERGER according to
Appendix II. Both parties are in agreement that Appendix I is to be successively
extended in the course of the business co-operation. Additional products shall
become part of this General Business Agreement on ordering by BERGER and
confirmation / delivery by KAYSER, even if they are not explicitly recorded in
Appendix I.

                                      ss.2

                                    EXECUTION

           KAYSER is responsible for the production and delivery of the
components / products required by BERGER at the conditions agreed in this
General Business Agreement,

           KAYSER assures and undertakes that they are at all times capable of
producing and delivering the items under the General Business Agreement at
"state of the art", both technically and commercially.

           BERGER shall transmit to KAYSER all data necessary for the correct
manufacture of the components / products required. Data transmission may be
effected both by post or by electronic means.

           KAYSER immediately confirms, by the fastest means, the correct
receipt of all data required for the manufacture of the components / products in
perfect quality. KAYSER shall immediately inform BERGER in writing by the
fastest means of any missing information in order that no delay in commencement
of production should occur due to missing, incomplete and / or detective data,
if KAYSER is able to detect it.

           All documents (drawings, specifications, provisions etc.) handed over
by BERGER to KAYSER shall fall under the rules of this General Business
Agreement,


                                       2
<PAGE>


                                      ss.3

                     DELIVERY INSTRUCTIONS / DELIVERY TIMES

           BERGER shall place "quantity contracts" for all parts / components to
be manufactured by KAYSER.

           Quantity contracts shall contain materials and production releases
according to the "Standard Agreement Quantity contract" (Appendix III).

           KAYSER is technically and commercially capable of manufacturing all
components / products listed in Appendix I ordered or to be ordered by BERGER in
the normal manufacturing process within a maximum of 60 working days after the
placement of a quantity contract.

           A delivery period of 10 working days shall deem to be agreed for
call-off orders on existing quantity contracts after the initial period of max.
60 days after placement of the quantity contract.

           If, due to unexpected and short-term increases in the demand of goods
, the buffer stock agreed in Appendix II should prove to be insufficient to
cover demand, KAYSER assures to deliver to BERGER additional stock within 10
working days at the most, such deliveries to be made by air freight. Any
additional airfreight charges shall be paid by BERGER.

           If samples are required for new projects, KAYSER agrees to deliver
said samples to BERGER free of charge and within 10 working days, ex works, at
the most, as far as materials and production facilities are available at KAYSER.
Any freight charges shall be paid by BERGER.

           Sample-quantities shall not exceed 50 pcs. per part/ component.


                                       3
<PAGE>


                                      ss.4

                               DELIVERY CONDITIONS

           All deliveries from KAYSER to BERGER are to be made "DDU-Lahr".

           In the beginning of the relationship and for an undefined period of
time KAYSER shall supply BERGER directly DDU-Lahr.

           KAYSER shall also define a European / German representative in Europe
/ Germany that has to supply BERGER with the components / products of this
General Business Agreement after both parties have agreed to do so. It is the
target to use the logistic-services of an European / German representative
within a period of ! 2 to 18 months after signature of the General Business
Agreement.

           KAYSER is free to nominate a partner to do this logistics on his
behalf, KAYSER shall nominate his representative in writing within one year
after signature of this Agreement Any changes of the nominated logistic partner
in Europe / Germany has to be announced to BERGER in writing by a
6-month-notice.

           Minimum stock-quantities at the European representative are to be
defined per component / product in Appendix I to this General Business
Agreement.

           BERGER and KAYSER mutually will define the packaging require six
weeks in advance of first series deliveries.

           The costs of transport insurance shall be met by BERGER.

                                      ss.5

                                    GUARANTY

           KAYSER guaranties that the components / products to be delivered
shall be free of defects and workmanship in accordance with BERGER
specifications / drawings / quality regulations.

           The warranty period for all components / products to be delivered
shall be 24 months after delivery of the parts from KAYSER to BERGER.

                                      ss.6

                            TOOLS / SPECIAL EQUIPMENT

           The tools required for the manufacture of Berger-specific components
/ products arc to be procured in principle by KAYSER on the account of KAYSER.
In individual cases and varying from this, the procurement of toots / special
equipment by KAYSER and the acceptance by BERGER of the costs arising from this
may be agreed in writing. In such cases the tools / special equipment shall be
authorized in writing by BERGER, Payment on tools / special equipment from
BERGER to KAYSER shall be due as follows: 50 % on order-placement; 50 %
following successful initial sampling. Ownership of tools / special equipment
shall pass to BERGER on payment.


                                       4
<PAGE>


                                      ss.7

                                  AVAILABILITY

           KAYSER guaranties the availability of the General Business Agreement
components / products at the conditions agreed upon in this General Business
Agreement for the entire working life of the BERGER products in which the
General Business Agreement components / products are incorporated, at least for
6 years after the first shipment m series-quantities. In the event of
discontinuation of the product after that time, BERGER shall have the
"opportunity of "last buy" at maximum one-year's BERGER-demand at the conditions
of the previously KAYSER valid / current quantity contract.

                                      ss.8

                                     PRICES

           The prices valid for the individual components / products shall be
negotiated yearly and are to be recorded in writing for a duration of at least 1
year in the corresponding quantity contract. The prices recorded m the quantity
contracts shall apply to all deliveries up to a period of one year after
delivery of first series-quantities. The prices stated in the very first
quantity contract to each particular part / component are maximum prices. Price
increases for deliveries after this period are not permissible. A price
reduction of >= 5 % per annum shall be the target for KAYSER.

           Special regulations on raw materials:

           la case of price-deviations on materials of >= + - 10 % prices on
components / products are to be adjusted at the share of materials, max. four
times per year.

           Prices on raw materials have to be fixed at time of Erst
series-order.

           Market prices in the Asian market shall apply.

           For verification an open-book-agreement on purchasing-prices is
agreed.

           BERGER has the right to verify Asian market-prices by analysis of
Schneider Electric IPO (International Purchasing-Office).

                                      ss.9

                                     PAYMENT

           If using the logistics towards the European / German representative
(ref. ss. 4) payment of the invoices of KAYSER by BERGER shall be made net by
bank transfer or crossed check within 14 days after receipt of invoice and
components / products. In this case adders on agreed prices for
logistic-services are to be negotiated.


                                       5
<PAGE>


           In case of direct shipments from KAYSER to BERGER payment shall be
done by "payment with telegraphic transfer by shipment from Harbour ".

                                     ss. 10

                                     QUALITY

           In terms of engineering and personnel, KAYSER is economically capable
of supplying all components / products, required by BERGER in the long-term and
in the quality based on the specifications available at KAYSER at the date of
quotation or confirmed reviews. The guaranty of product quality during and at
the end of manufacture is to be carried out in accordance with ISO 9002 quality
standard in close consultation with BERGER Quality- Assurance. The attached
Quality Assurance Agreement is a component of this General Business Agreement.
(Appendix III).

                                      ss.11

                                   COMPETITION

           In order to respond to the ever-growing price pressure in the market,
it is vital that BERGER and BERGER suppliers permanently search for
opportunities to improve engineering / commercial activities.

           KAYSER endeavors to search for opportunities to improve costs and to
pass on rationalization effects to BERGER. BERGER reserves the right to examine
the competitiveness of KAYSER from time to time and, in the event that better
competitive offers are available, to negotiate with KAYSER about the possibility
of price adjustments. In the case that negotiations fail to produce a result,
KAYSER shall be given the opportunity of creating the necessary conditions for
the desired price adjustments within 6 months. If this deadline expires without
result, BERGER shall be entitled to deduct individual components / products from
KAYSER or to cancel the General Business Agreement. In case of deduction of
individual components / parts the validity of this General Business Agreement
shall remain unaffected thereby.

           The components / products then stored by KAYSER shall be purchased
within the framework of the purchase commitments of this General Business
Agreement at the current conditions.

                                      ss.12

                                INITIAL SAMPLING

           In principle Berger's general terms of purchase provide for initial
sampling for new phase-ins / changes of supplier in accordance with VDA for
proof of quality of the supplier.

           KAYSER is prepared and capable of providing BERGER, free of charge,
proof of quality by means of initial sampling including initial sampling
reports. The BERGER Initial Sampling Conditions shall apply (Appendix IV).


                                       6
<PAGE>


                                      ss.13

                                PRODUCT LIABILITY

           KAYSER shall include Berger's products into her existing product
liability insurance, which covers at least 2 Million Euro in particular case.

                                      ss.14

                      SECRECY / PROHIBITION OF COMPETITION

           KAYSER shall treat all written and oral information and experience
received from BERGER within the framework of their cooperation - in so far as
these are not common knowledge - as strictly confidential and shall not make
them available to third parties, nor use them to the benefit of third parties
and hand over all documents received from BERGER at BERGER's request. During the
validity of this General Business Agreement and for a further 5 years after its
expiry, KAYSER shall not sell or supply any of the General Business Agreement's
products to any third party.

                                      ss.15

                        GENERAL BUSINESS AGREEMENT PERIOD

           Both partners agree that long-term business cooperation is to be the
objective.

           This General Business Agreement takes effect as of the date of
signing and is concluded for an indefinite period of time.

           The right of termination of this General Business Agreement with a 12
month notice period is granted to each of the two General Business Agreement
partners; however from 2010-12-31 at the earliest.

           The right of notice to terminate with cause with a notice period of 3
months is given under the following circumstances:

           for KAYSER in the event of

           -     Berger's relocation

           -     Berger's inability to pay

           -     application for bankruptcy on the assets of BERGER

           for BERGER in the event of

           -     persistent quality problems of the supplied components /
                 products

           -     persistent schedule delays in delivery

           -     proven lack of competitiveness within the terms ofss.11 of
                 this agreement (for all or certain parts)


                                       7
<PAGE>


           -     cessation of demand due to changes in market conditions and /
                 or changes in (manufacturing) technologies

           -     relocation KAYSER

           -     application for bankruptcy on the assets of KAYSER

                                      ss.16

                                  FINAL CLAUSES

           Any alterations or supplements to this General Business Agreement and
any declarations within the framework of the execution of the General Business
Agreement must be made in writing. Deviations must be made in writing.

           Should one or more provision(s) of this General Business Agreement be
or become invalid the validity of the remaining provisions shall remain
unaffected. The invalid provision shall be replaced under mutual agreement by a
provision complying most closely with the original spirit of the agreement.

           Provisions of this General Business Agreement shall not apply to both
parties in case of and for the duration of forces majeure, such as wars,
political hazards, natural disasters, strikes.

           Place of performance is Lahr.  Place of jurisdiction is Mannheim.

           German Law applies.

           The general terms of purchase of BERGER apply in all other cases.

           Lahr, 2004-04-29

<TABLE>
<CAPTION>
<S>                                                               <C>
BERGER LAHR GmbH & Co. KG                                         Kayser Technik Ltd.
Breslauer Str. 7                                                  Suite No. 810, Level 8, Landmark North, 39
77933 Lahr                                                        Lung Sum Avenue Sheung Shui, N.T.
                                                                  Hong Kong
Germany                                                           China

<CAPTION>
ppa.                                i.V.

<S>                                 <C>                           <C>
- -------------------                 ------------------------      -------------------------------------------
Gerhard Scholz                      Karl Heinz Lienert                       Holger Will
</TABLE>


Enclosures

Appendix I    (list of components / products)
Appendix II   (Quality Assurance Agreement)
Appendix III  (Standard Agreement Quantity Contract)
Appendix IV   (Initial Sampling Conditions)



                                       8

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-8.1
<SEQUENCE>9
<FILENAME>v04060_ex8-1.txt
<TEXT>

                                                                     EXHIBIT 8.1


                                 Name of Entity


Antemat Limited                                 Kienzle Bulgaria Limited
                                                  ("Kienzle Bulgaria")

Badex Investments Limited                       Kienzle Time (H.K.) Limited
                                                  ("Kienzle HK")

Cavour Industrial Limited                       Kienzle Uhrenfabriken G.m.b.h.
                                                  ("Kienzle Germany")

Hi-Lite Camera Company                          Nissin Precision Metal
  Limited ("Hi-Lite")                             Manufacturing Limited
                                                  ("Nissin")

Kayser Technik Limited                          Saiwan Industries Limited
  (formerly known as
  "Kayser Print Limited")


Kienzle Balkan Limited


         All of the subsidiaries are wholly-owned, other than Kienzle Balkan,
which is 51% owned by Highway Holdings Limited. All subsidiaries, with the
exception of Kienzle Germany (incorporated in Germany), Kienzle Bulgaria
(incorporated in the Republic of Bulgaria), and Kienzle Balkan Limited
(incorporated in the Republic of Bulgaria), are incorporated in Hong Kong.

         Highway Holdings Limited also owns an equity interest in the following
         entities:
         --Kayser Photo (Overseas) Corp., incorporated in the Republic of
           Panama; 50% interest.
         --Kienzle USA Ltd., organized in the U.S.A.; 50% interest.
         --Kiezle AG, organized in Germany; 20% interest.

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-12.1
<SEQUENCE>10
<FILENAME>v04060_ex12-1.txt
<TEXT>

                                                                    EXHIBIT 12.1

                                 CERTIFICATIONS

I,  Roland W. Kohl, certify that:

     1. I have reviewed this annual report on Form 20-F of Highway Holdings
Limited;

     2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

     3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
company as of, and for, the periods presented in this annual report;

     4. The company's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the
company and have:

          a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the company, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being prepared;

          b. Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;

         c. Evaluated the effectiveness of the company's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures as of the end of the period covered by
this report based on such evaluations; and

         d. Disclosed in this report any change in the company's internal
control over financial reporting that occurred during the period covered by the
annual report that has materially affected, or is reasonably likely to
materially affect, the company's internal control over financial reporting.

     5. The company's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal controls over financial reporting, to the
company's auditors and the audit committee of company's Board of Directors (or
persons performing the equivalent function):

         a. All significant deficiencies and material weaknesses in the design
or operation of internal controls over financial reporting which are reasonably
likely to adversely affect the company's ability to record, process, summarize
and report financial information; and

         b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the company's internal controls
over financial reporting.

Dated: June 23, 2004

/s/ Roland Kohl
- -----------------------
Roland Kohl
Chief Executive Officer


<PAGE>

I, Po. S. Fong, certify that:

     1. I have reviewed this annual report on Form 20-F of Highway Holdings
Limited;

     2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

     3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
company as of, and for, the periods presented in this annual report;

     4. The company's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the
company and have:

         a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the company, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being prepared;

         b. Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;

         c. Evaluated the effectiveness of the company's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures as of the end of the period covered by
this report based on such evaluations; and

         d. Disclosed in this report any change in the company's internal
control over financial reporting that occurred during the period covered by the
annual report that has materially affected, or is reasonably likely to
materially affect, the company's internal control over financial reporting.

     5. The company's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal controls over financial reporting, to the
company's auditors and the audit committee of company's Board of Directors (or
persons performing the equivalent function):

         a. All significant deficiencies and material weaknesses in the design
or operation of internal controls over financial reporting which are reasonably
likely to adversely affect the company's ability to record, process, summarize
and report financial information; and

         b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the company's internal controls
over financial reporting.

Dated: June 23, 2004

/s/ Po S. Fong
- -----------------------
Po S. Fong
Chief Financial Officer

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-14.1
<SEQUENCE>11
<FILENAME>v04060_ex14-1.txt
<TEXT>

EXHIBIT 14.1

                            HIGHWAY HOLDINGS LIMITED
                       CODE OF BUSINESS CONDUCT AND ETHICS

      INTRODUCTION.

      Highway Holdings Limited (the "COMPANY") will conduct its business
honestly and ethically wherever we operate. We will constantly attempt to
improve the quality of our services, products and operations and will maintain a
reputation for honesty, fairness, respect, responsibility, integrity, trust and
sound business judgment. No illegal or unethical conduct on the part of our
directors, officers or employees or their affiliates is in the Company's best
interest. The Company will not compromise its principles for short-term
advantage. The honest and ethical performance of the Company is reflected by the
ethics of the men and women who work here. Therefore, we are all expected to
adhere to high standards of personal integrity.

      This Code of Business Conduct and Ethics (this "CODE") covers a wide range
of business practices and procedures. It does not cover every issue that may
arise, but it sets out basic principles to guide all directors, officers and
employees of the Company. All of our directors, officers and employees must
conduct themselves accordingly and seek to avoid even the appearance of improper
behavior. This Code should also be provided to and followed by the Company's
other agents and representatives, including consultants.

      In accordance with applicable law and regulations, this Code will be filed
with the Securities and Exchange Commission (the "SEC"), posted on the Company's
website and/or otherwise made available for examination by our stockholders.

      1. COMPLIANCE WITH APPLICABLE LAWS, RULES AND REGULATIONS.

      Obeying the law, both in letter and in spirit, is the foundation on which
the Company's ethical standards are built. All directors, officers and employees
must respect and obey the laws of the cities, states and countries in which we
operate. In addition, as a company whose stock is publicly traded in the United
States on the Nasdaq Stock Market, we also must respect and obey the rules of
the SEC and of the Nasdaq Stock Market. In particular, all directors, officers
and employees must comply with United States federal securities laws, rules and
regulations that govern the Company.

      2. AVOIDANCE OF CONFLICTS OF INTEREST.

      The Company's directors, officers and employees must never permit their
personal interests to conflict, or even appear to conflict, with the interests
of the Company. A "conflict of interest" exists when a person's private
interests interfere in any way, or even appear to interfere, with the Company's
interests. A conflict situation can arise when a director, officer or employee
takes actions, or has interests, that may make it difficult to perform his or
her Company work objectively and effectively. Conflicts of interest may also
arise when a director, officer or employee, or a member of his or her family,
receives improper personal benefits as a result of his or her position with the
Company. Loans to, or guarantees of the obligations of, directors, officers and
employees and their family members may create conflicts of interest.


<PAGE>


      For example, it is a conflict of interest for a director, officer or
employee to work simultaneously for a competitor or customer, even as a
consultant or board member. Each director, officer and employee must be
particularly careful to avoid representing the Company in any transaction with a
third party with whom the director, officer or employee has any outside business
affiliation or relationship. The best policy is to avoid any direct or indirect
business connection with our customers and competitors, except on our behalf.

      Conflicts of interest (including both actual and apparent conflicts of
interest) are prohibited under this Code except in limited cases under
guidelines or exceptions specifically approved in advance by the Board of
Directors.

      Conflicts of interest may not always be clear-cut, so if you have a
question, you should consult with Po Fong, our Chief Financial Officer, or with
Roland Kohl, our Chief Executive Officer. Any director, officer or employee who
becomes aware of any transaction or relationship that is a conflict of interest
or a potential conflict of interest should bring it to the attention of Mr.
Kohl, the Chairman of the Board.

      3. BRIBES, KICKBACKS AND GIFTS.

      No bribes, kickbacks or other similar remuneration or consideration may be
given to any person or organization in order to attract or influence business
activity. The United States Foreign Corrupt Practices Act prohibits giving
anything of value, directly or indirectly, to officials of foreign governments
or foreign political candidates in order to obtain or retain business.
Therefore, this Code strictly prohibits making illegal payments to government
officials of any country.

      The Company's directors, officers and employees are also prohibited from
receiving or providing gifts, gratuities, fees or bonuses as an inducement to
attract or influence business activity. No entertainment should ever be offered,
given or accepted by any director, officer or employee (or any family member of
any such person) in connection with our business activities unless it: (a) is
consistent with customary business practices; (b) is not excessive in value; (c)
cannot be construed as a bribe or payoff; and (d) does not violate any laws or
regulations.

      4. CONFIDENTIAL INFORMATION.

      Our directors, officers and employees will often come into contact with,
or have possession of, confidential information about the Company or our
suppliers, customers or affiliates, and they must take all appropriate steps to
assure that the confidentiality of such information is maintained. Confidential
information includes all nonpublic information and may include, among other
things, strategic business plans, actual operating results, projections of
future operating results, marketing strategies, customer lists, personnel
records, proposed acquisitions and divestitures, new investments, changes in
dividend policies, the proposed issuance of additional securities, management
changes or manufacturing costs, processes and methods. Confidential information
about our Company and other companies, individuals and entities must be treated
with sensitivity and discretion and only be disclosed to persons within the
Company whose positions require use of that information or if disclosure is
required by applicable laws, rules and regulations.


                                       2
<PAGE>


      5. INSIDER TRADING.

      Trading in the Company's securities is covered by the Company's Insider
Trading Policy previously distributed to all employees, which Policy is hereby
incorporated in its entirety in this Code.

      6. PUBLIC DISCLOSURE OF INFORMATION REQUIRED BY THE SECURITIES LAWS.

      The Company is a public company that is required to file various reports
and other documents with the SEC. An objective of this Code is to ensure full,
fair, accurate, timely and understandable disclosure in the reports and other
documents that we file with, or otherwise submit to, the SEC and in the press
releases and other public communications that we distribute.

      The federal securities laws, rules and regulations require the Company to
maintain "disclosure controls and procedures," which are controls and other
procedures that are designed to ensure that financial information and
non-financial information that is required to be disclosed by us in the reports
that we file with or otherwise submit to the SEC (i) is recorded, processed,
summarized and reported within the time periods required by applicable federal
securities laws, rules and regulations and (ii) is accumulated and communicated
to our management, including our Chief Executive Officer and Chief Financial
Officer, in a manner allowing timely decisions by them regarding required
disclosure in the reports.

      Some of our directors, officers and employees will be asked to assist
management in the preparation and review of the reports that we file with the
SEC, including recording, processing, summarizing and reporting to management
information for inclusion in these reports. If you are asked to assist in this
process, you must comply with all disclosure controls and procedures that are
communicated to you by management regarding the preparation of these reports.
You must also perform with diligence any responsibilities that are assigned to
you by management in connection with the preparation and review of these
reports, and you may be asked to sign a certification to the effect that you
have performed your assigned responsibilities.

      SEC regulations impose upon our Chief Executive Officer and Chief
Financial Officer various obligations in connection with the reports that we
file with the SEC, including responsibility for:

      o     Establishing and maintaining disclosure controls and procedures and
            internal control over financial reporting that, among other things,
            ensure that material information relating to the Company is made
            known to them on a timely basis;

      o     Designing the Company's internal control over financial reporting to
            provide reasonable assurances that the Company's financial
            statements are fairly presented in conformity with generally
            accepted accounting principles;


                                       3
<PAGE>


      o     Evaluating the effectiveness of the Company's disclosure controls
            and procedures and internal control over financial reporting;

      o     Disclosing (i) specified deficiencies and weaknesses in the design
            or operation of the Company's internal control over financial
            reporting, (ii) fraud that involves management or other employees
            who have a significant role in the Company's internal control over
            financial reporting, and (iii) specified changes relating to the
            Company's internal control over financial reporting; and

      o     Providing certifications regarding the above items and other
            specified matters.

      This Code requires our Chief Executive Officer and Chief Financial Officer
to carry out their designated responsibilities in connection with our annual and
quarterly reports, and this Code requires you, if asked, to assist our executive
officers in performing their responsibilities under these SEC regulations.

      7. RECORD-KEEPING.

      The Company requires honest and accurate recording and reporting of
information in order to make responsible business decisions. All of the
Company's books, records, accounts and financial statements must be maintained
in reasonable detail, must accurately and appropriately reflect the Company's
transactions and must conform both to applicable legal requirements and to the
Company's internal control over financial reporting and disclosure controls and
procedures. All transactions must be recorded in a manner that will present
accurately and fairly our financial condition, results of operations and cash
flows and that will permit us to prepare financial statements that are accurate,
complete and in full compliance with applicable laws, rules and regulations.
Unrecorded or "off the books" funds or assets should not be maintained unless
expressly permitted by applicable laws, rules and regulations.

      Business records and communications often become public, and we should
avoid exaggeration, derogatory remarks, guesswork or inappropriate
characterizations of people and companies that can be misunderstood. This
applies equally to e-mail, internal memoranda and formal reports.

      Records should be retained in accordance with the Company's record
retention policies, and records should be destroyed only if expressly permitted
by our record retention policies and applicable laws, rules and regulations. If
you become the subject of a subpoena, lawsuit or governmental investigation
relating to your work at the Company, please contact our Chief Financial Officer
immediately.

      8. COMPETITION AND FAIR DEALING.

      We seek to outperform our competition fairly and honestly. We seek
competitive advantages through superior performance, never through unethical or
illegal business practices. Stealing proprietary information, possessing trade
secret information that was obtained without the owner's consent, or inducing
such disclosures by past or present employees of other companies is prohibited.
Each director, officer and employee should endeavor to respect the rights of and
deal fairly with the Company's customers, suppliers, competitors and affiliates.
No director, officer or employee should take unfair advantage of anyone through
manipulation, concealment, abuse of privileged information, misrepresentation of
material facts or any other intentional unfair-dealing practice.


                                       4
<PAGE>


      9. WAIVERS AND AMENDMENTS OF THE CODE OF BUSINESS CONDUCT AND ETHICS.

      A waiver of any provision of this Code may be granted to any director,
officer or employee only by the Company's Board of Directors, and any such
waiver promptly will be publicly disclosed to the extent required by law or the
regulations of the SEC or the Nasdaq Stock Market.

      This Code can be amended only by the Board of Directors, and any such
amendment promptly will be publicly disclosed as required by law or the
regulations of the SEC or the Nasdaq Stock Market.

      10. ENFORCEMENT OF THE CODE OF BUSINESS CONDUCT AND ETHICS.

      A violation of this Code by any director, officer or employee will be
subject to disciplinary action, including possible termination of employment.
The degree of discipline imposed by the Company may be influenced by whether the
person who violated this Code voluntarily disclosed the violation to the Company
and cooperated with the Company in any subsequent investigation. In some cases,
a violation of this Code may constitute a criminal offense that is subject to
prosecution by authorities.

      11. COMPLIANCE PROCEDURES; REPORTING MISCONDUCT OR OTHER ETHICAL
VIOLATIONS.

      Directors, officers and employees should promptly report any unethical,
dishonest or illegal behavior, or any other violation of this Code or of other
Company policies and procedures, to Ms. Fong, our Chief Financial Officer or to
Mr. Kohl, our Chief Executive Officer and the Chairman of the Board. If you ever
have any doubt about whether your conduct or that of another person violates
this Code or compromises the Company's reputation, please discuss the issue with
your supervisor or with Ms. Fong or Mr. Kohl.

      The Company's policy is not to allow retaliation for a report of
unethical, dishonest or illegal behavior, or of any other violation of this Code
or of other Company policies and procedures, if the report about another
person's conduct is made in good faith by a director, officer or employee.
Directors, officers and employees are expected to cooperate in internal
investigations regarding possible unethical, dishonest or illegal behavior or
any other possible violation of this Code or of other Company policies and
procedures.


                                       5
<PAGE>


                        ACKNOWLEDGMENT AND CERTIFICATION

      The undersigned hereby acknowledges and certifies that the undersigned:

            (a)   has read and understands the Highway Holdings Limited Code of
                  Business Conduct and Ethics (the "Code of Ethics"); and

            (b)   will continue to comply with the Code of Ethics for as long as
                  the undersigned is subject thereto.


          Signature:
                      ----------------------------------------

          Date:
                      ----------------------------------------

          Print Name:
                      ----------------------------------------



                                       6

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>12
<FILENAME>v04060_ex23-1.txt
<TEXT>

                                                                    EXHIBIT 23.1

                      [DELOITTE TOUCHE TOHMATSU LETTERHEAD]

            CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statements No.
333-13320 and No. 333-10312 of Highway Holdings Limited on Form S-8 of our
report dated June 2, 2004, appearing in this Annual Report on Form 20-F of
Highway Holdings Limited for the year ended March 31, 2004.




/s/ Deloitte Touche Tohmatsu



Hong Kong
June 19, 2004

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.1
<SEQUENCE>13
<FILENAME>v04060_ex99-1.txt
<TEXT>

                                                                    EXHIBIT 99.1


                CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
                             AS ENACTED PURSUANT TO
               SECTION 906 OF THE U.S. SARBANES-OXLEY ACT OF 2002

     In connection with the Annual Report of Highway Holdings Limited (the
"Company") on Form 20-F for the period ended March 31, 2004 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Roland
Kohl, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:

     (1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

     (2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.



Dated: June 23, 2004



/s/ Roland W. Kohl
- -----------------------
Roland W. Kohl
Chief Executive Officer

<PAGE>

                CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
                             AS ENACTED PURSUANT TO
               SECTION 906 OF THE U.S. SARBANES-OXLEY ACT OF 2002

     In connection with the Annual Report of Highway Holdings Limited (the
"Company") on Form 20-F for the period ended March 31, 2004 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Po
Fong, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:

     (1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

     (2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.



Dated: June 23, 2004



/s/ Po Fong
- -----------------------
Po Fong
Chief Financial Officer

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