SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                               ___________________
                                    FORM 10-K
 (Mark One)

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

                      For the Year ended December 31, 1998


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

                          Commission File No. 33-3276-D

                             CHINA CONTINENTAL, INC.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

              Utah                                         87-0431063
----------------------------------             ---------------------------------
(State or other jurisdiction                   (IRS Employer Identification No.)
 of incorporation or organization)

  1801-1806 Hua Qin International Building, 340 Queen's Road Central, Hong Kong
  -----------------------------------------------------------------------------
               (Address of principal executive offices) (Zip Code)

Registrant Telephone Number, Included Area Code: 011-852-2542-2612

Securities Registered Pursuant to Section 12(b) of the Act:

    Title of Each Class                Name of Each Exchange on Which Registered
    -------------------                -----------------------------------------
           None                                        None

Securities Registered Pursuant to Section 12(g) of the Act:

                                      None
                                ----------------
                                (Title of Class)

     Check  whether  the issuer (1) filed all  reports  required  to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing requirements for the past 90 days. YES   NO  X .
                                                                      ---  ----

     Check if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-B is not  contained  in this  form and will not be  contained,  to the best of
registrant knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-KSB.
[X]

     The issuer revenues for its most recent fiscal year were US$36,788,039.

     At of  December  31,  1998,  69,000,000  shares  of  common  stock  of  the
Registrant were outstanding.  As of such date, the aggregate market value of the
common stock held by non-affiliates,  based on the closing bid price on the NASD
Bulletin Board, was approximately $36,788,039.

DOCUMENTS INCORPORATED BY REFERENCE

     No annual reports to security holders, proxy or information statements,  or
prospectuses  filed  pursuant  to Rule 424(b) or (c) have been  incorporated  by
reference in this report. Annual Small Business Disclosure Format: Yes No X

<PAGE>

                                TABLE OF CONTENTS

PART I                                                                   Page
                                                                        ------

         ITEM 1.   DESCRIPTION OF BUSINESS.......................          3
         ITEM 2.   DESCRIPTION OF PROPERTIES.....................          7
         ITEM 3.   LEGAL PROCEEDINGS.............................          7
         ITEM 4.   SUBMISSION OF MATTERS TO A VOTE
                   OF SECURITY HOLDERS...........................          7
PART II

         ITEM 5.   MARKET FOR COMMON EQUITY AND
                   RELATED STOCKHOLDER MATTERS...................          7
         ITEM 6.   SELECTED FINANCIAL DATA.......................          9
         ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                   FINANCIAL CONDITION AND RESULTS OF
                   OPERATION.....................................         11
         ITEM 7A   QUANTITATIVE AND QUALIFICATION DISCLOSURE
                   ABOUT MARKET RISK.............................         15
         ITEM 8    FINANCIAL STATEMENTS AND SUPPLEMENTARY
                   DATA .........................................         15
         ITEM 9    CHANGES IN AND DISAGREEMENTS ON ACCOUNTING
                   AND FINANCIAL DISCLOSURE......................         15
PART III

         ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
                  REGISTRANT.....................................         16
         ITEM 11. EXECUTIVE COMPENSATION.........................         16
         ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
                  OWNERS AND MANAGEMENT .........................         18
         ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY
                  TRANSACTION....................................         18
         ITEM 14  YEAR 2000 ISSUES...............................         19

PART IV

         ITEM 15  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
                  REPORTINGS ON FORM 8-K.........................         20

                  SIGNATURES.....................................         21

                  INDEX TO CONSOLIDATED FINANCIAL
                  STATEMENTS.....................................        F-1


                                       2
<PAGE>

                                     PART 1

ITEM 1.  DESCRIPTION OF BUSINESS

This Form 10-K  contains  forward  -looking  statements  within  the  meaning of
Section 27A of the  Securities  Act of 1933 and  section  21E of the  Securities
Exchange Act of 1934. The Company's actual results could differ  materially from
those set forth in the  forward-looking  statements.  Certain factors that might
cause such a difference are discussed in the section  entitled  "Certain Factors
Affecting Future Operating Results" beginning on page 14 of this Form 10-K.

The Company

     China  Continental,  Inc. (the "Company" or "CHCL")  designs,  installs and
sells  plastic  production  lines  on a  turn-key  basis,  sells  machinery  and
equipment for the  manufacture  of plastic  products and imports and resells raw
materials.  The major  portion  of sales  are to  plastic  manufacturers  in the
People's Republic of China ("PRC" or "China"). The Company has completed over 74
turn-key  projects  throughout  the PRC,  varying in size from  $300,000 to five
million United States dollars. Seven turn-key projects were completed during the
year under review with an average  size of US$4.5  million.  Typically  turn-key
projects  take  four  to  eight  months  to  complete,  depending  on  size  and
complexity.  The  installation  and maintenance of production  lines are handled
jointly by the original  equipment  manufacturers  and the Company.  The Company
became a US listed public company via a reverse merger in February 1995.

Market and Client Base

     In the 1990's, the Company began to market fully automated production lines
to plastic product manufacturers in the PRC on a turn-key basis. The majority of
turn-key projects were sold to companies in the PRC.

Business Segments

The Company has three principal business segments:

     Sale of turn-key plastic production lines;
     Importer and reseller of raw materials;
     Operation of a breeding center.

Sale of Turn-key Plastic Production Lines

     In the 1990's,  the Group began to market fully automated  production lines
to plastic product  manufacturers in the PRC on a turn-key basis. These turn-key
projects  require the provision of services  from the design of the  engineering
configuration  of the  production  lines to the supply and  installation  of the
machinery  and  equipment.  The  Company  has  completed  74  turn-key  projects
throughout  the PRC,  varying in size from  $300,000 to $5 million.  The Company
also  imports and resells raw  materials  and  machinery  and  equipment  to the
plastic manufacturers in the people's republic of China.

     A  typical  turn-key  project  takes  four to  eight  months  to  complete,
depending on its size and  complexity.  The design of a production line is based
on job  specifications,  such as the  particulars of the plastic  products,  the
packaging format, the intended maximum production capacity and the layout of the
factory premises  obtained from the customers.  The installation and maintenance
of production lines are handled jointly by the original equipment  manufacturers
and the Company. Test-runs of the turn-key production lines are conducted by the
engineers  of the  Company  to  ensure  quality  and the  meeting  of  specified
requirements. Turn-key projects usually have warranty periods from six months to
one year during which repairs and maintenance are provided free of charge by the
Company.

                                       3
<PAGE>

Sale of Machinery and  Equipment,  Accessories,  Spare Parts,  Raw Materials and
Steel

     Sale of machinery and equipment,  accessories,  spare parts,  raw materials
and steel are  conducted  in  conjunction  with the  sales of  turn-key  plastic
production lines.

Principal Suppliers

     The Company acquires its machinery and plastic  materials  principally from
Nippon  Polyurethane  Industry Co., Ltd.,  Nihon  Unipolymer  Co.,  Ltd.,  Tomen
Corporation, Janson Co., Ltd. Vicson Iron Works Co., Ltd., Cheer Young Machinery
Works Co., Ltd., Mintop Development Limited, Wing Lee Hong and K S Plastics Inc.

Employees

     As of December 31, 1998,  the Company  employed a sales and  administrative
staff of 14  persons  in Hong Kong and a  technical  staff of  approximately  35
persons in the PRC.

Competition

     The  market  for  turn-key  automated   production  lines  in  the  plastic
manufacturing  industry is fragmented  in the PRC. The Company  believes it is a
leading  designer,   installer  and  marketer  of  automated   turn-key  plastic
production  lines  in  the  PRC  and  it  provides  buyers  with  superior  post
installation technical, engineering and quality control supports. To date, there
has been no significant price competition in this market,  but price competition
may become a factor in the future.

Economic development in the People's Republic of China ("PRC" or "China")

     Since 1953, the development of the PRC's economy has been  characterized by
the  adoption of the "Five Year Plans".  Implementation  of the plans is carried
out under  the  supervision  of the State  Planning  Commission,  which  reports
directly to the State Council.  The ninth Five Year Plan for national,  economic
and social  development  for  1996-2000,  along with a  ten-year  program  which
extends to 2010, was adopted in 1996, by the Standing Committee of the NPC.

     China's gross  domestic  product for 1998 grew at 7.8%,  when compared with
the same period of the  previous  year  Although  this growth rate is 1.6% lower
than 1997 and 1996,  it is still the  highest  in the  world.  According  to the
United Nations forecast,  total world Gross Domestic product growth in 1998 will
be 2.9% (3.1% for 1997), within which the developed countries will grow at 2.2%,
the developing countries at 5.0% and Eastern Europe at 3.0%. China will have the
highest growth rate at 7.8%

     The total  amount of  investment  in 1998  reached  approximately  RMB2,846
billion, a nominal growth rate of 19.6%,  representing a real rate of 14.1%, and
the  rate of  investment  of  approximately  26.6%.  The 1998  total  investment
exceeded  RMB3,000  billion for a nominal growth rate of 17.0% and a real growth
rate of 14.0% while the rate of  investment  remains  constant at 27.0%.  On the
whole,  the  nominal  growth  rate is lower than the  average  level of the past
years.  However,  due to the fall in inflation,  the real investment growth rate
will not fall  significantly.  The situation where the investment growth rate is
higher than GDP growth rate will remain unchanged.

     Fixed assets  investment  growth in 1998 exceeded 14.1 per cent,  down from
15.1 per  cent in  1997.  The  central  government  has  approved  72 large  and
medium-sized  projects  totaling a 1.36  trillion yuan  investment.  Feasibility
studies are being  conducted for 320 others with a projected  investment of 5.34
trillion yuan.

                                       4
<PAGE>

     On the  whole,  it is  believed  that  China  will be able  to  maintain  a
favorable combination of a high growth economy with low inflation in 1999.

FUTURE PROSPECT OF THE COMPANY

     In the  1990s,  the  Company  began to  market  on a  turnkey  basis  fully
automated  production  lines to plastic  product  manufacturers  in the People's
Republic  of China  ("PRC" or  "China").  These  turnkey  projects  require  the
provision of services  ranging from the design of the engineering  configuration
of the  production  lines to the supply and  installation  of the  machinery and
equipment.  These  businesses have been very rewarding to the Company because of
its high margins.

     The company also owns a minority  stake in Weifang  Great  Dragon  Chemical
Fiber Company Limited which was purchased in April 1997 for a cash consideration
of US$8  million.  The principal  activity of the business is the  production of
polyester tire cord fabrics and polyester/nylon  canvasses.  Polyester tire cord
fabrics are one of the main  components in the  manufacture of radial tires.  At
present,  radial  tires come as original  equipment on most  passenger  cars and
light trucks.

     The recent upheaval of most Asian  financial  economies has been a critical
factor in the decision of the Company to re-examine its historical  business and
to formulate a corporate  discipline  that would focus on  long-term  growth and
development.

     In  approaching  the next  millennium,  it appears that food  production is
still the paramount  question despite the recent advances of scientific  methods
in agriculture and animal  husbandry.  The global demand for food is expected to
be critical to continued  growth,  particularly  in  developing  countries.  The
Company feels that the challenge of providing  food in the next century can only
be met through  agricultural genetic  engineering.  Therefore,  the goals of the
Company  are to  increase  shareholders'  value and to be  involved  in selected
emerging  high-growth  sectors,  particularly  in the provisions of technologies
utilized in agricultural genetics and farming in China.

     The  Company  has  researched  and  ascertained  that there are  tremendous
opportunities  in the  agricultural  genetics  industry in China and it plans to
concentrate and expand the Company's resources into this business segment. China
is an enormous,  undeveloped,  emerging market. Its population of 1.4 billion is
growing by approximately 15 million annually and needs its daily  requirement of
food to sustain its growth, peace and prosperity.

     Despite  being the most  populous  nation and being the  largest  livestock
producer in the world, China lacks superior livestock and planting seed genetics
technology to sustain its agricultural  industry.  Unless new emphasis is placed
on optimizing the use of land and livestock,  economic self-sufficiency will not
be achieved.

     The Company  believes it has identified a niche by initiating a multi-phase
program to enhance  agricultural  production  in China  through the provision of
agricultural  genetics technology to support the Country's  increasing demand of
food.  The  strong  relationship  that  the  Company  enjoys  with  the  Chinese
government  and certain  International  partners  will  provide the Company with
strategic access to this development opportunity.

     The Company  has  embarked on a  livestock  and genetic  engineering  joint
venture called Chengde Dafeng Agricultural and Animal Company Limited. The joint
venture includes the Feng Ning Manchuria  Autonomous Region Agriculture  Company
Limited and China Land Resources Development Bureau. The farm which is the basis
of this  operation  is  located  in Feng  Ning  Manchuria  Autonomous  County of
Northern Hebei Province in China.

                                       5
<PAGE>

     The  emphasis of the Company is to lead,  focus and manage a selected  high
growth  emerging   businesses   within  a  specific   growing   industry  group,
particularly  in the provisions of  technologies  in  agricultural  genetics and
farming  in China,  and to  generate  from these  businesses  the  potential  of
significant returns. The Company believes  opportunities exist for its growth in
the  business of  agricultural  genetics and farming in China,  particularly  in
those  areas  that  offer  potential  proprietary   technology  development  and
potential market dominance.

     The Company believes that there are a number of favorable factors that will
enable it to achieve its objectives, including:

     The opportunity to lead the market in the agricultural genetics and farming
     industry in China with the ability to make available the latest  techniques
     and know-how in genetics technology and farming;
     The presence of dedicated management and staff with necessary expertise;
     The unique location and availability of a significant plot of land; and
     The strong support from its Chinese and  international  partners,  ensuring
     that it is in a position to exploit  existing and future  opportunities  in
     agricultural genetics.

     The Joint  Venture  project  entails the  importation  of Boer goat embryos
through TeMania International Limited ("TMI"), a company based in Christchurch,
New Zealand, for implanting into local recipients.  Superior genetics from South
Africa and New Zealand will be selected and  collected for  propagation  in this
project.  Once the first  generation  of  offspring  from  embryo  transfer  has
matured,  semen and embryos will be collected from the offspring for propagation
and  distribution.  Embryo  transfer is a more  economical  and efficient way of
breeding superior livestock than importing live animals for breeding purposes.

     TMI's  involvement as a Technical  Adviser will be to assist the Company in
establishing and initially managing a feedlot breeding center for Boer goats and
crossbred Boer goats,  improving the genetic makeup of the domestic Chinese herd
through advanced semen extraction, artificial insemination and embryo transplant
techniques.  TMI's  participation  will also introduce  enhanced farm management
practices and technology,  including  nutritional  expertise,  animal  husbandry
techniques  and  western  farming  practices  proven to maximize  efficiency  in
livestock production and herd management.

     The objectives of this project are to:

     Support  the  Chinese   Government's   Grain  Conservancy  Policy  for  the
     development  of pasture  fed  animals  such as sheep,  goats and cattle as,
     unlike pigs, they do not compete for grains with humans;
     Produce superior breeding livestock to improve China's expanding  livestock
     population; and
     Provide red meat for a population of 1.4 billion people.

     The project will entail the  marketing  and sale of  thoroughbred  Breeding
livestock and superior  breed semen & embryos to contract  breeders and growers.
The contract  breeders will be  coordinated  through  municipal,  provincial and
central  governments.  The Company  intends to  repurchase  the  offspring  (the
Crossbreed) of the  artificially  bred livestock for feedloting and slaughter in
the Company's contract abattoir.

     The project also involves  sub-contracting an abattoir that will meet USDA,
EU,  Japan,  China and Halal health  requirements,  and  sub-contracting  a meat
packing plant equipped with tanning,  fabricating  and rendering  facilities and
with the capacity to process  approximately  500,000 head of sheep and goats and
40,000  head  of  cattle  yearly.  High  quality  brand  products  will  then be
distributed  in China and  worldwide.  The Company  will also be involved in the
sale of feed, feed additives,  minerals,  vitamins,  veterinary  drugs and other
related  items  and the  production  and  sale of  milk,  skin,  hide,  wool and
cashmere.

                                       6
<PAGE>

     In summary,  this project  will  propagate  breeding  livestock  and,  when
practicable,  the Company will consider, setting up a seed division. The mission
of the seed division is to improve China agricultural production through quality
genetics.  The  seed  industry  is  a  rapidly  developing  industry  undergoing
decentralizing government control and regulations.  According to recent studies,
China's  seed  industry  is  facing  pressure  to  improve  yields  to feed  its
increasing  human and  livestock  populations.  China imports  vegetable  seeds,
potato seeds, turf seeds,  oilseed and fruit seeds for planting and exports rice
planting seeds, soybeans,  forage seeds, sugar beets and vegetable seeds to over
20 countries.  At present, China is not a major world exporter of planting seeds
due to the lack of facilities,  a distribution system,  testing labs, technology
and machinery.

     The Company  believes that it has identified a niche by providing a program
to enhance agricultural  production that will significantly improve the standard
of living in China,  and by  providing  badly  needed  agricultural  genetics to
support the  increasing  demand of food in China.  With the strong  relationship
with the Chinese and  International  partners,  the Company  will have access to
this  development  opportunity  and is  well  positioned  to take  advantage  of
existing and future opportunities.

     The Company  intends to maximise its  substantial  cash flow to enhance the
values of its venture  businesses through effective  management,  operations and
development strategies.  The Company believes opportunities exist for its growth
in the  business of  agriculture  and farming in China and are  confident of the
growth of the Company and its rewarding prospects.

ITEM 2. DESCRIPTION OF PROPERTIES

     The Company principal  administrative,  marketing and technical  facilities
are located in Hong Kong at 1801-1806, Hua Qin International Building, 340 Queen
Road Central. These premises are owned by the Company.

     The  farm  of the  Company  is  located  in  Chengde  Feng  Ning  Manchuria
Autonomous  Region,  People's  Republic of China.  The farm is 51 % owned by the
Company.

ITEM 3. LEGAL PROCEEDINGS

     The  Company  is not  currently  subject  to  any  material  pending  legal
proceeding.

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

          None

                                    PART II


ITEM 5. MARKET FOR REGISTRANT COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

Market Information

     The Company's common stock trades on the OTC Electronic  Bulletin Board and
is quoted under the symbol "CHCL",  the following  table sets forth the high and
low bid price per share for the Company common stock for each quarterly period.

                                       7
<PAGE>
                              1998                          1997
                             ------                        ------
                        High          Low            High           Low
                       ------        -----          ------         -----
First Quarter           1.03          0.50           1.375          0.875
Second Quarter          1.156         0.563          1.0625         0.5625
Third Quarter           0.984         0.516          2.59375        0.5625
Fourth Quarter          1.00          0.50           1.71875        0.875

     The quotation  reflects the  inter-dealer  prices  without  retail  markup,
markdown or commission and may not represent actual transactions.

Holders

     As of September 28, 1999 there were approximately 278 holders of record.

Dividends

     Since fiscal 1994,  the Company has not declared or paid any cash dividends
on its Common  Stock and does not expect to declare or pay any such  dividend in
the foreseeable future.

                                       8
<PAGE>

ITEM 6. SELECTED  FINANCIAL DATA
        (In thousand United States dollars, except per share data)

     The  following  table sets  forth,  for the  periods  and dates  indicated,
selected  consolidated  financial  and  operating  data  for  the  Company.  The
financial  data was derived from the  consolidated  financial  statements of the
Company and should be read in conjunction with the Company audited  consolidated
financial  statements  in the Index to Financial  Statements on page F-1 of this
report.

<TABLE>
                                         Year       Nine       Year        Year        Year
                                         Ended      Months     Ended       Ended      Ended
                                                    Ended
                                         Dec.31,    Dec.31,    Mar.31,     Mar.31,    Mar.31,
                                         1998        1997       1997        1996       1995
                                        ---------  --------   ---------   ---------  ---------
<S>                                    <C>         <C>        <C>         <C>        <C>

Income Statement Data:
Automatic production lines              $32,806    $18,815     $31,957    $34,897     $30,375
Raw materials                             1,594      1,846       2,782      3,451       2,275
Breeding Center                           2,388          0           0          0           0
Total Sales                              36,788     20,661      34,759     38,348      32,650
Cost of Sale                             14,284      8,335      14,290     15,228      15,639
Gross Profit                             22,504     12,325      20,469     23,120      17,011
Depreciation and amortization            (4,425)       (57)        (80)       (64)        (65)
Selling and  administrative expenses     (2,395)      (510)       (959)    (1,249)     (1,325)
(Provision for) Recovery of doubtful
accounts                                   (681)         0         289     (1,217)       (942)
Financial Income (Expenses), net           (165)       (57)        (55)       (73)          2
Other Income (Expenses), net                360      2,919        (595)    (2,518)        523
Share of income / (losses) of
associated companies                        103        144           0       (235)       (347)
Reorganization expenses                       0          0           0          0      (1,603)
Income before income tax                 15,301     14,763      19,069     17,764      13,254
                                       ----------  ---------   ---------  ---------   ---------
Income taxes                              2,890      1,290       2,635      2,742       1,549
                                       ----------  ---------   ---------  ---------   ---------
Income before minority interest          12,411     13,473      16,434     15,022      11,705
                                       ----------  ---------   ---------  ---------   ---------
Loss allocated to minority interest       2,114          0           0          0           0
                                       ----------  ---------   ---------  ---------   ---------
Income for the year                      14,525     13,473      16,434     15,022      11,705
                                       ----------  ---------   ---------  ---------   ---------
Net income  per share                      0.23       0.52        0.63       0.58        0.45
                                       ----------  ---------   ---------  ---------   ---------
Weighted average shares outstanding      62,569     26,000      26,000     26,000      26,000
                                       ----------  ---------   ---------  ---------   ---------
Balance Sheet Data at period end
Working capital (deficit)                30,699    (31,505)     55,784     (8,048)     19,910
                                       ----------  ---------   ---------  ---------   ---------
Total Assets                            253,684    218,776      73,282     53,773      33,343
                                       ----------  ---------   ---------  ---------   ---------
Long-term Liabilities                     1,261          0           0         21         209
                                       ----------  ---------   ---------  ---------   ---------
Shareholders Equity                     128,958     71,023      57,516     40,713      26,691

</TABLE>


                                       9
<PAGE>

     The Company  changed its financial  year end date to December 31, 1997. The
following  table sets  forth,  for the  periods  and dates  indicated,  selected
consolidated  financial and operating  data for the Company.  The financial data
was derived from the consolidated financial statements of the Company and should
be  read  in  conjunction  with  the  Company  audited  consolidated   financial
statements in the Index to Financial  Statements on page F-1 of this report. See
also Item 7,  Management  Discussion  and  Analysis of Financial  Condition  and
Results of Operation.
<TABLE>

                                                    Year ended December 31,
                                              1998          1997            1996
                                            audited       unaudited       unaudited
                                            -------       ---------       ---------
<S>                                        <C>             <C>             <C>

Income Statement Data
Automatic production lines                  $32,806        $21,759         $34,277
Raw materials                                 1,594          2,364           3,276
Breeding Center                               2,388              0               0
Sales                                        36,788         24,123          37,553
Cost of Sale                                 14,284          8,042          14,072
Gross Profit                                 22,504         16,081          23,481
Depreciation and amortization                (4,425)           (73)            (62)
Selling and  administrative expenses         (2,395)          (556)         (1,003)
(Provision for) Recovery of doubtful
accounts                                       (681)           289          (1,217)
Financial Income (Expenses), net               (165)           (91)           (116)
Other Income (Expenses), net                    360          2,304          (2,512)
Share of income / (losses) of
associated companies                            103            201            (220)
Income before income tax                     15,301         18,155          18,351
                                            --------      ---------        ---------
Income taxes                                  2,890          2,683           2,736
                                            --------      ---------        ---------
Income before minority interest              12,411         15,472          15,615
                                            --------      ---------        ---------
Loss allocated to minority interest           2,114              0               0
                                            --------      ---------        ---------
Net income                                   14,525         15,472          15,615
                                            --------      ---------        ---------
Net income per share                           0.23           0.60            0.60
                                            --------      ---------        ---------

Weighted average shares outstanding          62,569         26,000          26,000
                                            --------      ---------        ---------
Balance Sheet Data (At Year End)
Working capital                              30,699        (31,505)         36,372
                                            --------      ---------        ---------
Total Assets                                253,684        218,776          67,593
                                            --------      ---------        ---------
Long-term Liabilities                         1,261              0              20
                                            --------      ---------        ---------
Shareholders Equity                         128,958         71,023          54,372
                                            --------      ---------        ---------
</TABLE>


                            10
<PAGE>

ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
        OPERATIONS

Twelve  months  ended  December  31,1998  compared  to the Twelve  months  ended
December 31,1997

Revenues

     Revenues  increased by  US$12,665,000  or 52.50% to  US$36,788,000  for the
twelve  months ended  December 31, 1998 from  US$24,123,000  for the prior year.
This increase is principally attributable to an increase in the sale of turn-key
projects  totaling  US$11,000,000  and the sale of the breeding  center totaling
US$2,388,000  which  were  partially  offset  by a  decrease  in the sale of raw
materials.  The net increase  reflects the  continuous  demand for the Company's
services.

Cost of revenues/sales

     Cost of sales  of  turn-key  projects  includes  the cost of the  machinery
purchased and the salaries and wages paid to engineers and consultants.  For the
year  ended  December  31,  1998,  cost of sales as a  percentage  of revenue of
turn-key projects was 38.82%, an increase of 5.48% from the 34.34% for the prior
year.  The increase is  principally  attributable  to an increase in the cost of
materials..

Depreciation and Amortization

     Depreciation and amortization  expense  increased by US$4,352,000 or 5,961%
to  US$4,425,000  for the year ended  December 31, 1998 from  US$73,000  for the
prior  year.  The  increase  in  depreciation  expense  is  attributable  to the
acquisition  of the farm of which  US$175,292,130  is being  depreciated  over a
period of 40 years.

Selling and administrative expenses

     Selling and administrative expenses include salaries, commissions and other
direct  employment  costs  paid  to  Company  sales  representatives  and  other
professionals.  Selling and administrative expenses increased by US$1,839,000 or
330.76% to  US$2,395,000  for the year  ended  December  31,  1998  compared  to
US$556,000  for the prior year.  The  increase is  principally  attributable  to
additional  payments to various  consultants  and because of a higher  volume of
corporate activity resulting from increased sales.

Provision for doubtful debts

     The  provision  for  doubtful  accounts  increased  by  US$970,000  or 235%
toUS$681,000  for the year ended  December 31, 1998  compared with a recovery of
bad debts of  US$289,000  for the prior year.  The  increase  resulted  from the
Company writing off of all receivables  which had been  outstanding for one year
or longer.

Financial Income (Expense) net

     Financial  income/(expense)  net  is  interest  earned  on  cash  and  cash
equivalents, less interest expense. Net financial expense increased by US$74,000
or 81.32% to US$(165,000)  for the year ended December 31, 1998 from US$(91,000)
for the prior year.  This increase is  attributable  to increase in borrowing by
the Company.

                                       11
<PAGE>

Other income/(expenses)

     Other  income/(expenses)  decreased by  US$1,944,000  to US$360,000 for the
year ended December 31, 1998 from US$2,304,000 for the prior year. This decrease
is principally attributable to the lack of any gain on disposals of subsidiaries
such as the sale of Gain Whole Limited and Megaway  Development  Limited  during
the year ended December 31, 1997.

Share of income/(losses) of associated companies

     Other than  Weifang  Great  Dragon  Chemical  Fibre  Company  Limited,  the
associated  Companies of the Company are  principally  operated on an break even
basis. The Company has no further obligation to support the associated companies
and the losses sustained by them.  During 1997, the Company incurred  diminution
in value from the remaining interest in associated companies which reduced their
carrying  value to zero.  Therefore,  no share of  post-acquisition  losses  was
provided  for during the year ended March 31,  1997.  The share of profit of the
associated  companies  represented  merely the Company's  share of the profit of
Weifang Great Dragon  Chemical Fiber Company Limited for the year ended December
31, 1998 which totaled US$102,000.

Income taxes

     Income  taxes for the year ended  December  31,1998  were  US$2,890,000  or
18.88% of pretax  income.  This compares with  US$2,683,000  or 14.77% of pretax
income for the prior year. The increase principally resulting from a charge back
of the income tax  provision  during the year ended  December 31, 1997 which did
not occur in 1998 and that certain income derived during the year ended December
31, 1997 was considered as capital gain and therefore not subject to income tax.

Net Income

     Net  income  decreased  by  US$947,000  or  6.12%  to  US$14,525,000   from
US$15,472,000  for the year ended  December 31, 1997. The decrease can mainly be
accounted for by the increase in  depreciation  and selling  expenses which were
partially offset by the increase in revenue.

1997 versus 1996
----------------

Revenues

     Revenues decreased by US$13,430,000 or 35.76% to US$24,123,000 for the year
ended December 31, 1997 from US$37,553,000 for the prior year. This decrease was
principally  attributable  to a  decrease  in the  sales of  turn-key  projects.
Management is shifting the emphasis from small scale to large scale  projects as
it  believes  that  the  resources  of the  Company  can  best  be  utilized  by
concentrating on the marketing and sale of large turn-key projects and obtaining
economies of scale thereon.

Cost of revenues/sales

     Cost of sales  of  turn-key  projects  includes  the cost of the  machinery
purchased and the salaries and wages paid to engineers and consultants.  For the
year  ended  December  31,  1997,  cost of sales as a  percentage  of revenue on
turn-key  projects was 33.34%,  representing a decrease of 4.13% from 37.47% for
the prior year. The decrease can mainly be  attributable  to the  devaluation of
most Asian currencies and a larger rebate obtained from suppliers.

                                       12
<PAGE>

Depreciation of Fixed Assets

     Depreciation  expense increased by US$11,000 or 17.74% to US$73,000 for the
year ended  December 31, 1997 from US$62,000 for the prior year. The increase in
depreciation  expense is the result of a change in accounting  policies  whereby
buildings  are  depreciated  over the  remaining  period of the 50 year lease as
opposed to the useful life of the building utilized in prior years.

Selling and administrative expenses

     Selling and administrative expenses include salaries, commissions and other
direct  employment costs paid to the Company's sales  representatives  and other
professionals.  Selling and  administrative  expenses decreased by US$447,000 or
44.56% to US$556,000 for the year ended December 31, 1997 from  US$1,003,000 for
the  prior  year.  This  decrease  was  mainly  due to  management  streamlining
operational  procedures and increased budgetary control.  Moreover,  the Company
minimized its commission  expenses by reducing  commission to a major  customer,
China  Fujian  Foreign  Trade  Holdings  Limited  and its  auditing  expense  by
approximately US$100,000.

Provision for doubtful debts and diminution in value of investment

     The  provision  for doubtful  debts and  diminution  in value of investment
decreased by US$1,506,000 or 123% to a recovery of US$289,000 for the year ended
December  31, 1997 from a provision  of  US$1,217,000  for the prior year.  This
decrease is attributable to a tightening of credit procedure and the recovery of
US$290,000, which had previously been reserved.

Financial Income (Expense) Net

     Financial   income   /(expense)  is  interest   earned  on  cash  and  cash
equivalents, less interest expense. Net financial expense decreased by US$25,000
or 21.55% to US$(91,000) for the year ended December 31, 1997 from  US$(116,000)
for the prior year, This decrease is  attributable  to tighter  controls on cash
and the curtailing of the bank loans.

Other income/(expenses)

     Other income  increased by US$4,816,000  or 191.7% to US$2,304,000  for the
year ended  December  31,  1997 from  US$(2,512,000)  for the prior  year.  This
increase is principally attributable to a decrease of US$1,228,000 in write-offs
of short- term  investments  and the capital gain derived from the  disposals of
the Company's subsidiaries, Gain Whole Limited and Megaway Development Limited.

Share of income/(losses)of associated companies

     The  associated  Companies  of the Company are  principally  operated on an
break even  basis.  The  Company  has not  further  obligation  to  support  the
associated  companies and the losses sustained by them. During 1997, the Company
incurred  additional   diminution  in  value  from  the  remaining  interest  in
associated companies which reduced their carrying value to zero.  Therefore,  no
share of  post-acquisition  losses was provided for the year ended  December 31,
1997.  The  share of the  profit of the  associated  companies  represented  the
Company's  share of the profit of Weifang Great Dragon Fiber Company Limited for
the year ended December 31, 1997 which totaled US$201,000.


                                       13
<PAGE>

Income taxes

     Income  taxes for the year ended  December  31, 1997 were  US$2,683,000  or
14.77% of pretax  income.  This  compares with  US$2,736,000  or 14.9% of pretax
income for the prior year.  The  effective  tax rate  remained  fairly  constant
throughout the two years under review.

Net income

     Net  income  decreased  by  US$143,000  or  0.9%  to   US$15,472,000   from
US$15,615,000 for the year ended December 31, 1996. This decrease is principally
attributable to lower revenues which were substantially offset by reduced costs.

Liquidity and capital resources

     At December 31,  1998,  the Company had working  capital of  US$35,938,000,
including a cash balance of US$35,668,000. This compares to a deficit of working
capital of  US$(26,324,000)  and a cash balance of US$17,808,000 at December 31,
1997.

     Net cash provided by operating  activities increased to US$ 18,751,000 from
US$  10,962,000  for the prior year.  The cash provided by operating  activities
consisted   principally  of  US$14,382,000   of  net  income,   an  increase  in
depreciation  expenses, an increase in accounts payable and accrued liabilities,
and an  increase  in income  tax  payable.  These  were  partially  offset by an
increase in accounts receivable and the recording of minority interests.

     Net cash used in investing  activities  totaled US$2,000 for the year ended
December 31, 1998 compared to US$  15,034,000 for the nine months ended December
31, 1997. In both periods the Company had nominal purchase of fixed assets,  but
in the prior period,  the Company used  US$52,000,000  to purchase  56.5% of the
equity of Wealthy Asia  Limited.  This was  partially  offset by the proceeds on
disposal of short- term investments.

     Net cash used in financing  activities  totaled  US$(891,000)  for the year
ended  December  31,1998.  Net cash provided by financing  activities  consisted
principally  of net repayments  which were partially  offset by advances of bank
overdrafts.

     The Company business has historically been capital intensive. In most years
internally  generated funds were  sufficient to fund the Company  operations and
finance its growth.  While the cash generated from earnings and available  lines
of credit  has  historically  provided  sufficient  liquidity  to meet  ordinary
capital requirements. Management anticipates that cash generated from operations
combined with current  working  capital and available  credit lines will provide
sufficient  liquidity to meet ordinary capital  requirements for the next twelve
months.

Impact of inflation

     To date,  the  Company  has not  experienced  any  significant  effect from
inflation.  The  Company's  major  expenses  have been the cost of  purchase  of
machinery,  salaries and related  costs  incurred  principally  for the turn-key
projects.  The Company  generally  has been able to meet  increases  in costs by
raising prices of its products.

                                       14
<PAGE>


Certain Factors Affecting Certain Future Operating Results

a)   Revised Corporate Business

     In the past, the Company has been actively involved in the sale of turn-key
production  lines,  machinery and  equipment,  accessories,  spare parts and raw
materials.  The Company is now moving  away from this line of business  into the
provision of technology in agricultural  genetics and farming in China.  Because
of the Company's inexperience with this industry,  there is no guaranty that its
future  results  will  equal  those  of the  past or that  the  Company  will be
profitable in this industry.

b.   Dependence on Strategic Relationship

     The  Company  plans to conduct its future  operations  in the PRC with Feng
Ning  Manchuria  Autonomous  Region  Agriculture  Company  and  China  Resources
Development Bureau. Any deterioration of this strategic  relationship could have
an  adverse  effect on the  future  operations  and  financial  position  of the
Company.

c.   Country Risk

     Substantially  all of the Company  operations  are conducted in the PRC and
accordingly,  the Company is subject to special  considerations  and significant
risks not typically  associated  with  companies  operating in North America and
Western Europe. These include the risks associated with the political,  economic
and  legal  environments  and  foreign  currency  exchange,  among  others.  The
Company's  results  may be  affected  by,  among  other  things,  changes in the
political and social  conditions  in the PRC and changes in government  policies
with  respect  to  laws  and  regulations,   anti-inflation  measures,  currency
conversion  and  remittance  abroad  and rates and method of  taxation.  The PRC
government has implemented  economic reform policies in recent years,  and these
reforms may be refined or changed by the  government at any time. It is possible
that a change in the PRC leadership could lead to changes in economic policy. In
addition,  a  substantial  portion of the  Company  revenues is  denominated  in
Renminbi,  which must be  converted  into  other  currencies  before  remittance
outside the PRC. Both the conversion of the Reminbi and other foreign currencies
and  remittance  of  foreign  currencies  abroad  require  approval  of the  PRC
government.

ITEM 7A QUANTITATIVE AND QUALIFICATION DISCLOSURE ABOUT MARKET RISK

          Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The financial statements of the Company are annexed to this Report as pages
F2 through F-24. An index to such materials appears on page F-1.

ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

          Not applicable.

                                       15
<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The following table sets forth the name and ages of the executive  officers
of the Company and the position held by each.

         Name                       Age                 Title
        ------                     -----            -----------

Harry H.H. Ho                       49       Chairman of the Board and Chief
                                             Executive Officer
Jia Ji Shang                        45       Vice-Chairman of the Board and
                                             Director
Ji Jun Wu                           60       Director
Kim Yong Soh                        49       Director
Tan Sri (Dr.) M. Ghazali Shafie     61       Senior Advisor
Dr. Li Yan                          44       Director
Chan Kwai Chiu                      41       Director
Eric Ng                             39       Secretary/Treasurer/Chief Financial
                                             Officer and Director
Ian Macdonald                       45       Advisor

ITEM 11. EXECUTIVE COMPENSATION

     The  following  table  sets forth all  compensation  paid or to be paid for
services rendered during the last three fiscal years by the Company to its chief
executive  officers and the one remaining most highly paid executive officer who
earn more than $100,000 for the three fiscal years ended December 31,1998.

  Name of Individuals        Year         Salary           Bonus         Others
 ---------------------      ------       --------         -------       --------

  Chan Kwai Chiu               1997      155,870          12,990         129,366

                     Apr. 1,1997 to
                       Dec.31, 1997      116,900           9,742

                               1998      108,000               0


  Wong Yuen Ki                 1997      138,000          11,500         155,819

                     Apr. 1,1997 to
                       Dec.31, 1997      103,500           8,625

                               1998            0               0

     No cash  compensation  was paid or  accrued  by the  Company  in  excess of
$100,000  for  any  other  executive  officer.  The  Company  does  not  provide
retirement,  pension, profit sharing or similar benefit programs or plans to its
officers.  The Company does not pay fees or other  compensation to its directors
for attending meetings or special assignments.

                                       16
<PAGE>

EXECUTIVE OFFICERS OF THE REGISTRANT

     The Company executive officers are as follows:

     Mr.  Harry H. H. Ho,  is the  Chairman  and the  Managing  Director  of the
Company.  He holds a degree in business  studies from the Nanyang  University of
Singapore  and a  master  degree  in  business  administration  from  East  Asia
University of Macau.  He has in excess of 10 years of  commercial  experience in
international trade,  particularly in food products.  In 1989 he established the
Megaway Group whose  business  activities  include food,  shipping and financing
services.  In the same year, he  established  Hua Tuo Guan in Singapore to offer
franchise  services in Chinese  medical and health food.  Since 1990, Mr. Ho has
been   involved  in  China  Trade  and  has  been   involved  in  takeovers  and
restructuring of a number of Chinese enterprises.

     Mr. Jia Ji Shang is the Vice  -Chairman  and a Director of the Company.  He
holds a degree in engineering from the Central Broadcast  Television  University
of the People's  Republic of China.  He has in excess of 16 years of  commercial
experience  and is closely  associated  with the high  ranking  officials in the
People's Republic of China.

     Mr. Ji Jun Wu, is a Director of the Company and is the  President  of China
operation  of the  Megaway  Group.  He has in excess  of 40 years of  commercial
experience. Since the establishing of the open economy by the PRC in 1980 he has
been instrumental in the establishment of more than ten foreign  investments and
joint ventures in the PRC, including such  international  companies as Motorola,
NEC, IBM, AT&T,  Samsung and Yamaha.  In addition,  he has served as an official
Chinese representative.  Because of his work and achievements, he was honored by
the City of Houston, Texas, USA as an honorable citizen.

     Mr. Kim Yong SOH is a non  executive  director of the Company.  He holds an
honors degree in system and engineering from Nanyang University of Singapore and
a master degree in system and engineering  from the University of Singapore.  He
has in excess of ten years of commercial experience,  working with international
companies such as Siemens,  SGS Thomson,  Deltron  Automatics  Systems and Texas
Instruments  National  Semiconductors.  In 1992 he  established  Right  Holdings
Limited in  Singapore,  a company  engaged  in  property  development,  building
construction, tourism, electronic components and general investments.

     Tan Sri (Dr.) M. Ghazali  SHAFIE is a former  minister in the government of
Malaysia.  He is the  Senior  Advisor of the  Company.  He was the  Chairman  of
Rolls-Royce  Southeast Asia Advisory Board from  1987-1990,  a consultant to the
World  Bank  Economic   Development   Institute   (EDI),  and  the  Chairman  of
Commonwealth Obaerver Group for Bangladesh  Parliamentary Elections. At present,
he is a  Senior  Consultant  to  the  United  Nations  Centre  on  Transnational
Cooperation (UNCTC).

     Dr. Li Yan,  graduated from Massachusetts  Institute of Technology,  with a
degree in  Biochemistry  and is the  Technical  Director of the Company.  She is
responsible  for  research  and  development  of  technologies  in  agricultural
genetics.  She has in  excess  of 10 years of  experience  in the  research  and
development of  agricultural  genetics and has received  honors for  outstanding
achievements for her research works.

     Mr. Chan Kwai Chiu is a director of the Company.  Mr. Chan has in excess of
16  years  experience  in the  plastic  products  industry,  including  10 years
experience  in the  design,  installation  and  management  of  plastic  related
production lines. His high level relationships with government planning agencies
commissioned for free enterprise  projects in China at the provincial level, and
with the  authorities of the "city" level planning  agencies,  have  contributed
significantly to the business of the Company.

                                       17
<PAGE>

     Mr.  Eric Ng joined the  Company  in 1992 as Chief  Financial  Officer  and
Secretary of the Company and is  responsible  for the financial  strategy of the
Company. Prior to joining the Company he was a manager at KPMG Peat Marwick Hong
Kong,  a member of the  Chartered  Association  of Certified  Accountants  and a
manager of Dynamic Holdings Limited (a listed company in Hong Kong).  During his
tenure  at KPMG  Peat  Marwick,  he was  responsible  for  numerous  merger  and
acquisitions  of listed  companies  in Hong  Kong.  He has in excess of 10 years
experience in auditing, finance and administration.

     Mr. Ian Macdonald is a Technical Adviser to the Company. He is a recognized
international  authority on goat, deer and sheep  reproduction with in excess of
15 years of  experience  in the Advanced  Animal  Breeding and Genetics  fields.
Through his  company in New  Zealand,  he is engaged in custom  semen and embryo
collection services to augment client merchandising  abilities both domestically
and internationally.  In the early 1980's, when goat semen and embryo collection
technology was in its infancy, Ian Macdonald was in charge of training in excess
of 300 Artificial Insemination technicians specifically for goat reproduction.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The  following  table sets  forth as of  September  20,  1999 the number of
shares of the Company's Common Stock known to be held by the Executive  Officers
and Directors,  individually, and as a group, and by beneficial owners more than
five percent of the Company Common Stock.

<TABLE>

                                               Amount and Nature of
                                               Beneficial Ownership
Name and Address (1) of Beneficial Owner       Shares                  Percentage of Class
----------------------------------------      -----------------------  --------------------
<S>                                           <C>                      <C>

Chan Kwai Chiu                                   9,100,000                13.18%
Charter Score Development Limited                1,000,000                 1.45%
Land Cheer Investment Limited                    2,600,000                 3.77%
Allington International Inc.                    18,190,000                26.36%
All officers and directors as a group (one)     30,890,000                44.76%
</TABLE>

(1)  Address for all persons and  entities is  1801-1806  Hua Qin  International
     Building, 340 Queen Road Central, Hong Kong.

ITEM.13  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The Company  amounts due from/(to)  directors and related  companies  owned
and/or  controlled by a director,  Chan Kwai Chiu, are unsecured,  interest-free
and are repayable on demand.

     In the normal course of business,  some of the companies are engaged in the
"set-up"  of  automatic  production  lines on a  turn-key  basis  for its  joint
ventures. In addition,  the companies also arrange for the sale of raw materials
to these joint ventures.  Amounts of revenues from the sales of raw materials to
these joint ventures are summarized as follows:

                                       18
<PAGE>

                                Year Ended                         Year Ended
                                March 31,       April 1, 1997 to   December 31,
                                1997            December 31,1997      1998

Sales to joint ventures:
         Raw materials         US$2,548,484      US$1,594,473       US$1,542,354

The unrealized  profits arising from these  transactions  were eliminated in the
consolidated financial statements to the extent of the Company interest in these
joint ventures.

     During the year  ended  March 31,  1997,  HK$17,935,678  of trade  accounts
payable  were  paid   directly  by  directors  on  behalf  of  the  Company  and
HK$21,625,232 of trade accounts  receivable were received directly by directors.
The net  activity  of  these  transactions  was  posted  to the  amounts  due to
directors in the accompanying consolidated balance sheets.

     On April 2, 1997, the Group acquired a 30% interest in Megaway  Development
Limited. The principal asset of Megaway Development Limited is a 60% interest in
Weifang Great Dragon Chemical Fibre Company Limited whose principal  activity is
the  manufacture of polyester  tyre cord fabrics,  and  polyester/nylon  canvas.
Megaway Development Limited was acquired in exchange for a trade receivable from
CFFTC in the amount of HK$65,031,120 (US$8,415,000).

     On December 23, 1997, Sun's International Holdings Limited acquired a 56.5%
interest in Wealthy Asia Limited  (WAL) for  US$52,000,000  (HK$403,364,486)  in
cash  from  Mr.  Brian  Ko.  WAL had  simultaneously  acquired  100% of  Megaway
Agriculture   Co.  Ltd.   (Megaway)   from  Mr.   Harry  Ho  for   US$92,000,000
(HK$713,644,828)  in cash of US$9,200,000 at closing,  with the remainder in the
form of a verbal  receivable which was  subsequently  settled through payment of
US$  72,900,000  in cash on December  31, 1997 and  receipt of  9,900,000  newly
issued shares of China Continental, Inc. common stock on March 18, 1998.

     On February  10, 1998 Sun's  International  acquired  the  remaining  43.5%
interest in WAL from Mr. Brian Ko via the issuance of an  additional  40,000,000
shares of stock in China Continental, Inc. of which 9,900,000 shares were issued
directly to Megaway Resort Development Limited, a company owned by Mr. Harry Ho.

     The  principal  asset  of  Megaway  is a 51%  interest  in  Changde  Dafeng
Agriculture and Animal Husbandry Ltd. (Changde),  a Sino-Singapore joint venture
incorporated  in the  People's  Republic of China on  December 3, 1997.  Mr. Ho,
through  his prior  ownership  of Megaway,  was an  original  party to the joint
venture,  with the remaining 49% interest being held by entities associated with
the Chinese government. Changde has been established to run a breeding center to
propagate Boer goats and other livestock  breeds.  Changde's  principal asset is
20,000  hectares  or  49,400  acres  of  grassland  located   approximately  250
kilometers north of Beijing,  in the People's  Republic of China.  Based upon an
independent  appraisal  dated  July 30,  1998 by  American  Appraisal  Hong Kong
Limited, the value of 100% of Changde is US$181,000,000 (HK$1,402,750,000) as of
December  31,  1997,  resulting  in  a  minority  interest  of  the  Company  of
HK$685,039,110 as of December 31, 1997.

ITEM 14. YEAR 2000 ISSUE

     Many  computers  were not designed to handle any dates beyond the year 1999
and,  therefore,  computer  hardware and software will need be modified prior to
the year 2000 in order to remain  functional;  this is the so called "Year 2000"
problem.  The Company does not believe it has material  exposure with respect to
Year 2000 issues. The Company currently utilizes  commercially produced hardware
and software packages that were purchased to be Year 2000 complaint. The Company
does not rely on any one supplier or vendor for its goods and  services,  so the
failure of any  supplier  or vendor  with the Year 2000  problems to convert its
systems on a timely  basis  should not have a material  effect on the  Company's
business, financial condition and result of operations.  Software and hardware ,
such as  telecommunication  and  office  automation  systems,  that  facilitates
operations of the Company's  location and  corporate  headquarters  comprise the
Company's  primary non-IT systems and were likewise  purchased or upgraded to be
Year 2000 complaint.

                                       19
<PAGE>

     Additionally,  the Company is currently  communicating with its significant
customers  to  determine  the extent to which the Company may be  vulnerable  to
their failure to remedy their own Year 2000 issues. The Company anticipates that
it will  complete  this  investigation  by October  1999,  at which time it will
assess and need to formulate any necessary  contingency  plans to deal with Year
2000 issues to customers,  if any.  Although the Company's IT and non-IT systems
were represented as being Year 2000 complaint when purchased or upgraded,  there
can be no  guarantee  that the  Company,  its  customers  or other  third  party
business associates will not experience Year 2000 compliance  difficulties which
could have a  material  adverse  effect on the  Company's  business,  results of
operation and financial condition.

                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

     (a)  Exhibits

          Exhibit 27.1 Financial Data Schedule.

     (b)  Report on Form 8-K

          None


                                       20
<PAGE>

                                   SIGNATURES

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

                                  CHINA CONTINENTAL, INC.


                               By: /s/ Harry H.H.Ho
                                  -------------------------------------
                               Harry H.H. Ho
                               Chairman of the Board and Chief Executive Officer

Dated: September 30, 1999

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

Signatures                  Titles                                      Date
----------               -------------                                ---------

/s/ Harry H.H. Ho
-------------------
Harry H.H. Ho         Chairman of the Board and Chief
                      Executive Officer                       September 30, 1999

/s/s Jia Ji Shang
--------------------
Jia Ji Shang          Vice- Chairman and Director             September 30, 1999

/s/ Ji Jun Wu
--------------------
Ji Jun Wu             Director                                September 30, 1999

/s/ Kim Yong Soh
--------------------
Kim Yong Soh          Director                                September 30, 1999

/s/ Dr. Li Yan
--------------------
Dr. Li Yan            Technical Director                      September 30, 1999

/s/ Chan Kwai Chiu
--------------------
Chan Kwai Chiu        Director                                September 30, 1999

/s/ Eric Ng
--------------------
Eric Ng               Secretary/Treasurer/
                      Chief Financial Officer and Director    September 30, 1999

<PAGE>


                    CHINA CONTINENTAL, INC. AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                         Pages
                                                                        -------


        Report of independent auditors                                    F-2

        Consolidated statements of income                                 F-3

        Consolidated statements of changes in stockholders' equity        F-4

        Consolidated balance sheets                                       F-5

        Consolidated statements of cash flows                      F-7 to F-8

        Notes to consolidated financial statements                F-9 to F-28




                                       F-1
<PAGE>


REPORT OF INDEPENDENT AUDITORS



To the Board of Directors and the Stockholders
China Continental, Inc.



We  have  audited  the  accompanying   consolidated   balance  sheets  of  China
Continental, Inc. (the "Company") and subsidiaries (collectively the "Group") as
of December  31,  1997 and  December  31,  1998,  and the  related  consolidated
statements  of income,  changes in  stockholders'  equity and cash flows for the
year ended March 31, 1997,  nine months  ended  December 31, 1997 and year ended
December 31, 1998.  These  financial  statements are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above, present
fairly, in all material respects,  the consolidated  financial position of China
Continental,  Inc.  and  subsidiaries  as of December  31, 1997 and December 31,
1998, and the consolidated  results of their operations and their cash flows for
the year ended March 31,  1997,  nine months  ended  December  31, 1997 and year
ended  December 31, 1998,  in  conformity  with  generally  accepted  accounting
principles in the United States of America.

As described in Note 11, the Company  entered into certain  transactions  during
1997-1999,  ultimately with its current  chairman and chief  executive  officer.
These  transactions  have  significantly  impacted the Company's  business plan,
liquid  assets  and  common   stockholder   ownership   interests.   Appropriate
disclosures have been made and our opinion is not qualified in this respect.



Chicago, Illinois
September 24, 1999

                                      F-2
<PAGE>



CHINA CONTINENTAL, INC.  AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

For the year ended March 31, 1997, the nine
months ended December 31, 1997 and the
year ended December 31, 1998
<TABLE>
                                                                    Nine months
                                                    Year ended         ended
                                                     March 31,       December 31,        Year ended December 31,
                                                       1997             1997              1998             1998
                                        Notes           HK$              HK$               HK$              US$
<S>                                      <C>        <C>           <C>               <C>                  <C>


SALES
   Related parties                         18       19,699,783       12,357,168        11,953,242        1,542,354
   Others                                          248,984,457      147,762,121       273,154,057       35,245,685
                                               ---------------    --------------  ---------------- ----------------
                                                   268,684,240      160,119,289       285,107,299       36,788,039

COST OF SALES                                     (110,460,697)     (64,600,231)     (110,702,213)     (14,284,157)
                                             ------------------   --------------  ---------------- -----------------
GROSS PROFIT                                       158,223,543       95,519,058       174,405,086       22,503,882

DEPRECIATION AND AMORTIZATION                         (620,313)        (442,894)      (34,296,686)      (4,425,379)

SELLING AND ADMINISTRATIVE
 EXPENSES                                           (7,413,213)      (3,958,938)      (18,558,469)      (2,394,641)

(PROVISION FOR) RECOVERY OF
  DOUBTFUL DEBTS                                     2,238,844                -        (5,280,608)        (681,369)

FINANCIAL INCOME/(EXPENSES),
 NET                                        4         (425,759)        (442,851)       (1,275,217)        (164,544)

OTHER INCOME/(EXPENSES), NET                5       (4,597,305)      22,625,018         2,789,505          359,936

SHARE OF GAINS OF
ASSOCIATED COMPANIES                       10                -        1,113,459           795,995          102,709
                                              ----------------  ---------------   ---------------   --------------
INCOME BEFORE INCOME TAXES                         147,405,797      114,412,852       118,579,606       15,300,594

INCOME TAXES                                6      (20,372,118)     (10,000,694)      (22,399,318)      (2,890,235)
                                              ---------------- ----------------  ----------------   --------------
INCOME BEFORE MINORITY INTEREST                    127,033,679      104,412,158        96,180,288       12,410,359

LOSS ALLOCATED TO
MINORITY INTEREST                                            -                -        16,388,692        2,114,671
                                              ---------------- ----------------  ----------------   --------------
NET INCOME                                         127,033,679      104,412,158       112,568,980       14,525,030

EARNINGS PER SHARE                       3(j), 11         4.89             4.02              1.80             0.23

</TABLE>

        The accompanying notes are an integral part of these consolidated
                             financial statements.
                                       F-3


<PAGE>

CHINA CONTINENTAL, INC.  AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY


For the year ended March 31, 1997,
the nine months ended December 31, 1997
and the year ended December 31, 1998

<TABLE>

                                                                   Additional
                                                      Share         paid-in          Retained
                                                     capital        capital          earnings           Total
                                        Notes          HK$            HK$               HK$              HK$
<S>                                    <C>           <C>          <C>               <C>               <C>


Balance at April 1, 1996                             202,800       13,356,985       304,002,387       317,562,172

Net income                                                -                 -       127,033,679       127,033,679
                                              --------------   --------------   ---------------  ----------------

Balance at March 31, 1997                            202,800       13,356,985       431,036,066       444,595,851

Net income                                                 -                -       104,412,158       104,412,158
                                              --------------   --------------   ---------------  ----------------

Balance at December 31, 1997                         202,800       13,356,985       535,448,224       549,008,009

Issuance of 40,000,000 shares
 on February 10, 1998 at
 US$1.00 per share                      11           309,200      309,326,204                 -       309,635,404

Issuance of 1,400,000 shares
 on August 12, 1998 at
 US$.50 per share                       21            10,822        5,400,178                 -         5,411,000

Issuance of 1,600,000 shares
 on September 30, 1998 at
 US$.42 per share                       21            12,368        5,250,737                 -         5,263,105

Assumption of liabilities
 on December 31, 1998 and
 contribution to capital                21                 -       17,534,193                 -        17,534,193

Net income                                                 -                -       112,568,980       112,568,980


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

Balance at December 31, 1998                         535,190      350,868,297       648,017,204       999,420,691
                                              ==============  ===============   ===============   ===============
</TABLE>


        The accompanying notes are an integral part of these consolidated
                             financial statements.

                                       F-4
<PAGE>


CHINA CONTINENTAL, INC.  AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31, 1997 and December 31, 1998
<TABLE>

                                                    December31,                      December 31,
                                                        1997                    1998              1998
                                        Notes            HK$                     HK$               US$
<S>                                     <C>       <C>                       <C>                <C>

ASSETS

CURRENT ASSETS
Cash and bank balances                             138,010,916               276,424,018       35,667,615
Trade receivables, net of provisions of
  HK $8,602,321 and HK$0 at
  December 31, 1997 and 1998,
  respectively                            7, 17     36,420,762                72,002,050        9,290,587
Prepayments, deposits and other
   receivables, net of provisions of
   HK$4,898,213 and HK$0 at
   December 31, 1997 and 1998,
   respectively                             8        5,018,294                 4,747,901          612,632
Amounts due from related companies         18       34,111,911                33,445,247        4,315,516
                                               ---------------           ---------------    -------------

TOTAL CURRENT ASSETS                               213,561,883               386,619,216       49,886,350

FIXED ASSETS                                9        3,486,981                 3,155,880          407,210
INTERESTS IN ASSOCIATED
  COMPANIES                                10       69,053,638                66,618,081        8,595,882
LAND LEASE RIGHTS, net of
  accumulated amortization of
  HK$0 and HK$33,962,849 at
  December 31, 1997 and 1998,
  respectively                             11    1,358,514,000             1,324,551,151      170,909,826
AMOUNTS DUE FROM DIRECTORS                 18       39,525,000                40,604,397        5,239,277
OTHER ASSETS                               19        7,000,000                 5,000,000          645,161
                                             -----------------         -----------------  ---------------

TOTAL ASSETS                                     1,691,141,502             1,826,548,725      235,683,706
                                                 =============             =============      ===========
</TABLE>



        The accompanying notes are an integral part of these consolidated
                             financial statements.

                                      F-5
<PAGE>



CONSOLIDATED BALANCE SHEETS CONT'D

<TABLE>

LIABILITIES AND STOCKHOLDERS' EQUITY
<S>                                       <C>       <C>                   <C>               <C>

CURRENT LIABILITIES
Bank overdrafts                            12        3,814,245              3,886,228          501,449
Bank import loans                          12       10,478,535              3,588,515          463,034
Secured bank loan                          12        9,984,864                119,171           15,377
Income taxes payable                                73,707,403             96,487,847       12,450,045
Amounts due to directors                   18        8,604,953             10,677,359        1,377,724
Amounts due to related parties             18      315,483,063              4,992,059          644,136
Accounts payable and accrued liabilities            35,021,320             28,950,400        3,735,535
                                               ---------------        ---------------    -------------

TOTAL CURRENT LIABILITIES                          457,094,383            148,701,579       19,187,300

LONG-TERM LIABILITIES
   Secured bank loan                       12                -              9,776,037        1,261,424
                                              ----------------       ----------------   --------------

TOTAL LIABILITIES                                  457,094,383            158,477,616       20,448,724
                                              ----------------       ----------------   --------------
MINORITY INTEREST                          11      685,039,110            668,650,418       86,277,473
                                              ----------------       ----------------   --------------
STOCKHOLDERS' EQUITY

Common stock, par value US$0.001 per share:
  Authorized:
  1,000,000,000 shares;
  Issued and outstanding:
  26,000,000 and 69,000,000 shares
  as of December 31, 1997 and 1998,
  respectively                                         202,800                535,190           69,057
Additional paid-in capital                          13,356,985            350,868,297       45,273,329
Retained earnings                                  535,448,224            648,017,204       83,615,123
                                               ---------------        ---------------  ---------------
TOTAL STOCKHOLDERS'
  EQUITY                                           549,008,009            999,420,691      128,957,509
                                             -----------------      -----------------  ---------------
TOTAL LIABILITIES AND
  STOCKHOLDERS' EQUITY                           1,691,141,502          1,826,548,725      235,683,706

</TABLE>

                                      F-6
<PAGE>


CHINA CONTINENTAL, INC.  AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the year ended March 31, 1997, the nine months
ended December 31, 1997 and the year ended
December 31, 1998

<TABLE>

                                                                    Nine Months
                                                     Year ended       ended                    Year ended
                                                       March 31,    December 31,               December 31,
                                                        1997           1997              1998              1998
                                                         HK$            HK$               HK$               US$
                                                     ------------  -------------    -------------      ------------
<S>                                              <C>              <C>             <C>                 <C>

CASH FLOWS FROM OPERATING
  ACTIVITIES:
Net income                                       127,033,679      104,412,158       112,568,980        14,525,030
Adjustments to reconcile net income to
 net cash provided by operating
 activities:
   Gains on disposal of fixed assets                (163,204)        (350,800)                -                 -
   Depreciation and amortization                     620,313          442,894        34,296,686         4,425,379
   Provision for doubtful debts and
      diminution in values of
      investments and associated companies           869,710                -         5,280,608           681,369
   Share of gains of associated
      companies                                            -       (1,113,459)         (795,995)         (102,709)
   Gains on disposal of short-term
      investments                                          -      (18,731,775)                -                 -
Loss allocated to minority interest                        -                -       (16,388,692)       (2,114,670)
Sock issued for public relation services                   -                -         5,411,000           698,193
(Increase)/decrease in assets:
   Trade receivables and long-term receivable    (13,182,571)        (674,702)      (36,167,309)       (4,666,750)
   Prepayments and deposits                         (307,547)      (1,635,998)         (598,127)          (77,178)
   Amounts due from related companies               (887,809)      (6,143,407)       (2,186,764)         (282,163)
   Amounts due from associated companies            (702,335)        (616,905)          262,249            33,839
   Amounts due from directors                              -                -        (2,102,195)         (271,251)
(Decrease)/increase in liabilities:
   Amounts due to directors                        9,988,570        2,562,096         8,712,447         1,124,187
   Amounts due to related parties                    199,772                -          (724,021)          (93,422)
   Accounts payable and accrued liabilities       13,690,462       (2,621,277)       14,974,220         1,932,157
   Income taxes payable                           18,455,771        9,428,109        22,780,444         2,939,412
                                             ---------------   --------------   ---------------    --------------
Net cash  provided by
 operating activities                            155,614,811       84,956,934       145,323,531        18,751,423
                                             ---------------   --------------   ---------------    --------------
</TABLE>


        The accompanying notes are an integral part of these consolidated
                              financial statements.

                                       F-7
<PAGE>

CHINA CONTINENTAL, INC.  AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

For the year ended March 31, 1997, the nine months
ended December 31, 1997 and the year ended December 31, 1998

<TABLE>

                                                                  Nine months
                                                    Year ended       ended                        Year ended
                                                     March 31,    December 31,                   December 31,
                                                       1997          1997                  1998             1998
                                                        HK$           HK$                   HK$              US$
<S>                                                 <C>           <C>                    <C>              <C>

CASH FLOWS FROM
  INVESTING ACTIVITIES
      Purchase of land lease rights                        -     (403,364,486)                -                 -
      Purchase of fixed assets                       (15,080)         (14,856)           (2,736)             (353)
      Proceeds from disposal of fixed assets               -          530,000                 -                 -
      Proceeds from disposal of short-term
         investments                                       -      286,331,775                 -                 -
                                              --------------   --------------   ---------------  ----------------
Net cash used in
   investing activities                              (15,080)    (116,517,567)           (2,736)             (353)
                                              --------------   --------------   ---------------  ----------------
CASH FLOWS FROM
  FINANCING ACTIVITIES
      Net repayments under
        bank import loans                          2,389,290        2,415,365        (6,890,020)         (889,035)
      Net repayments of bank loans                (1,478,799)               -           (89,656)          (11,568)
      Advances (repayments) of bank overdrafts      (676,889)       3,814,245            71,983             9,288
                                             ---------------   --------------   ---------------     -------------
Net cash provided by /(used in)
financing activities                                 233,602        6,229,610        (6,907,693)         (891,315)
                                             ---------------   --------------   ---------------     -------------
NET INCREASE/(DECREASE) IN
  CASH AND BANK BALANCES                         155,833,333      (25,331,023)      138,413,102        17,859,755

Cash and bank balances, at beginning
  of period                                        7,508,606      163,341,939       138,010,916        17,807,860
                                             ---------------  ---------------   ---------------     -------------
Cash and bank balances, at end of period         163,341,939      138,010,916       276,424,018        35,667,615
                                             ===============  ===============   ===============     =============

SUPPLEMENTARY CASH FLOWS
  DISCLOSURES:
  Interest paid                                      469,392          488,704         1,275,217           164,544
                                             ===============  ===============   ===============     =============
  Income taxes paid                                2,079,551          572,585           256,629            33,113
                                             ===============  ===============   ===============     =============
</TABLE>


        The accompanying notes are an integral part of these consolidated
                              financial statements.

                                      F-8
<PAGE>

CHINA CONTINENTAL, INC.  AND SUBSIDIARIES

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   ORGANIZATION AND PRINCIPAL ACTIVITIES

     China  Continental,  Inc. (the "Company") was  incorporated in the state of
     Utah, in the United States of America, and its principal activity is a 100%
     investment in Sun's International Holdings Limited (Sun's International), a
     holding company for investments in operating companies. Sun's International
     was incorporated under the laws of the British Virgin Islands.

     Subsequent  to March 31,  1997,  the  Company  elected to change its fiscal
     year-end to December 31.

     The consolidated  financial  statements include the accounts of the Company
     and Sun's  International and its wholly owned  subsidiaries,  Billion Pearl
     Investments  Limited,  High Glad Industries Limited  (dormant),  Prime Hill
     Investment  Limited  (dormant),  Prime View Industrial  Limited  (dormant),
     Danbury Inc., Winkler Holdings Inc. (dormant), Cathay Mercantile (Overseas)
     Limited  (Disposed of in December,  1997;  See Note 11), Gain Whole Limited
     (Disposed of in August,  1997;  See Note 11),  Megaway  Resort  Development
     Limited  (Acquired and disposed of in August,  1997,  and  December,  1997,
     respectively;  See Note 11) and its majority owned subsidiary, Wealthy Asia
     Limited  (56.5% owned until  February 10, 1998 at which time the  remaining
     43.5%  was  acquired,  and  which  had  no  operating  activity  for  1997)
     (hereinafter  collectively  together  with the  Company  referred to as the
     "Group").

     Danbury Inc. is primarily engaged in the sale of automatic production lines
     on a turn-key basis and related consulting fees to various customers in the
     People's  Republic of China (the "PRC").  This company,  along with certain
     dormant companies, has also made investments in PRC enterprises through the
     formation of associated  companies with various PRC parties.  Billion Pearl
     Investments  Limited is primarily an importer and reseller of raw materials
     to an  associated  company.  Wealthy Asia  Limited,  through a wholly owned
     subsidiary, owns 51% of a joint venture known as Chengde Dafeng Agriculture
     and  Animal  Husbandry  Co.,  Ltd.,  which  has been  established  to run a
     breeding  center to propagate Boer goats and other  livestock  breeds.  See
     Note 11.

                                      F-9
<PAGE>


CHINA CONTINENTAL, INC.  AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   BASIS OF PRESENTATION

     The  consolidated  financial  statements  are prepared in  accordance  with
     generally  accepted  accounting  principles in the United States of America
     ("US  GAAP").  This  basis of  accounting  differs  from  that  used in the
     statutory  financial  statements of the subsidiaries in Hong Kong which are
     prepared in accordance with the accounting principles generally accepted in
     Hong Kong.

     The following  material  adjustments  were made to present the consolidated
     financial statements to conform with US GAAP:

     -  reversal  of the  revaluation  surplus,  and the  related  depreciation,
     arising from the revaluation of leasehold land and buildings.


3.   SUMMARY OF PRINCIPAL ACCOUNTING POLICIES

        (a)       Basis of consolidation
                  ----------------------

          The  consolidated  financial  statements  of the  Company  include the
          accounts   of  the  Company   and  its  wholly  and   majority   owned
          subsidiaries. All material intercompany balances and transactions have
          been eliminated on consolidation.

        (b)       Associated companies
                  --------------------

          An associated company is a company, not being a subsidiary, over which
          the Group is in a position to exercise significant influence.

          The  Group's  share  of the  post-acquisition  results  of  associated
          companies is included in the  consolidated  statements of income under
          the equity method of accounting.  The Group's  interests in associated
          companies are stated in the  consolidated  balance sheets at cost plus
          the  Group's  share of the  associated  companies'  post-  acquisition
          results and capital  transactions,  less any provisions for other than
          temporary diminutions in values.



                                      F-10
<PAGE>

CHINA CONTINENTAL, INC.  AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3.   SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)

        (c)     Cash and cash equivalents
                -------------------------

          The Group considers cash and cash  equivalents to include cash on hand
          and demand deposits with banks with original term to maturity of three
          months or less at the date of acquisition.

          At December  31,  1997 and 1998,  cash and cash  equivalents  included
          foreign currency deposits equivalent to HK$135,755,488 (US$17,516,837)
          and HK$275,138,120 (US$35,501,693), respectively.

        (d)     Fixed assets and depreciation
                -----------------------------

          Fixed  assets  are  stated  at  cost  less  accumulated  depreciation.
          Depreciation of fixed assets is calculated on the straight-line  basis
          to write off the cost less estimated residual value of each asset over
          its estimated  useful life.  The principal  annual rates used for this
          purpose are as follows:

                         Leasehold land and buildings         2.0%
                         Furniture and fixtures                20%
                         Office equipment                      20%
                         Motor vehicles                        20%

        (e)     Land lease rights and amortization
                ----------------------------------

          Land  lease  rights  in  Mainland   China  are  stated  at  cost  less
          accumulated  amortization.   Amortization  of  land  lease  rights  is
          calculated on the straight-line basis over the lesser of its estimated
          useful life or the lease term. The principal annual rate used for this
          purpose is 2.5%.

        (f)     Income taxes
                ------------

          Income taxes are determined  under the liability method as required by
          Statement of Financial  Accounting  Standard No. 109,  "Accounting for
          Income Taxes".

        (g)     Foreign currency translation
                -----------------------------

          Foreign currency  transactions  denominated in foreign  currencies are
          translated into Hong Kong dollars ("HK$") at the respective applicable
          rates of exchange.  Monetary  assets and  liabilities  denominated  in
          foreign  currencies are translated  into HK$ at the applicable rate of
          exchange at the balance sheet date.  The resulting  exchange  gains or
          losses are credited or charged to the statements of income.

          Translation of amounts from HK$ into United States dollars ("US$") for
          the  convenience  of the reader  has been made at the  single  rate of
          exchange on December 31, 1998 of US$ 1.00 : HK$7.75. No representation
          is made that the HK$ amounts could have been,  or could be,  converted
          into US$ at that rate on December 31, 1998 or at any other date.


                                      F-11
<PAGE>

CHINA CONTINENTAL, INC.  AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3.   SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)

     The associated  companies  maintain  their books and accounting  records in
     Renminbi  (the  "RMB").  For the  purpose  of  accounting  for the  Group's
     attributable interests in the net assets and results of the joint ventures,
     the RMB financial  statements of the associated  companies were  translated
     into HK$ using the current rate method  whereby all assets and  liabilities
     are translated  into HK$ at the applicable  rate of exchange  prevailing at
     the balance sheet date as quoted by the People's Bank of China.  Income and
     expense  items  were  translated  at the  average  rates as  quoted  by the
     People's Bank of China.

         (h)     Revenue recognition
                 -------------------

          Revenue from the sale of machinery  and equipment and raw materials is
          recognized when the merchandise is delivered to the customer.

          Revenue  from the sale of the  production  line on a  turn-key  basis,
          which is normally completed within a period of eight to twelve months,
          is  recognized  in full  in the  year  when  the  installation  of the
          production line is completed. The installation of a production line is
          considered  complete when all the significant costs have been incurred
          and all the machinery and equipment for the production  line have been
          delivered and installed.

          Revenue for design,  training and  consultancy  services is recognized
          when the service is rendered.

         (i)     Retirement benefits
                 -------------------

          The Group  participates  in a  defined  contribution  retirement  plan
          administered  by an insurance  company (the  "Retirement  Plan").  All
          staff  (except for PRC staff and  directors  of the  Company)  covered
          under the Retirement Plan are entitled to a monthly pension,  borne by
          the  insurance  company,  upon  their  retirement  equal  to  a  fixed
          proportion of their ending salary amount as at their  retirement.  The
          Group is required to make  contributions  to the Retirement  Plan at a
          rate  of 5% of  the  salaries  of  its  existing  staff,  and  is  not
          responsible  for  any  payments  beyond  the   contributions   to  the
          Retirement Plan as noted above. The retirement  benefit  contributions
          are charged to the statements of income as services are provided.

          Contributions  made to the Retirement Plan during the year ended March
          31, 1997,  the nine months ended  December 31, 1997 and the year ended
          December  31,  1998,   were   HK$32,375,   HK$47,504   and   HK$57,546
          respectively.

         (j)     Earnings per share
                 ------------------

          Effective   December  31,  1997,  the  Company  adopted  Statement  of
          Financial  Accounting Standard ("SFAS") No. 128, "Earnings Per Share",
          which  requires  the  Company  to change  the  method  used to compute
          earnings per share ("EPS") and to restate all prior periods presented.
          The  presentation  of primary and fully  diluted EPS has been replaced
          with basic and diluted EPS, respectively.  Basic earnings per share is
          computed   using  the  weighted   average   number  of  common  shares
          outstanding during the period. The computation of diluted earnings per
          share would include the dilutive  effect of  securities  that could be
          exercised or converted into common stock.  The Company has not entered
          into any transactions that would have a dilutive effect upon EPS.

          The  weighted  average  number of shares  outstanding  during the year
          ended March 31, 1997,  the nine months ended December 31, 1997 and the
          year  ended   December  31,  1998  was   26,000,000,   26,000,000  and
          62,568,767, respectively.

                                      F-12
<PAGE>

CHINA CONTINENTAL, INC.  AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3.   SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)

         (k)    Segment reporting
                -----------------

          In December 1998, the Company adopted SFAS No. 131, "Disclosures About
          Segments of an Enterprise  and Related  Information".  The adoption of
          this  standard   requires  that   reportable   segments  are  reported
          consistent  with how management  assesses  segment  performance.  This
          statement  requires  disclosure of certain  information  by reportable
          segment,  geographic  area and major  customer.  See Note 20, "Segment
          Information," for further  information.  As a result, the Company will
          separately  report   information  on  the  following  three  operating
          segments  :  automatic  production  lines  on a  turn-key  basis,  raw
          material  importer and reseller and  breeding  center  operations.  In
          determining the operating income of each segment,  certain general and
          corporate expenses are not allocated to operating segments.

         (l)     Use of estimates
                  ---------------

          The  preparation of  consolidated  financial  statements in conformity
          with US GAAP  requires  management to make  estimates and  assumptions
          that  affect  the  amounts  reported  in  the  consolidated  financial
          statements and  accompanying  notes.  Actual results could differ from
          those estimates.

         (m)     Reclassification
                 ----------------

          Certain balances in the prior years have been  reclassified to conform
          to the presentation used in the current year.

                                      F-13
<PAGE>


CHINA CONTINENTAL, INC.  AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


4.   FINANCIAL INCOME/(EXPENSES), NET

<TABLE>

                                                                              Nine months
                                                              Year ended        ended           Year ended
                                                               March 31,      December 31,      December 31,
                                                                 1997            1997              1998
                                                                  HK$             HK$               HK$
        <S>                                                  <C>               <C>              <C>

         Interest income                                       149,011           114,219           157,629
         Interest expense                                     (469,392)         (488,704)       (1,359,620)
         Bank charges                                         (105,378)          (68,366)          (73,226)
                                                            -----------       -----------     -------------
                                                              (425,759)         (442,851)       (1,275,217)
                                                            ===========       ===========     =============
</TABLE>



5.      OTHER INCOME/(EXPENSES), NET
<TABLE>
                                                                             Nine months
                                                              Year ended        ended            Year ended
                                                               March 31,     December 31,       December 31,
                                                                 1997           1997               1998
                                                                  HK$            HK$               HK$
        <S>                                                 <C>               <C>                <C>

         Commission and miscellaneous income                   369,836         3,736,733         3,615,700
         Foreign exchange gains/(losses), net                  446,139          (194,290)         (826,195)
         Associated companies written off                   (4,236,040)                -                 -
         Short-term investments written off                 (1,177,240)                -                 -
         Gains on disposal of short-term investments
               Cathay (Note 11)                                      -        10,434,579                 -
               Gain/Megaway (Note 11)                                -         7,688,000                 -
               Other                                                 -           609,196                 -
         Gains on disposal of fixed assets                           -           350,800                 -
                                                         -------------     -------------      ------------
                                                            (4,597,305)       22,625,018         2,789,505
                                                         =============     =============      ============
</TABLE>

                                      F-14

<PAGE>


CHINA CONTINENTAL, INC.  AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6.   INCOME TAXES

     The companies in the Group operate in several jurisdictions and are subject
     to taxes in those  jurisdictions.  Details  of the  related  provision  for
     income taxes are as follows:

<TABLE>

                                                                   Nine months
                                                   Year ended        ended             Year ended
                                                    March 31,      December 31,        December 31,
                                                      1997            1997                1998
                                                       HK$             HK$                 HK$
<S>                                             <C>               <C>               <C>

      Income/(loss) before income taxes:
          Hong Kong                                    507,446           177,843        (6,332,226)
          PRC                                      146,898,351       114,235,009       124,911,832
                                               ---------------   ---------------   ---------------
                                                   147,405,797       114,412,852       118,579,606

        Income tax provision:
         Current:
          Hong Kong                                   (169,634)       (2,157,306)          102,270
          PRC                                       20,704,956        12,158,000        22,297,048
                                                 -------------     -------------     -------------
                                                    20,535,322        10,000,694        22,399,318

         Deferred                                     (163,204)                -                 -
                                                 -------------     -------------     -------------
                                                    20,372,118        10,000,694        22,399,318
                                                 =============     =============     =============
</TABLE>


     It is management's intention to reinvest all the income attributable to the
     Company earned by its operations outside the United States. Accordingly, no
     United States  corporate income taxes have been provided in these financial
     statements.

     Under the current law of the British  Virgin  Islands,  any  dividends  the
     Group will  distribute  in the future,  and capital  gains arising from the
     Group's  investments  are not subject to income tax in the  British  Virgin
     Islands.

     Those companies  carrying on business in Hong Kong are subject to Hong Kong
     profits  tax on their  income  arising in or  derived  from Hong Kong after
     adjusting  for  income  and  expense  items  which  are not  assessable  or
     deductible  for profits tax  purposes.  As such,  current  income taxes are
     calculated  at a  statutory  tax rate of 16.5% on their  estimated  taxable
     income for the year.

     Companies with operations in the PRC are also subject to PRC income tax for
     income on services rendered therein.  The applicable effective tax rate for
     income derived from services rendered in that jurisdiction is approximately
     8.5%.

     At December 31, 1997 and December  31, 1998,  income tax payables  included
     foreign currency payables  equivalent to HK$73,483,206  (US$9,481,704)  and
     HK$96,487,847 (US$12,450,045), respectively.




                                      F-15
<PAGE>


CHINA CONTINENTAL, INC.  AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


6.   INCOME TAXES (continued)

     A  reconciliation  between the actual  income tax expense and income  taxes
     computed by applying the statutory Hong Kong tax rates to the income before
     income taxes is as follows:


<TABLE>

                                                                                 Nine months
                                                                  Year ended       ended          Year ended
                                                                   March 31,     December 31,     December 31,
                                                                     1997           1997            1998
                                                                      HK$            HK$             HK$
<S>                                                           <C>               <C>               <C>

Statutory Hong Kong tax rates
                                                                     16.5%             16.5%             16.5%

Computed expected tax expense                                  24,321,957        18,878,121        19,565,635
(Decrease) increase resulting from PRC tax
 at a different composite tax rate                             (4,587,807)       (7,699,316)          944,644
Adjustments for expense items which are not
  deductible for profits tax purposes:
   Share of (gain) loss in and provisions for diminutions
   in values of associated companies                              326,135           (94,644)          (63,680)
Other provisions                                                        -         2,154,306         1,952,719
Disposal of short-term investments                                      -        (3,090,743)                -
Others                                                            311,833          (147,030)                -
                                                            -------------     -------------     -------------
                                                               20,372,118        10,000,694        22,399,318
                                                            =============     =============     =============
</TABLE>


                                      F-16
<PAGE>


 CHINA CONTINENTAL, INC.  AND SUBSIDIARIES

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6.   INCOME TAXES (continued)

     Undistributed  earnings of the Company's non-U.S.  subsidiaries amounted to
     approximately  HK$632,000,000 at December 31, 1998.  Because those earnings
     are considered to be indefinitely  invested, no provision for United States
     corporate   income  taxes  on  those  earnings  has  been  provided.   Upon
     distribution  of those earnings in the form of dividends or otherwise,  the
     Company  would  be  subject  to  United  States   corporate  income  taxes.
     Unrecognized  deferred  United  States  corporate  income tax in respect of
     these  undistributed  earnings  at  December  31,  1998  was  approximately
     HK$215,000,000.

7.      TRADE RECEIVABLES, NET

<TABLE>

                                                              As of  December 31,     As of December 31,
                                                                      1997                    1998
                                                                      HK$                     HK$
<S>                                                            <C>                    <C>


Trade receivables                                                  45,023,083             72,002,050
Less: Provision for doubtful debts                                 (8,602,321)                     -
                                                                -------------          -------------

Trade receivables, net                                             36,420,762             72,002,050
                                                                 ============         ==============

Movements in provision for doubtful debts:
 Balance at beginning of year                                       8,602,321              8,602,321
Write-off against specifically reserved receivables*                        -             (8,602,321)
                                                                 ------------          -------------
 Balance at December 31                                             8,602,321                      -
                                                                 ============          =============
</TABLE>

*    In 1998,  management  determined that it should expend no further effort in
     the  collection of certain  fully  reserved  receivables.  It has therefore
     written off the allowance against these receivables.

8.   PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES, NET

<TABLE>


                                                                As of  December 31,    As of December 31,
                                                                       1997                  1998
                                                                       HK$                    HK$
<S>                                                            <C>                     <C>

Prepayments, deposits and other receivables                         9,916,507              4,747,901
Less: Provision for doubtful debts                                 (4,898,213)                     -
                                                                 ------------           ------------
Prepayments, deposits and other receivables, net                    5,018,294              4,747,901


Movements in provision for doubtful debts:
  Balance at beginning of year                                      4,898,213              4,898,213
Write-off against specifically reserved receivables*                        -             (4,898,213)
                                                                 ------------           ------------
  Balance at December 31                                            4,898,213                      -
                                                                 ============           ============

</TABLE>

*    In 1998,  management  determined that it should expend no further effort in
     the  collection of certain  fully  reserved  receivables.  It has therefore
     written off the allowance against these receivables.

                                      F-17
<PAGE>


CHINA CONTINENTAL, INC.  AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9.     FIXED ASSETS
<TABLE>

                                                         As of  December 31,       As of December 31,

                                                                 1997                      1998
                                                                  HK$                       HK$
<S>                                                     <C>                        <C>

Cost:
 Leasehold land and buildings, located in Hong Kong (1)      4,239,231                   4,239,231
 Furniture and fixtures                                        700,826                     700,826
 Office equipment                                              600,749                     603,484
 Motor vehicles                                              1,244,030                   1,244,030
                                                          ------------                ------------
                                                             6,784,836                   6,787,571

Less: accumulated depreciation                              (3,297,855)                 (3,631,691)
                                                          ------------                ------------
Net book value                                               3,486,981                   3,155,880
                                                          ============                ============
</TABLE>



(1)  Pledged to the Company's banker to secure facilities (See Note 16).

10.     INTERESTS IN ASSOCIATED COMPANIES

<TABLE>

                                                           As of December 31,           As of December 31,

                                                                1997                           1998
                                                                 HK$                            HK$
<S>                                                         <C>                           <C>

Unlisted investments, at cost                                  73,145,120                  73,145,120
Share of post-acquisition gains, net                            1,113,459                   1,909,454
Write off for diminutions in values                            (8,114,000)                 (8,114,000)
                                                            -------------               -------------
                                                               66,144,579                  66,940,574
Due from (to) associated companies, net                         2,909,059                    (322,493)
                                                            -------------               -------------
                                                               69,053,638                  66,618,081
                                                            =============               =============

Movement in provisions for diminutions in values:
   Balance at beginning of year                                 6,793,565                   8,114,000
Provisions for diminutions in value                             1,320,435                           -
                                                             ------------                ------------
   Balance at December 31                                       8,114,000                   8,114,000
                                                             ============                ============
</TABLE>



                                      F-18
<PAGE>

CHINA CONTINENTAL, INC.  AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10.  INTERESTS IN ASSOCIATED COMPANIES (continued)

     During the year ended  March 31,  1997,  the  Company  incurred  additional
     diminutions  in value in the remaining  interests in  associated  companies
     which reduced the carrying  value to zero.  Therefore,  no further share of
     post-acquisition  losses has been provided for during the nine months ended
     December 31, 1997 or the year ended December 31, 1998. The Group's share of
     the  post-acquisition  gains of associated  companies was  HK$1,113,459 and
     HK$795,995  for the nine months ended  December 31, 1997 and the year ended
     December 31, 1998, respectively.  The amounts due from associated companies
     are deemed to be collectible as of December 31, 1998.

     Details of the associated companies at December 31, 1998 were as follows:


<TABLE>

                                           Country of
                                          registration      Group's
                                              and           effective
         Name                             operations        holding         Principal activities
<S>                                      <C>               <C>              <C>
                                                               %
Panyu Panyi Chemical Industry                 PRC             30             Manufacturing and sale
& Commerce Co., Ltd.                                                         of PU resin

Shan Dong Linyi Modern                        PRC             35             Manufacturing and sale
Decorating Materials Co., Ltd.                                               of PVC floor tiles

Zhengzhou ZZZ Prime Hill                      PRC             20             Manufacturing and sale
Floppy Disk Co., Ltd.                                                        of computer floppy disks

Megaway Development
Limited (Acquired in April, 1997;           Western                          Holding company for company
See Note 11)                                Samoa             30             manufacturing polyester products

</TABLE>

11.  ACQUISITIONS AND DISPOSITIONS

     Pursuant to a sales and purchase  agreement dated December 20, 1996,  Sun's
     International,  a wholly owned  subsidiary  of the Group,  acquired  from a
     third party a 100% equity interest in Cathay Mercantile  (Overseas) Limited
     ("Cathay")  for a  consideration  of  HK$130  million.  There  was no  cash
     movement involved in this transaction.  Cathay was purchased by netting off
     the other receivable,  long-term receivable, amount due from a director and
     amount  due  from  a  related  company  of  HK$56,572,640,   HK$68,333,334,
     HK$4,280,000 and HK$814,026, respectively.

     Cathay's principal activity was investment holding and Cathay,  through its
     65.055%-owned  Hong Kong  incorporated  subsidiary,  Fast Pulse  Investment
     Limited,  held a 70% interest in a Sino-foreign  cooperative  joint venture
     engaging in property development in Beijing, the PRC.

     Based on a review of the fair value of the  interest  in Cathay,  primarily
     based on a valuation report on the land, the title of which was transferred
     to the joint venture,  performed by an independent  professional  valuer, a
     provision  in the amount of  HK$17,000,000  was made to reduce the carrying
     value of the other receivable to its estimated fair value of HK$113,000,000
     as of March 31, 1996. As of March 31, 1997, the estimated fair value of the
     interest in the property of  HK$113,000,000  was reclassified to short-term
     investments in the accompanying consolidated balance sheet. On December 23,
     1997,  Sun's   International  sold  the  100%  interest  in  Cathay  for  a
     consideration of approximately HK$123,435,000.

                                      F-19
<PAGE>


CHINA CONTINENTAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


11.  ACQUISITIONS AND DISPOSITIONS (continued)

     On April 2, 1997, the Group acquired a 30% interest in Megaway  Development
     Limited,  a company  owned by Mr.  Harry Ho. Mr. Ho has become the chairman
     and chief executive officer of the Company.  The principal asset of Megaway
     Development  Limited is a 60%  interest in Weifang  Great  Dragon  Chemical
     Fibre  Company  Limited  whose  principal  activity is the  manufacture  of
     polyester  tyre  cord  fabrics,   and   polyester/nylon   canvas.   Megaway
     Development  Limited was acquired in exchange for a trade  receivable  from
     China  (Fujian)  Foreign  Trade Centre  Holdings  Company  ("CFFTC") in the
     amount of HK$65,031,120.

     On June 21,  1996,  Sun's  International  obtained a 100%  interest in Gain
     Whole Limited for a consideration  of US$20,000,000  (HK$154,600,000)  as a
     partial  settlement for the same amount of the debt due from CFFTC, a major
     customer  of the Group.  The  principal  asset of Gain Whole  Limited was a
     certificate of deposit for an amount of US$20,000,000 (HK$154,600,000) with
     an authorized financial  institution in the PRC. The certificate of deposit
     was  valued at cost,  which  approximated  market and was  classified  as a
     short-term investment in the accompanying  consolidated balance sheet as of
     March 31, 1997.

     On August 28,  1997,  Sun's  International  sold its 100%  interest in Gain
     Whole  Limited for a  consideration  of a 100%  interest in Megaway  Resort
     Development  Limited,  a company owned by Mr. Harry Ho and  incorporated in
     the  British  Virgin  Islands.   The  principal  asset  of  Megaway  Resort
     Development  Limited is a 75% interest in Da Yu Edible Oil Co. Ltd., a Sino
     Singapore  joint venture  incorporated in the PRC. On December 3, 1997, the
     Group sold the 100% interest in Megaway  Resort  Development  Limited for a
     consideration of US$21,000,000 (HK$162,288,000).

     On December  23, 1997,  Sun's  International  acquired a 56.5%  interest in
     Wealthy Asia Limited (WAL) for US$52,000,000  (HK$403,364,486) in cash from
     Mr. Brian Ko. WAL had simultaneously  acquired 100% of Megaway  Agriculture
     Co. Ltd.  (Megaway) from Mr. Harry Ho for  US$92,000,000  (HK$713,644,828),
     with a cash payment of US$72,800,000 which was settled on December 31, 1997
     and a verbal  agreement to remit the  remainder  at some future  date.  The
     remainder  was settled on March 18, 1998  through the receipt of  9,900,000
     newly issued shares of China Continental, Inc. common stock.

     The following amounts represent the initial recording of this transaction:

                                                          Asset (Liability) HK$
                 Land lease rights                            1,358,514,000
                 Due from Harry Ho                               39,525,000
                 Due to Brian Ko                               (309,635,404)
                 Minority Interest                             (685,039,110)
                                                           ----------------
                 Cash Paid                                      403,364,486

     On February 10, 1998,  Sun's  International  acquired the  remaining  43.5%
     interest  in WAL  from  Mr.  Brian  Ko via the  issuance  of an  additional
     40,000,000  shares of stock in China  Continental,  Inc. of which 9,900,000
     shares were issued directly to Megaway Resort  Development  Ltd., a company
     owned by Mr. Harry Ho and incorporated in Western Samoa.


                                      F-20
<PAGE>

CHINA CONTINENTAL, INC.  AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11.  ACQUISITIONS AND DISPOSITIONS (continued)


     The  principal  asset  of  Megaway  is a 51%  interest  in  Chengde  Dafeng
     Agriculture  and Animal  Husbandry Co., Ltd.  (Chengde),  a  Sino-Singapore
     joint venture  incorporated in the PRC on December 3, 1997. Mr. Ho, through
     his prior ownership of Megaway, was an original party to the joint venture,
     with the remaining 49% interest being held by entities  associated with the
     Chinese  government.  Chengde has been established to run a breeding center
     to propagate Boer goats and other  livestock  breeds.  Chengde's  principal
     asset is 20,000 hectares or 49,400 acres of grassland located approximately
     250  kilometers  north of Beijing,  in the PRC.  Based upon an  independent
     appraisal dated July 30, 1998 by American Appraisal  Hongkong Limited,  the
     value  of  100%  of  Chengde  is  US$181,000,000  (HK$1,402,750,000)  as of
     December 31, 1997.

     Had the 40,000,000  shares of common stock been outstanding  throughout the
     periods  presented,  earnings per share would have been HK$1.92 and HK$1.58
     for the year ended March 31, 1997 and the nine months  ended  December  31,
     1997, respectively.


12.  BANK LOANS

     The import loans with banks carry  interest at 1% above the Hong Kong prime
     lending rate  (weighted  average of 8.9% and 10.9% per annum as of December
     31, 1997 and December 31, 1998, respectively). The import loans are usually
     repaid in three to six months, which is in accordance with the terms of the
     agreement.

     The bank overdrafts  carry interest at 3% above the Hong Kong prime lending
     rate (weighted average of 11.9% and 12.9% per annum as of December 31, 1997
     and December 31, 1998, respectively).

     During October 1997, the Company  borrowed and in turn loaned  HK$9,984,864
     to a company owned by a director,  Mr. Chan Kwai Chiu, in conjunction  with
     his purchase of a personal  residence.  The mortgage loan is secured by the
     residence and other  properties  owned by Mr. Chan Kwai Chiu with a cost of
     HK$17,800,000.   The  balance   remaining   as  of  December  31,  1998  is
     HK$9,895,208 and is payable as follows:

                                                                           HK$
                                                                   ------------

                               1999                                     119,171
                               2000                                     131,081
                               2001                                     143,734
                               2002                                     157,607
                               2003                                     172,820
                               2004                                     189,502
                               Remaining years                        8,981,293
                                                                   ------------
                                                                      9,895,208
                               Less current portion                    (119,171)
                                                                   ------------
                                                                      9,776,037


                                      F-21
<PAGE>

CHINA CONTINENTAL, INC.  AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13.  CONCENTRATION OF CREDIT RISKS

     Financial   instruments   which   potentially   subject   the  Group  to  a
     concentration  of credit risk principally  consist of cash deposits,  trade
     receivables, long-term receivable and the amounts due from and to directors
     and related companies.

     (i)  Cash deposits

          The Group places its cash deposits  with an  international  bank.  See
          Note 17.

     (ii) Trade receivables

          As  of  December  31,  1997  and  1998,   approximately  18%  and  0%,
          respectively,  of the  trade  receivable  balance  was due from  China
          (Fujian) Foreign Trade Centre Holdings Company,  a Chinese  Government
          controlled company.

     (iii) Amounts due from related companies (See Note 18)

          At December  31, 1997,  approximately  34%, 24% and 21% of the amounts
          due from related companies were due from New Skyland  Industrial Ltd.,
          Billion  Pearl  International  Limited and New  Skyland  International
          Ltd., respectively.

          At December  31, 1998,  approximately  24%, 18% and 46% of the amounts
          due from related companies were due from New Skyland  Industrial Ltd.,
          Billion  Pearl  International  Limited and New  Skyland  International
          Ltd., respectively.

          The Group does not have the policy of requiring collateral.

     (iv) Amounts due from and to directors (See Notes 11 and 18)

14.  FAIR VALUE OF FINANCIAL INSTRUMENTS

     The fair value of financial instruments are set out as follows:

     (i)  Cash deposits

          The cash deposits are stated at cost which approximates market value.

     (ii) Trade  receivables,  other  receivables and amounts due from directors
          and related companies

          Trade receivables,  other receivables and the amounts due from related
          companies and directors are stated at their book value less  provision
          for doubtful debts, which approximates the fair value.

     (iii) Bank import loans

          The carrying  amount of short-term  bank loans  approximates  the fair
          value because of the short maturity of these instruments.

     (iv) Accounts  payable and amounts due to related  companies  and directors
          are stated at their book value  which  approximates  their fair value.

                                      F-22
<PAGE>


CHINA CONTINENTAL, INC.  AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


15.  CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS

     The Group's operations are conducted in Hong Kong and the PRC. Accordingly,
     the Group's business,  financial condition and results of operations may be
     influenced by the political,  economic and legal  environments in Hong Kong
     and  the  PRC,  and by the  general  state  of the  Hong  Kong  and the PRC
     economies.

     Effective July 1, 1997, sovereignty over Hong Kong was transferred from the
     United  Kingdom to the PRC,  and Hong Kong became a Special  Administrative
     Region of the PRC (a "SAR").  As provided in the Basic Law of the Hong Kong
     SAR of the PRC, the Hong Kong SAR will have full economic  autonomy and its
     own  legislative,  legal and  judicial  systems  for 50 years.  The Group's
     management does not believe that the transfer of sovereignty over Hong Kong
     has  had  an  adverse  impact  on the  Company's  financial  and  operating
     environment.  There can be no assurance, however, that changes in political
     or other conditions will not result in such an adverse impact.

     The Group's operations in the PRC are subject to special considerations and
     significant risks not typically  associated with companies in North America
     and Western Europe.  These include risks associated with, among others, the
     political,  economic and legal  environments and foreign currency exchange.
     The Group's  results may be adversely  affected by changes in the political
     and social  conditions in the PRC, and by changes in governmental  policies
     with respect to laws and regulations,  anti-inflationary measures, currency
     conversion and remittance abroad, and rates and methods of taxation,  among
     other things.

     Currently, a large proportion of the Group's revenue comes from the sale of
     automatic  production  lines on a turn-key  basis with companies in the PRC
     (See Note 20). As such, those revenues are vulnerable to an increase in the
     level of competition  from overseas and domestic  suppliers and a change in
     the supply and demand relationship with those customers.

16.  BANKING FACILITIES

     The  Group  had  banking  facilities  of  approximately  HK$33,180,000  for
     mortgages,  overdrafts and trade finance.  Unused facilities as of December
     31, 1998 amounted to approximately HK$25,600,000.

     The banking facilities of the Group were secured by:

     i.   mortgages  over the Group's  leasehold  land and buildings  with a net
          book value of approximately HK$3,172,000.

     ii.  lien on a subsidiary's fixed deposits totaling HK$2,000,000.

     iii. personal guarantee by a director, Chan Kwai Chiu, up to HK$21,000,000.

     iv.  mortgages over  properties  held by a director,  Chan Kwai Chiu,  with
          purchase cost of approximately $17,800,000.






                                      F-23
<PAGE>

CHINA CONTINENTAL, INC.  AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


17.  FOREIGN CURRENCY EXCHANGE

     The Group has  substantial  transactions  with  customers  and  significant
     investments in associated  companies in the PRC. Both the customers and the
     associated  companies may settle their debts and distribute their dividends
     outside the PRC. The  remittances are subject to control because RMB is not
     freely convertible into foreign  currencies.  The majority of the Company's
     bank  balances as of December  31, 1997 and 1998 were in RMB. The amount of
     debts  due  from  customers  in the PRC  subject  to  control  amounted  to
     HK$35,191,812   and   HK$71,309,250   at   December   31,  1997  and  1998,
     respectively.

     On January 1, 1994, the PRC government introduced a single rate of exchange
     as  quoted  daily by the  People's  Bank of China  (the  "Unified  Exchange
     Rate").

     The quotation of the exchange rates does not imply free  convertibility  of
     RMB into  Hong  Kong  dollars  or other  foreign  currencies.  All  foreign
     exchange  transactions  continue to take place  either  through the Bank of
     China or other banks  authorized to buy and sell foreign  currencies at the
     exchange  rates quoted by the People's  Bank of China.  Approval of foreign
     currency  payments  by the Bank of China  or  other  institutions  requires
     submitting a payment  application  form together with suppliers'  invoices,
     shipping documents and signed contracts.


18.  ADDITIONAL RELATED PARTY BALANCES AND TRANSACTIONS

     The Group's  amounts due from/(to)  directors and related  companies  owned
     and/or   controlled  by  a  director,   Chan  Kwai  Chiu,   are  unsecured,
     interest-free and are repayable on demand. See also Note 12.

     In the normal  course of business,  some of the  companies in the Group are
     engaged in the set-up of automatic production lines on a turn-key basis for
     its associated companies. Other than the above-mentioned transactions,  the
     companies  also arrange for the sale of raw  materials to these  associated
     companies.  Amounts of revenues  from the sales of raw  materials  to these
     associated companies are summarized as follows:

<TABLE>

                                                                  Nine months
                                                Year ended           ended            Year ended
                                                 March 31,        December 31,        December 31,
                                                 1997                1997                1998
                                                  HK$                 HK$                 HK$
      <S>                                      <C>                <C>                <C>

         Sales to associated companies:
             Raw materials                     19,699,783         12,357,168         11,953,242
                                               ==========         ==========         ==========

Any unrealized  profits arising from these  transactions  were eliminated in the
consolidated  financial  statements  to the extent of the Group's  interests  in
these associated companies.






                                      F-24
<PAGE>

CHINA CONTINENTAL, INC.  AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

19.  CONTINGENCIES AND COMMITMENTS

     During 1998 the Company entered into an agreement with an unrelated  entity
     to provide public  relations and promotional  services for the Company.  In
     accordance  with the  agreement  the  entity is to be issued  stock for all
     services provided. A portion of the agreement is contingent upon the firm's
     ability to raise  capital  and obtain a listing  for the Company on certain
     stock  exchanges  in the United  States.  Attainment  of these  goals could
     result in the  issuance of up to an  additional  to 1.6  million  shares of
     common stock to the firm. See Note 21.

     The Group had contracts with a related company  controlled by Mr. Chan Kwai
     Chiu in the PRC to purchase  office premises to be developed by the related
     company for HK$21,700,000.  At December 31, 1998,  HK$5,000,000,  which was
     grouped  under other  assets,  had been paid as a deposit for the  purchase
     with the remainder being payable upon receipt of the title certificates for
     the office premises.

20.  SEGMENT INFORMATION

     The Company performs in the three following  operating segments : Automatic
     production  lines on a turn-key  basis,  raw materials and breeding  center
     operations.  In determining the operating  income of each segment,  certain
     other  expenses  such as income  taxes,  administrative,  financial,  other
     (income)  expense  and  shares  of gains of  associated  companies  are not
     allocated to operating segments.

     The following  table reflects the results of the segments  consistent  with
     the Company's management system.


                                                                 Nine Months
                                                  Year ended         ended         Year ended
                                                   March 31,     December 31,      December 31,
                                                     1997           1997              1998
                                                      HK$             HK$              HK$
<S>                                              <C>              <C>              <C>

         Sales
          Automatic production lines             247,666,944      145,436,500       254,247,430
          Raw materials                           21,017,296       14,682,789        12,353,242
          Breeding center                                  -                -        18,506,627
                                             ---------------  ---------------   ---------------
          Total sales                            268,684,240      160,119,289       285,107,299
                                             ===============  ===============   ===============
         Operating Income (Loss)
          Automatic Income                       156,020,592       91,605,000       160,358,850
          Raw Income                               1,058,501        5,368,427         1,689,518
          Breeding                                         -                -       (30,651,824)
                                             ---------------  ---------------   ---------------
         Total operating income                  157,079,093       96,973,427       131,396,544

         Less : General corporate expenses         4,650,232        5,856,201        15,127,221
                    Financial expense                425,759          442,851         1,275,217
                    Other (income) expense         4,597,305      (22,625,018)       (2,789,505)
                    Share of gains of associated
                    companies                              -       (1,113,459)         (795,995)
                                             ---------------  ---------------   ---------------
         Income before income taxes              147,405,797      114,412,852       118,579,606
                                             ===============  ===============   ===============

</TABLE>

                                      F-25
<PAGE>

CHINA CONTINENTAL, INC.  AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


20.  SEGMENT INFORMATION (continued)

Operating Segment Data

<TABLE>

                                                        Identifiable            Capital         Depreciation
                                                           Assets            Expenditures      & amortization
                                                            HK$                   HK$                HK$
<S>                                                    <C>                  <C>               <C>

Year ended March 31, 1997:
Automatic production lines                               260,872,259                 -                 -
Raw materials                                              2,579,789                                   -
Breeding center                                                    -                 -                 -
Other                                                              -            15,080           620,313
                                                     ---------------      ------------        ----------
                                                         263,452,048            15,080           620,313
                                                     ---------------      ------------        ----------
Nine months ended December 31, 1997:
Automatic production lines                               170,354,856                 -                 -
Raw materials                                              3,467,445                                   -
Breeding center                                         1,358,514,000      403,364,486                 -
Other                                                              -            14,856           442,894
                                                    ---------------- -----------------        ----------
                                                       1,532,336,301       403,379,342           442,894
                                                    ---------------- -----------------        ----------
Year ended December 31, 1998:
Automatic production lines                               346,447,370                 -                 -
Raw materials                                                728,610                 -                 -
Breeding center                                        1,327,305,671                 -        33,962,849
Other                                                              -             2,736           333,837
                                                    ---------------- -----------------    --------------

                                                       1,674,481,651             2,736        34,296,686
                                                    ---------------- -----------------    --------------
</TABLE>

Reconciliation to Total Assets As Reported
<TABLE>

                                                                           Nine months
                                                        Year ended           ended           Year ended
                                                        March 31,         December 31,      December 31,
                                                          1997               1997              1998
                                                           HK$                HK$               HK$
<S>                                                    <C>             <C>               <C>

ASSETS :
Total reportable segments - identifiable assets        263,452,048     1,532,336,301     1,674,481,651
Unallocated amounts:
  Cash                                                      71,590            13,896             8,096
  Prepayments, deposits and other receivables          271,577,777         5,613,775         3,235,373
  Due from related parties                              17,983,640        73,636,911        74,049,644
  Plant and other property and equipment                 4,094,219         3,486,981         3,155,880
  Interests in associated companies                      2,292,154        69,053,638        66,618,081
  Other                                                  7,000,000         7,000,000         5,000,000

                                                    -------------- -----------------    -----------------
Total Consolidated Assets                              566,471,428     1,691,141,502     1,826,548,725
                                                    ============== =================    =================
</TABLE>


                                                        F-26
<PAGE>

CHINA CONTINENTAL, INC.  AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


20.  SEGMENT INFORMATION (continued)

     Substantially all of the Group's activities consist of assembling and sales
     of  production  lines on a turn-key  basis.  Substantially  all the Group's
     sales  are made to  customers  in the  PRC.  The  sales to other  customers
     consist  of  sales  relating  to the  raw  materials  and  breeding  center
     segments.

     Sales by Major Customers

<TABLE>

                                                                       Sales
                                                  -------------------------------------------------
                                                                     Nine months                        Accounts
                                                  Year ended           ended          Year Ended       Receivable
                                                   March 31,        December 31,      December 31,     December 31,
                                                      HK$               HK$               HK$             HK$
                                                  -----------     ---------------   --------------   ---------------
         <S>                                     <C>              <C>               <C>              <C>
          China (Fujian) Foreign Trade
          Centre Holdings Company ("CFFTC")       30,842,448                -                 -                 -
          Kin Heng Xin Investment &
              Development Company Limited        128,292,528       85,870,000        83,414,430        42,445,430
          Shenzhen San Gao Enterprises
              Company Limited (Shenzhen)          88,531,968       59,566,500        88,276,600        28,863,820
          Chit Tat Industrial Development Limited          -                -        82,556,400                 -
          Others                                  21,017,296       14,682,789        30,859,869           692,800
                                             ---------------  ---------------   ---------------    --------------
                                                 268,684,240      160,119,289       285,107,299        72,002,050
                                             ===============  ===============   ===============    ==============
</TABLE>


21.  ADDITIONAL NON-CASH TRANSACTIONS

     1997
     ----

     During the year  ended  March 31,  1997,  HK$17,935,678  of trade  accounts
     payable  were paid  directly  by  directors  on behalf of the  Company  and
     HK$21,625,232  of trade  accounts  receivable  were  received  directly  by
     directors. The net activity of these transactions was posted to the amounts
     due to directors in the accompanying consolidated balance sheets.

     1998
     ----

     On August 12, 1998,  1,400,000  shares of stock were issued in exchange for
     public relation  services.  The stock was issued at US$.50 per share, which
     approximates  trading  value at that date.  Total public  relation  service
     expense recorded in relation to this transaction was HK$5,411,000. See Note
     19.

     On  September  30,  1998,  1,600,000  shares  of stock  were  issued to two
     directors  of the  Company  to settle  amounts  due to them.  The stock was
     issued at US$.42 per share, which approximates  trading value at that date.
     The total reduction to due to directors in relation to this transaction was
     HK$5,263,105.

     Harry Ho,  assumed On  December  31,  1998,  pursuant  to a signed  written
     agreement with the Company,  the Company's Chairman,  Mr.  HK$17,534,193 of
     the Company's accrued  liabilities.  Mr. Ho then contributed his assumption
     of those liabilities to additional paid-in capital.



                                      F-27
<PAGE>


CHINA CONTINENTAL, INC.  AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


21.  ADDITIONAL NON-CASH TRANSACTIONS (continued)


     During 1998,  High Glad Industries  Limited filed for  dissolution  (strike
     off) in Hong  Kong.  In  order to file  for  strike  off,  all  assets  and
     liabilities  must be removed from the books.  The following  non-cash items
     were transferred to a Company director, Mr. Chan Kwai Chiu.


                                                                      HK$

                 Other assets - deposit                          (2,000,000)
                 Amounts due to Mr. Chan Kwai Chiu                1,326,777
                 Accounts payable and accrued expenses              673,223
                                                                ------------
                 Total                                                    -


22.  YEAR 2000 ISSUES (UNAUDITED)

     Many computer systems were not designed to handle any dates beyond the year
     1999  and,  therefore,  computer  hardware  and  software  will  need to be
     modified prior to the year 2000 in order to remain functional;  this is the
     so called "Year 2000" problem. The Company does not believe it has material
     exposure with respect to Year 2000 issues.  The Company currently  utilizes
     commercially produced hardware and software packages that were purchased to
     be Year  2000-compliant.  The Company  does not rely on any one supplier or
     vendor for its goods and services, so the failure of any supplier or vendor
     with Year 2000 problems to convert its systems on a timely basis should not
     have a material effect on the Company's  business,  financial condition and
     results of operations.  Software and hardware,  such as  telecommunications
     and office automation  systems that facilitate  operations of the Company's
     locations and corporate  headquarters comprise the Company's primary non-IT
     systems and were likewise purchased or upgraded to be Year 2000-compliant.

     Additionally,  the Company is currently  communicating with its significant
     customers to determine the extent to which the Company may be vulnerable to
     their failure to remedy their own Year 2000 issues. The Company anticipates
     that it will complete this  investigation by October 1999, at which time it
     will assess the need to formulate any necessary  contingency  plans to deal
     with Year 2000 issues relating to customers, if any. Although the Company's
     IT and non-IT systems were  represented as being Year  2000-compliant  when
     purchased or  upgraded,  there can be no  guarantee  that the Company,  its
     customers or other third party business associates will not experience Year
     2000 compliance  difficulties which could have a material adverse effect on
     the Company's business, results of operations and financial condition.



                                      F-28