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, 1999


[ ]  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 of                (IRS Employer Identification No.)
 incorporation or organization)


    4010-12 Convention Plaza Office Tower, 1 Harbour Road, Wanchai Hong Kong.
               (Address of principal executive offices) (Zip Code)

Registrant Telephone Number, Included Area Code : 011-852-2507-2211

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$38,873,984
<PAGE>

     At of  December  31,  1999,  99,000,000  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 $46,411,200

                      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..............................     4
         ITEM 2. DESCRIPTION OF PROPERTIES............................     9
         ITEM 3. LEGAL PROCEEDINGS....................................     9
         ITEM 4. SUBMISSION OF MATTERS TO A VOTE
                 OF SECURITY HOLDERS..................................     9


PART II

         ITEM 5. MARKET FOR COMMON EQUITY AND
                 RELATED STOCKHOLDER MATTERS..........................   10
         ITEM 6. SELECTED FINANCIAL DATA..............................   10
         ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF
                 OPERATION............................................   13
         ITEM 7A QUANTITATIVE AND QUALIFICATION DISCLOSURE
                 ABOUT MARKET RISK....................................   18
         ITEM 8  FINANCIAL STATEMENTS AND SUPPLEMENTARY
                 DATA.................................................   18
         ITEM 9  CHANGES IN AND DISAGREEMENTS ON ACCOUNTING
                 AND FINANCIAL DISCLOSURE.............................   18

PART III

         ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
                  REGISTRANT..........................................   18
         ITEM 11. EXECUTIVE COMPENSATION..............................   18
         ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
                  OWNERS AND MANAGEMENT ..............................   21
         ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY
                  TRANSACTION.........................................   21
PART IV

         ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
                  REPORTINGS ON FORM 8-K..............................   22


                  SIGNATURES..........................................   23

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


                                       3
<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 20 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 the Company's sales are to plastic manufacturers
in the People's Republic of China ("PRC" or "China").  The Company has completed
approximately  82 turn-key  projects  throughout  the PRC,  varying in size from
$300,000 to $5 million United States dollars.  Eight turn-key  projects had been
completed  during the calendar year 1999 averaging  US$4.5 million per contract.
Typically turn-key projects require four to eight months to complete,  depending
on their size and  complexity.  The  installation  and maintenance of production
lines are  handled  jointly  by the  original  equipment  manufacturers  and the
Company.  To strengthen its revenue base and diversify its business  activities,
the  Company  has  contracted  to  purchase  Dong Wu Bio Tech  Farm in  Northern
Mongolia.  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 . Beginning in
2000,  the Company will import  semen and embryos of  Australian  livestock  for
implantation  into  local  recipients.  The sheep from the first  generation  of
offspring  will be selected and  propagated  at Dong Wu Bio Tech Farm which will
then be sold in Mainland China.

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.


                                       4
<PAGE>


Sale of Turn-key Plastic Production Lines

     In the  1990's,  the  Group  began  marketing  on a  turn-key  basis  fully
automated  production  lines to plastic product  manufacturers in the PRC. 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  approximately  82
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 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  obtained  from the  customers,  such as the  particulars  of the
plastic products, the packaging format, the intended maximum production capacity
and the layout of the factory  premises.  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
engineers  of the  Company  to  ensure  quality  and that  they  meet  specified
requirements.  Turn-key projects usually have warranties ranging from six months
to one year during  which  repairs and  maintenance  are provided by the Company
free of charge.

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 sale of  turn-key  plastic
production lines.

Principal Suppliers

     The  Company  acquires  its  machinery  and plastic  materials  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, 1999,  the Company  employed a sales and  administrative
staff of 14  persons  in Hong Kong and a  technical  staff of  approximately  40
persons in the PRC.

Competition

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

                                       5
<PAGE>


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 National
People's Conference.

     In 1999, facing  complicated  political and economic  circumstances at home
and aboard,  China enacted policy  measures to increase input and expand demand.
The net result of these  initiatives  was a 7.1% increase in the gross  domestic
product.

     Although the domestic  political and economic situation in the PRC and Asia
is still  complicated,  it has  improved to some  degree  over 1999.  In the PRC
market  consumption  is steady.  Since the 4th quarter of 1999,  retail sales of
consumer  goods  have   increased   while   deflation  has  moderated.   As  the
international  economy improves and the Asian economies recover,  China's import
and export business have also  recovered.  Since the second half of 1999 exports
are up substantially.

     For  2000,  the steps of reform  in PRC  state  owned  enterprises  will be
further accelerated.  With the adjustment of strategic distribution in the state
owned economy and the  implementation  of strategic  reshuffling  in state owned
enterprises,  the economic  efficiency of state owned enterprises will hopefully
be improved.

     The economic re-development of Western China has also begun Construction of
infrastructure  including  acceleration of the construction of the main lines of
the national  railroad and provincial trunk lines has begun as has the expansion
of facilities for transporting  water to Western China. Both the jobs created by
the infrastructure  development and those resulting from it should help economic
development  in Western China and the PRC. China is targeting a 7.5% increase in
its gross domestic production for the current year.


                                       6
<PAGE>


FUTURE PROSPECT OF THE COMPANY

     During the 1990s,  the Company began to market fully  automated  production
lines on a  turnkey  basis to  plastic  product  manufacturers  in the  People's
Republic  of China  ("PRC" or  "China").  These  turnkey  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 also owns a minority  interest in Weifang Great Dragon Chemical
Fiber Company Limited  ("Weifang")  which was purchased in April,  1997 for US$8
million  in cash.  The  principal  activity  of  Weifang  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.  The
Company  intends to acquire  additional  shares in Weifang Great Dragon Chemical
Fiber  Company  Limited with the  ultimate  objective of having it listed on the
Stock Exchange of Singapore.

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

     Despite being the most populous nation and the largest  livestock  producer
in the world, China lacks high quality livestock and hybred seeds to sustain its
agricultural  industry.  Unless new emphasis is placed on optimizing  the use of
land and livestock, economic self-sufficiency cannot be achieved.

     The  Company  believes  that 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
both its Chinese  and  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 Dong Wu Bio-Tech Farm. The farm is located in Northern  Mongolia.
The emphasis of the Company is to lead,  focus and manage a selected high growth
emerging business 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.


                                       7
<PAGE>

     The Company believes that there are a number of favorable factors that will
enable  it to  achieve  its  objectives,  including,  but  not  limited  to  the
following:

     *    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  size of land;
          and

     *    The  strong  support  from its  Chinese  and  international  partners,
          ensuring  that  it  is a  position  to  exploit  existing  and  future
          opportunities in agricultural genetics.

     A highly  qualified  team of five genetic  professors has been recruited by
the Company to establish and initially manage 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.  Research and development teams 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:

     *    Support  the Chinese  Government's  Grain  Conservancy  Policy for the
          development of pasture fed animals such as sheep, goats and cattle as,
          unlike pigs so that they do not compete for grains with humans;

     *    Produce  superior  breeding  livestock  to improve  China's  livestock
          population; and

     *    Provide red meat for a population of 1.4 billion people.

     The proposed  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 by 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 contracted 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  500,000 head of sheep and goats and 40,000 head of
cattle  yearly.  High quality brand  products will then be  distributed  both in
China and  worldwide.  The Company  will 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.

     In summary,  this proposed project will propagate  breeding  livestock and,
when practicable,  the Company will consider,  establishing a seed division. The
purpose of the seed division will be to improve  China  agricultural  production
through quality  genetics.  The seed industry is a rapidly  developing  industry
undergoing decentralizing government control and regulation. 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 a lack of facilities,  a poor  distribution  system,  inadequate  testing
labs, technology and machinery.

                                       8
<PAGE>

     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  cashflow 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  is located in Hong Kong at 4010-12
Convention Plaza,  Office Tower, 1 Harbour Road,  Wanchai,  the Company occupies
these facilities under a two year lease.

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

     The farm for which the  Company  has  contracted,  Dong Wu Bio Tech Farm is
located in the People's Republic of China.

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

                                       9
<PAGE>

                                     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.OB",  the following  table sets forth the high
and low bid price per share for the  Company's  common stock for each  quarterly
period.

                               1999                              1998
                         -----------------               --------------------
                         High          Low               High             Low

First Quarter            0.75          0.328             1.03             0.50
Second Quarter           0.703         0.203             1.156            0.563
Third Quarter            0.563         0.188             0.984            0.516
Fourth Quarter           1.50          0.313             1.00             0.50

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

Holders

     At December 31, 1999 there were approximately 340 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.

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.

                                       10
<PAGE>
<TABLE>

                                   Year      Year      Nine      Year      Year
                                   Ended     Ended     Months    Ended     Ended
                                                       Ended
                                   Dec 31    Dec 31    Dec 31    Dec 31    Dec 31
                                   1999      1998      1997      1997      1996
                                  --------  --------  --------  --------  --------
<S>                              <C>        <C>       <C>       <C>       <C>

Income Statement Data:
Automatic production lines         36,434    $32,806   $18,815   $31,957   $34,897
Raw materials                         670      1,594     1,846     2,782     3,451
Breeding center                     1,770      2,388         0         0         0
                                  --------   --------  -------   -------   -------
Total sales                        38,874     36,788    20,661    34,759    38,348
Cost of sale                       14,674     14,284     8,335    14,290    15,228
                                  --------   --------  -------   -------   -------
Gross profit                       24,200     22,504    12,325    20,469    23,120
Depreciation of fixed assets       (3,897)    (4,841)     (386)      (80)      (64)
Selling and administrative
expenses                           (1,205)    (2,395)     (510)     (959)   (1,249)
(Provision) Recovery for
doubtful accounts                    (675)      (681)        0       289    (1,217)
Financial income (expenses), net     (126)      (165)      (57)      (55)      (73)
Other income (expenses) net            (9)       360     2,919      (595)   (2,518)
Gain on disposal of Wealthy Asia
Limited                            11,431
Share of income/(loss) of
associated companies                    0        103       144         0      (235)
Income before income tax           29,719     14,885    14,435    19,069    17,764
Income taxes                        3,114      2,890     1,290     2,635     2,742
                                  --------   --------  -------   -------   -------
Income before minority interest    26,605     11,995    13,145    16,434    15,022
                                  --------   --------  -------   -------   -------
Minority interest                   1,631      2,114         0         0         0
                                  --------   --------  -------   -------   -------
Income for the year                28,236     14,109    13,145    16,434    15,022
                                  --------   --------  -------   -------   -------
Net income per share                 0.37       0.23      0.50      0.63      0.58
                                  --------   --------  -------   -------   -------
Weighted average shares
outstanding                        75,904     62,306    26,000    26,000    26,000
                                  --------   --------  -------   -------   -------
</TABLE>

                                       11
<PAGE>

                                 Year      Year      Nine      Year      Year
                                 Ended     Ended     Months    Ended     Ended
                                                     Ended
                                 Dec 31    Dec 31    Dec 31    Dec 31    Dec 31
                                 1999      1998      1997      1997      1996
                                -------  --------  --------  --------  --------
Balance Sheet Data at period end

Working capital (decifit)      (14,678)   35,938   (26,392)   55,784    (8,048)
                              --------- --------- ---------  --------  --------
Total Assets                   188,941   253,269   218,447    73,282    53,773
                              --------- --------- ---------  --------  --------
Long-term Liabilities            1,245     1,261         0         0        21
                              --------- --------- ---------  --------  --------
Shareholders Equity            164,737   128,543    70,694    57,516    40,713
                              --------- --------- ---------  --------  --------

     The  Company  changed its  financial  year end date to December in 1997 and
accordingly 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.

                                                 Year ended December 31
                                         --------------------------------------
                                          1999          1998             1997
                                         audited       audited         unaudited
                                         -------       -------         ---------
Income Statement Data

Automatic production lines               36,434        $32,806         $21,759
Raw materials                               670          1,594           2,364
Breeding Center                           1,770          2,388               0
                                        --------      ---------        --------
Sales                                    38,874         36,788          24,123
Cost of sale                             14,674         14,284           8,042
                                        --------      ---------        --------
Gross profit                             24,200         22,504          16,081
Depreciation of fixed assets             (3,897)        (4,841)           (402)
Selling and administrative expenses      (1,205)        (2,395)           (556)
(Provision) Recovery for doubtful
 accounts                                  (675)          (681)            289
Financial Income (Expenses) net            (126)          (165)            (91)
Other Income (Expenses) net                  (9)           360           2,304
Gain on disposal of Wealthy Asia
Limited                                  11,431
Share of income /(losses) of
associated companies                          0            103             201
Income before income tax                 29,719         14,885          17,826
                                        --------      ---------        --------
Income taxes                              3,114          2,890           2,683
                                        --------      ---------        --------
Income before minority interest          26,605         11,995          15,143
                                        --------      ---------        --------
Minority interest                         1,632          2,114               0
                                        --------      ---------        --------
Net income                               28,236         14,109          15,143
                                        --------      ---------        --------
Net income per share                       0.37           0.23            0.60
                                        --------      ---------        --------
Weighted average shares outstanding      75,904         62,306          26,000
                                        --------      ---------        --------

                                       12
<PAGE>

                                                Year ended December 31
                                               -------------------------
                                               1999        1998         1997
                                              audited     audited      audited
                                             ---------   ---------    ---------
Balance Sheet Data (At Year End)

Working capital                              (14,678)     35,938      (26,392)
                                            ---------   ---------    ---------
Total assets                                 188,941     253,269      218,447
                                            ---------   ---------    ---------
Long term liabilities                          1,245       1,261            0
                                            ---------   ---------    ---------
Shareholders Equity                          164,737     128,543       70,694
                                            ---------   ---------    ---------

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

Twelve months ended December 31,1999 versus Twelve months ended December 31,1998
--------------------------------------------------------------------------------
Revenues

     Revenues increased by US$2,086,000 or 5.60% to US$38,874,000 for the twelve
months  ended  December  31, 1999 from  US$36,788,000  for the prior year.  This
increase  is  principally  attributable  to an  increase in the sale of turn-key
projects by  US$3,628,000,  which was partially offset by a decrease in the sale
of raw materials by US$924,000 and in breeding center income of 618,000.

Cost of revenues/sales

     Cost of sales of turn-key projects includes cost of machinery purchased and
the  salaries and wages paid to engineers  and  consultants.  For the year ended
December 31, 1999, cost of sales as a percentage of revenue on turn-key projects
was 36.40%, representing a decrease of 2.40% from 38.80% for the prior year. The
decrease is mainly attributable to the decrease in the cost of materials..


                                       13
<PAGE>

Depreciation of Fixed Assets

     Depreciation  expense  decreased by US$944,000 or 19.5% to US$3,897,000 for
the year ended  December  31, 1999 from  US$4,841,000  for the prior  year.  The
decrease was  attributable  to the sale of the farm located in Chengde Dafeng in
October, 1999.

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$1,190,000 or
49.68%  to  US$1,205,000  for the year  ended  December  31,  1999  compared  to
US$2,395,000 for the prior year. The decrease resulted because the Company spent
less on financial and other public relations during 1999.

Provision for doubtful accounts

     The  provision  for  doubtful  accounts  decreased  by  US$6,000  or  1% to
US$675,000  for the year ended  December 31, 1999 from  US$681,000 for the prior
year.  Generally,  uncollectible  accounts  as a percent of  receivable  remains
fairly constant.

Financial Income (Expense) Net

     Financial   income/   (expense)  is  interest   earned  on  cash  and  cash
equivalents, less interest expense. Net financial expense decreased by US$39,000
or 23.36% to US$126,000 for the year ended December 31, 1999 from US$165,000 for
the prior year. This decrease is attributable to a decrease in bank borrowing.

Other Income

     Other income increased by US$11,062,000 or 3,072% to US$11,422,000  for the
year ended  December  31, 1999 from  US$360,000,000.  The increase can mainly be
accounted for by the gain on the disposal of the Company's  subsidiary,  Wealthy
Asia Limited of US$11,431,000. The major asset of Wealthy Asia Limited was a 51%
holding  in  Chengde  Dafeng  Agriculture  and  Animal  Husbandry  Co.  Ltd.,  a
Sino-Singapore  joint venture  incorporated in the Peoples' Republic of China on
December 3, 1997.

Gain on disposal of Wealthy Asia Limited

     The gain on disposal of Wealthy Asia Limited amounted to US$11,431,000. The
major  asset of  Wealthy  Asia  Limited  was a 51%  holding  in  Chengde  Dafeng
Agriculture  and Animal  Huabandry  Co. Ltd.,  a  Sino-Singapore  joint  venture
incorporated in the People's Republic of China on December 3, 1997.

                                       14
<PAGE>

Income taxes

     Income  taxes for the year ended  December  31,1999  were  US$3,114,000  or
16.65% of pre-tax income.  This compares with  US$2,890,000 or 18.89% of pre-tax
income for calendar year 1998. The tax rate was lower for 1999 because a portion
of the income was classified as capital gains which are not subject to tax.

Net Income

     Net  income  increased  by  US$14,127,000  or  100% to  US$28,236,000  from
US$14,109,000 for the year ended December 31, 1999. The increase is attributable
to an increase in sales of US$ 2,086,000 and the gain on the sale of the farm of
US$11,431,000.  The  increase of which is  partially  offset by the  increase in
provision for bad and doubtful debts.

Twelve Months Ended  December 31, 1998 versus  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 attributable to an increase in the sale of turn-key projects of
US$11,000,000  and the sale of the breeding center for  US$2,388,000  which were
partially offset by a decrease in sale of raw materials.

Cost of revenues/sales

     The cost of sales  of  turn-key  projects  includes  the cost of  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 on
turn-key  projects was 38.82%,  representing a increase of 5.48% from 34.34% for
the prior  year.  The  increase  is  attributable  to an increase in the cost of
materials..

Depreciation of Fixed Assets

     Depreciation  expense  increased by  US$4,439,000 or 1,104% to US$4,841,000
for the year ended  December 31, 1998 from  US$402,000  for the prior year.  The
increase in depreciation  expense is attributable  due to the acquisition of the
farm for US$175,292,130 which 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 by the Company to 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 attributable to additional  costs
incurred by the Company for financial  public relations and related expenses and
the increases associated with higher revenues.

                                       15
<PAGE>

Provision for doubtful accounts

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

Financial Income (Expense) Net

     Financial   income/   (expense)  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.

                                       16
<PAGE>

Other income/(expenses)

     Other income  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  resulted
because of the gain on the sales 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  an
additional  loss 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 in  percentage  is due to the fact that
there  was a charge  back of an  income  tax  provision  during  the year  ended
December 31, 1997. In addition,  certain  income  derived  during the year ended
December 31, 1997 was considered as a capital gain and was not subject to income
tax.

Net Income

     Net  income  decreased  by  US$1,034,000  or  6.83% to  US$14,109,000  from
US$15,143,000 for the year ended December 31, 1998. The decrease is attributable
to the increase in depreciation and selling expenses which were partially offset
by the increase in revenue.

Liquidity and capital resources

     At December 31, 1999, the Company had working  capital of  (US$14,678,000),
including a cash balance of  US$870,000.  This compares to a working  capital of
US$35,938,000 and a cash balance of US$35,668,000 at December 31, 1998.

     Net cash provided by operating  activities  increased to US$25,355,000 from
US$18,751,000  for the prior year.  The cash  provided by  operating  activities
consisted  principally of  US$24,317,000  of net income,  an increase in gain on
disposal of subsidiary,  an increase amount due to director,  and an increase in
income tax payable.

     Net cash used in investing  activities  totaled  US$60,070,000 for the year
ended  December 31, 1999  compared to US$2,000  for the year ended  December 31,
1998.  In both years the Company had nominal  purchase of fixed  assets,  in the
year ended December 31, 1997, the Company used US$159,600,000 as deposit for the
purchase of  investment in land.  This was  partially  offset by the proceeds on
disposal of the subsidiary.

     Net cash used in  financing  activities  totaled  US$(83,000)  for the year
ended  December  31,1999.  Net cash provided by financing  activities  consisted
principally  of net repayments  which were partially  offset by advances of bank
overdrafts.

                                       17
<PAGE>

     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  other than for the purchase of the farm to meet  ordinary
capital requirements for the foreseeable future.

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.

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
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)   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.

                                       18
<PAGE>

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.

                                    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                    50   Chairman of the Board and Chief Executive
                                      Officer
Jia Ji Shang                     46   Vice-Chairman of the Board and Director
Ji Jun Wu                        61   Director
Kim Yong Soh                     50   Director
Tan Sri (Dr.) M. Ghazali Shafie  62   Senior Advisor
Dr. Li Yan                       45   Director
Kwai Chiu Chan                   42   Director
Eric Ng                          40   Secretary/Treasurer/ Chief Financial
                                      Officer and Director
Ian Macdonald                    46   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 31,1999.

 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

                          1999         108,000


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

                   Apr. 1,1997 to
                  Dec.31, 1997         103,500          8,625
                          1998               0              0

                          1999               0              0

                                       19
<PAGE>

     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.

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  over  10  years  of  commercial  experience  in
international  trade,  particularly  in food  products.  In 1989 he  established
Megaway Group which 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  foods.  Since  1990,  Mr. Ho has been
involved  in China  Trade  and 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 over 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,  is the  President  of China
operation of Megaway Group. He has over 40 years of commercial experience. Since
establishing  the open economy in 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 honory citizen.

     Mr. Kim Yong SOH is a non  executive  director of the Company.  He holds an
honory degree in systems and  engineering  from Nanyang  University of Singapore
and a master degree in systems and engineering from the University of Singapore.
He has over 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  engaging  in property  development,  building
construction,   tourism   industry,   and  electronic   components  and  general
investments.

                                       20
<PAGE>

     Tan Sri (Dr.) M. Ghazali  SHAFIE is a former  minister in the government of
Malaysia  and 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,  majoring
in Biochemistry and is the Technical Director of the Company. She is responsible
for developing  researching and supplying technologies in agricultural genetics.
She  has  over 10  years  of  experience  in the  research  and  development  of
agricultural   genetics  and  has  received   numerous  honors  for  outstanding
achievements based on her research.

     Mr. Chan Kwai Chiu is a director of the Company. Mr. Chan has over 16 years
experience  in the  plastic  products  industry,  including  more  than 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.

     Mr.  Eric Ng joined the  Company  in 1992 as Chief  Financial  Officer  and
Secretary is  responsible  for the financing  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  various  merger and  acquisitions  of listed
companies in Hong Kong. He has over 10 years experience in auditing, finance and
administration.

     Mr.  Ian  Macdonald  is  the  Technical  Adviser  of the  Company.  He is a
recognised  international  authority on goat, deer and sheep  reproduction  with
over 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  a  clients   merchandising   abilities  both
domestically  and  internationally.  In the early days of 1980's when goat semen
and embryo collection technology was in its infancy, Ian Macdonald was in charge
of training more than 300 Artificial Insemination (AJ) technicians  specifically
for goat reproduction.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following  table sets forth as of April 30, 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.

                                       21
<PAGE>

                                             Amount and Nature of
                                             Beneficial Ownership    Percentage
Name and Address (1) of Beneficial Owner     Shares                   of Class
----------------------------------------     --------------------    ----------
Chan Kwai Chiu                               9,100,000                   9.19%
Charter Score Development Limited            1,000,000                   1.00%
Land Cheer Investment Limited                2,600,000                   2.62%
Allington International Inc.                48,090,000                  48.57%
                                           -----------                 --------
All officers and directors as a group (one) 60,790,000                  61.38%

(1)  Address for all persons and  entities is 4010-12  Convention  Plaza  Office
     Tower,  1 Harbour  Road,  Wanchai,  Hong  Kong and all  shares  are  deemed
     beneficially owned by Harry H.H. Ho.

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.
Other than the above-mentioned transactions,  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:
<TABLE>

                            Year Ended                            Year Ended       Year Ended
                            March 31,       April 1, 1997 to     December31,      December 31,
                            1997            December 31,1997        1998             1999
                            -----------     ----------------     -----------      ------------
<S>                         <C>             <C>                  <C>              <C>

Sales to joint ventures:
         Raw materials      US$2,548,484     US$1,594,473         US$1,542,354     USD669,976
</TABLE>


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% ownership 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).

                                       22
<PAGE>

     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 which  US$9,200,000  was paid at closing,  with the
remainder  in the form of a verbal  receivable  which was  subsequently  settled
through  payment of US$  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 was established to operate 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.

                                     PART IV

ITEM 14. 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


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

Dated: May    2000
          ----

                                       23
<PAGE>

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


----------------
Harry H.H. Ho      Chairman of the Board and Chief
                   Executive Officer                           May     2000

----------------
Jia Ji Shang       Vice- Chairman and Director                 May     2000


----------------
Ji Jun Wu          Director                                    May     2000


----------------
Kim Yong Soh       Director                                    May     2000


----------------
Dr. Li Yan         Technical Director                          May      2000


----------------
Chan Kwai Chiu     Director                                    May      2000


----------------
Eric Ng            Secretary/Treasurer/ Chief
                   Financial Officer and Director
                                                               May      2000

                                       24
<PAGE>
                                                                     Pages
                                                                     ------


Report of Independent Auditors                                            F-2

Consolidated Balance Sheets                                        F-3 to F-4

Consolidated Statements of Income                                         F-5

Consolidated Statements of Changes in Stockholders' Equity                F-6

Consolidated Statements of Cash Flows                              F-7 to F-8

Notes to Consolidated Financial Statements                        F-9 to F-28



                                       F-1

                         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,  1998 and 1999,  and the related  consolidated  statements  of
income, changes in stockholders' equity and cash flows for the nine months ended
December  31,  1997 and the  years  ended  December  31,  1998 and  1999.  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 financial position of China Continental,
Inc. and  subsidiaries  as of December  31, 1998 and December 31, 1999,  and the
results  of their  operations  and their cash  flows for the nine  months  ended
December  31,  1997 and for the years  ended  December  31,  1998 and  1999,  in
conformity with generally accepted accounting principles.

As described in Note 11, the Company  entered into certain  transactions  during
1997-98,  ultimately with its current and former  chairmen.  These  transactions
have  significantly  impacted the  Company's  business  plan,  liquid assets and
common  stockholder  interests.  In  addition,  the Company  has entered  into a
significant acquisition in 1999, for which government approvals are expected but
not yet obtained.  Appropriate disclosures have been made and our opinion is not
qualified in this respect.


                                         s\Blackman Kallick Bartelstein, LLP

Chicago, Illinois
May 23, 2000

                                       F-2


                    CHINA CONTINENTAL, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                     December 31, 1998 and December 31, 1999



                                     ASSETS
<TABLE>

                                                             December 31,        December 31,
                                                                1998                1999              1999
                                                 Notes           HK$                HK$                US$
                                                -------      ------------        ------------      -----------
<S>                                             <C>          <C>                 <C>               <C>

CURRENT ASSETS
   Cash and bank balances                                    276,424,018         6,743,618          870,144
   Trade receivables, net of provisions of
    HK$0 at December 31, 1998
    and 1999                                     7, 17        72,002,050        57,433,900        7,410,826
   Prepayments, deposits and other
    receivables                                      8         4,747,901             8,540            1,102
                                                            -------------   ---------------   --------------

TOTAL CURRENT ASSETS                                         353,173,969        64,186,058        8,282,072




DEPOSIT ON INVESTMENT IN LAND HOLDING
  COMPANY                                           11                 -     1,323,966,245     170,834,354
FIXED ASSETS                                         9         3,155,880         3,026,841         390,560
INTERESTS IN ASSOCIATED
 COMPANIES, net of accumulated
   amortization of HK$5,766,000 and
    HK $8,984,000 at December 31, 1998 and 1999     10        60,852,081        57,956,574       7,478,268
LAND LEASE RIGHTS, net of
 accumulated amortization of
 HK$33,962,849 at December 31,
 1998                                               11     1,324,551,151                 -               -
AMOUNTS DUE FROM DIRECTORS                          18        40,604,397                 -               -
AMOUNTS DUE FROM RELATED                         18,21
 COMPANIES                                                    10,000,845        10,164,655       1,311,569
OTHER ASSETS                                        19         5,000,000         5,000,000         645,161
                                                            -------------   ---------------   --------------



TOTAL ASSETS                                               1,797,338,323     1,464,300,373     188,941,984
                                                           ==============   ===============   ==============
</TABLE>


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

                                      F-3

<PAGE>
                     CHINA CONTINENTAL, INC. AND SUBSIDARIES

                     CONSOLIDATED BALANCE SHEETS (Continued)

                     December 31, 1998 and December 31, 1999



                      LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>

                                                           December 31,     December 31,
                                                              1998             1999              1999
                                                 Notes         HK$              HK$               US$
                                                -------    ------------     ------------       --------
<S>                                             <C>        <C>              <C>                <C>

CURRENT LIABILITIES
    Bank overdrafts                                12       3,886,228       3,955,635           510,405
    Bank import loans                              12       3,588,515       2,988,375           385,597
    Secured bank loan                              12         119,171         134,845            17,399
    Income taxes payable                                   96,487,847     118,448,796        15,283,716
    Amounts due to directors                       18      10,677,359      25,969,348         3,350,884
    Amounts due to related parties                 18       4,992,059       4,508,262           581,711
    Accounts payable and accrued liabilities               28,950,400      21,931,631         2,829,888
                                                         -------------   -------------     -------------
TOTAL CURRENT LIABILITIES                                 148,701,579     177,936,892        22,959,600

LONG-TERM LIABILITIES
    Secured bank loan                              12       9,776,037       9,647,634         1,244,855
                                                         -------------   -------------     -------------
TOTAL LIABILITIES                                         158,477,616     187,584,526        24,204,455
                                                         -------------   -------------     -------------
MINORITY INTEREST                                  11     668,650,418               -                 -
                                                         -------------   -------------     -------------
STOCKHOLDERS' EQUITY

    Common stock, par value US$0.001 per share:
    Authorized:
    1,000,000,000 shares;
    Issued and outstanding
    69,000,000 and 99,000,000
    as of December 31, 1998 and 1999,
     respectively                                             535,190         767,690           99,057
    Additional paid-in capital                            350,868,297     438,310,094       56,556,141
    Retained earnings                                     618,806,802     837,638,063      108,082,331
                                                         -------------   -------------     -------------

TOTAL STOCKHOLDERS' EQUITY                                970,210,289   1,276,715,847      164,737,529
                                                         -------------   -------------     -------------

TOTAL LIABILITIES AND STOCKHOLDERS'
 EQUITY                                                1,797,338,323    1,464,300,373      188,941,984
                                                       ===============  ==============     =============

</TABLE>


                                       F-4
<PAGE>

                    CHINA CONTINENTAL, INC. AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME

              For the Nine Months Ended December 31, 1997, and the
                     Years Ended December 31, 1998 and 1999
<TABLE>


                                                Nine Months
                                                   Ended         Year Ended
                                               December 31,      December 31,         Year Ended December 31,
                                                   1997             1998              1999             1999
                                     Notes          HK$              HK$               HK$              US$
                                    -------    -------------    --------------      --------------------------
<S>                                 <C>        <C>              <C>                 <C>               <C>

SALES
   Related parties                    18        12,357,168      11,953,242         5,192,312        669,976
   Others                                      147,762,121     273,154,057       296,081,066     38,204,008
                                             --------------  --------------    --------------  -------------
                                               160,119,289     285,107,299       301,273,378     38,873,984

COST OF SALES                                  (64,600,231)   (110,702,213)     (113,725,185)   (14,674,217)
                                             --------------  --------------    --------------  -------------
GROSS PROFIT                                    95,519,058     174,405,086       187,548,193     24,199,767

DEPRECIATION AND
 AMORTIZATION                                   (2,990,894)    (37,514,686)      (30,203,531)    (3,897,230)

SELLING AND ADMINISTRATIVE
 EXPENSES                                       (3,958,938)    (18,558,469)       (9,341,156)    (1,205,310)

PROVISION FOR DOUBTFUL DEBTS                             -      (5,280,608)       (5,231,361)      (675,014)

FINANCIAL INCOME/(EXPENSES),
 NET                                     4        (442,851)     (1,275,217)         (979,546)      (126,393)

OTHER INCOME/(EXPENSES),
 NET                                     5      22,625,018       2,789,505           (67,493)        (8,709)

GAIN ON DISPOSAL OF WEATHY
  ASIA LIMITED                          11               -               -        88,591,608     11,431,175

SHARE OF GAINS OF
 ASSOCIATED COMPANIES                   10       1,113,459         795,995                 -              -
                                              --------------  --------------    --------------  -------------
INCOME BEFORE INCOME TAXES                     111,864,852     115,361,606       230,316,714     29,718,286

INCOME TAXES                             6     (10,000,694)    (22,399,318)      (24,128,390)    (3,113,341)
                                              --------------  --------------    --------------  -------------
INCOME BEFORE MINORITY
  INTEREST                                     101,864,158      92,962,288       206,188,324     26,604,945

LOSS ALLOCATED TO
 MINORITY INTEREST                                       -      16,388,692        12,642,937      1,631,347
                                              --------------  --------------    --------------  -------------
NET INCOME                                     101,864,158     109,350,980       218,831,261     28,236,292
                                              ==============  ==============    ==============  =============
EARNINGS PER SHARE                3(j), 11            3.92            1.75              2.88            .37
                                              ==============  ==============    ==============  =============

</TABLE>

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

                                       F-5

<PAGE>
                    CHINA CONTINENTAL, INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

               For the Nine Months Ended December 31, 1997 and the
                     Years Ended December 31, 1998 and 1999
<TABLE>

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

Balance at December 31, 1997                 202,800     13,356,985       532,900,224       546,460,009

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                       22    10,822      5,400,178                 -         5,411,000

Issuance of 1,600,000 shares
 on September 30, 1998 at
 US$.42 per share                       22    12,368      5,250,737                 -         5,263,105

Assumption of liabilities
 on December 31, 1998 and
 contribution to capital                22         -     17,534,193                 -        17,534,193

Deemed dividend to
  Mr. Chan Kwai Chui                    21         -              -       (23,444,402)      (23,444,402)

Net income                                         -              -       109,350,980       109,350,980
                                            ---------  -------------     --------------    --------------

Balance at December 31, 1998                 535,190    350,868,297       618,806,802       970,210,289

Issuance of 30,000,000 shares on
 October 9, 1999 at US$0.37 per
 share                                  11   232,500     86,730,000                 -        86,962,500

Assumption of liabilities on
 December 31, 1999 and
 contribution to capital                22         -        711,797                 -           711,797

Net income                                         -              -       218,831,261       218,831,261
                                            ---------  -------------     --------------    --------------
Balance at December 31, 1999                 767,690    438,310,094       837,638,063     1,276,715,847
                                            =========  =============     ==============   ===============
</TABLE>



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

                                       F-6
<PAGE>

                    CHINA CONTINENTAL, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

               For the Nine Months Ended December 31, 1997 and the
                     Years Ended December 31, 1998 and 1999
<TABLE>

                                                Nine Months
                                                   Ended      Year Ended
                                                December 31,  December 31,     Year Ended December 31,
                                                   1997          1998          1999             1999
                                                    HK$           HK$           HK$              US$
                                               -------------  ------------    --------------------------
<S>                                            <C>            <C>             <C>               <C>


CASH FLOWS FROM OPERATING
 ACTIVITIES:
Net income                                      101,864,158   109,350,980    218,831,261     28,236,292
Adjustments to reconcile net income to
 net cash provided by operating activities:
    Gains on disposal of fixed assets              (350,800)            -              -              -
    Depreciation and amortization                 2,990,894    37,514,686     30,203,531      3,897,230
    Provision for doubtful debts and
     diminution in values of investments
     and associated companies                             -     5,280,608      5,231,361        675,014
    Share of gains of associated companies       (1,113,459)     (795,995)             -              -
    Gains on disposal of short-term
     investments                                (18,731,775)            -              -              -
    Gain on disposal of subsidiary                        -             -    (88,591,608)   (11,431,175)
Loss allocated to minority interest                       -   (16,388,692)   (12,642,937)    (1,631,347)
Stock issued for public relation services                 -     5,411,000              -              -
(Increase)/decrease in assets:
    Trade receivables and long-term receivable     (674,702)  (36,167,309)    12,972,409      1,673,859
    Prepayments and deposits                     (1,635,998)     (598,127)       580,238         74,869
    Amounts due from related companies           (6,143,407)   (2,186,764)      (454,342)       (58,625)
    Amounts due from associated companies          (616,905)      262,249     (2,380,923)      (307,216)
    Amounts due from directors                            -    (2,102,195)     1,079,397        139,277
Increase/(decrease) in liabilities:
    Amounts due to directors                      2,562,096     8,712,447     15,425,445      1,990,380
    Amounts due to related parties                        -      (724,021)      (483,797)       (62,425)
    Accounts payable and accrued liabilities     (2,621,277)   14,974,220     (6,421,135)      (828,533)
    Income taxes payable                          9,428,109    22,780,444     23,155,052      2,987,749
                                                ------------- ------------   ------------    -----------

Net cash provided by operating activities        84,956,934   145,323,531    196,503,952     25,355,349
                                                ------------- ------------   ------------    -----------

</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 Nine Months Ended December 31, 1997 and the
                     Years Ended December 31, 1998 and 1999

<TABLE>
                                                Nine Months
                                                   Ended         Year Ended
                                               December 31,     December 31,         Year Ended December 31,
                                                   1997             1998              1999             1999
                                                    HK$              HK$               HK$              US$
                                              --------------   ---------------      --------------------------
<S>                                         <C>                <C>               <C>              <C>

CASH FLOWS FROM
 INVESTING ACTIVITIES
   Deposit on investment in land                       -                 -       (1,237,003,745)  (159,613,387)
   Purchase of land lease rights            (403,364,486)                -                    -              -
   Purchase of fixed assets                      (14,856)           (2,736)                   -              -
   Proceeds from disposal of fixed assets        530,000                 -                    -              -
   Proceeds from disposal of short-term
    investments                              286,331,775                 -                    -              -
   Proceeds from disposal of subsidiary                -                 -          771,462,855     99,543,595
                                           ---------------      ------------     ---------------- --------------
Net cash used in investing activities       (116,517,567)           (2,736)        (465,540,890)   (60,069,792)
                                           ---------------      ------------     ---------------- --------------
CASH FLOWS FROM FINANCING
 ACTIVITIES
   Net borrowings (repayments) under
    bank import loans                          2,415,365        (6,890,020)            (600,140)       (77,438)
   Net repayments of bank loans                        -           (89,656)            (112,729)       (14,546)
   Advances of bank overdrafts                 3,814,245            71,983               69,407          8,956
                                           ---------------      ------------     ---------------- --------------
Net cash provided by /(used in)
 financing activities                          6,229,610        (6,907,693)            (643,462)       (83,028)
                                           ---------------      ------------     ---------------- --------------
NET (DECREASE)/INCREASE IN
 CASH AND BANK BALANCES                      (25,331,023)      138,413,102         (269,680,400)   (34,797,471)

Cash and bank balances, at beginning
 of period                                   163,341,939       138,010,916          276,424,018     35,667,615
                                           ---------------      ------------     ---------------- --------------
Cash and bank balances, at end of period     138,010,916       276,424,018            6,743,618        870,144
                                           ===============     =============     ================ ==============
SUPPLEMENTARY CASH FLOWS
 DISCLOSURES:
   Interest paid                                488,704         1,275,217             1,834,429        236,701
                                           ===============     =============     ================ ==============
   Income taxes paid                            572,585           256,629               973,338        125,592
                                           ===============     =============     ================ ==============

</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 (struck off in 1998),
     Prime Hill Investment  Limited  (dormant),  Prime View  Industrial  Limited
     (dormant), Danbury Inc., Winkler Holdings Inc. (struck off in 1998), 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 and its majority owned subsidiary  (Acquired and
     disposed of in August, 1997, and December, 1997, respectively; See Note 11)
     Wealthy  Asia  Limited   (disposed  of  in  October  1999;   see  Note  11)
     (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,   owned  51%  of  a  joint  venture  known  as  Chengde  Dafeng
     Agriculture and Animal  Husbandry Co., Ltd., which was established to run a
     breeding  center to propagate Boer goats and other  livestock  breeds.  See
     Note 11.

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.

                                       F-9
<PAGE>
7
                    CHINA CONTINENTAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


3.   SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Continued)

     (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.

     (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, 1998 and 1999, cash and cash  equivalents  included foreign
     currency  deposits   equivalent  to  HK$275,138,120   (US$35,501,693)   and
     HK$6,694,810 (US$863,846), 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 were stated at cost less  accumulated
     amortization.  Amortization  of land  lease  rights was  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 was 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".


                                      F-10
<PAGE>


                    CHINA CONTINENTAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


3.   SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Continued)

     (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$") for the
     convenience  of the reader has been made at the single  rate of exchange on
     December 31, 1999 of US$ 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, 1999 or at any other date.

     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,  livestock  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 the nine months ended
     December  31, 1997 and the years  ended  December  31, 1998 and 1999,  were
     HK$47,504, HK$57,546 and HK$13,923, respectively.



                                      F-11
<PAGE>

                    CHINA CONTINENTAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



3.   SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Continued)

     (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 nine months
     ended December 31, 1997 and the years ended December 31, 1998 and 1999 were
     26,000,000, 62,568,767, and 75,904,110, respectively.

     (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-12
<PAGE>

                    CHINA CONTINENTAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


4.   FINANCIAL INCOME/(EXPENSES), NET

                                       Nine months
                                         Ended      Year Ended     Year Ended
                                      December 31,  December 31,  December 31,
                                          1997         1998           1999
                                           HK$          HK$            HK$
                                      ------------  ------------  ------------

         Interest income                114,219       157,629       890,625
         Interest expense              (488,704)   (1,359,620)   (1,834,429)
         Bank charges                   (68,366)      (73,226)      (35,742)
                                      -----------  -----------   ------------
                                       (442,851)   (1,275,217)     (979,546)

5.   OTHER INCOME/(EXPENSES), NET
<TABLE>

                                                      Nine months
                                                         Ended       Year Ended    Year Ended
                                                     December 31,   December 31, December 31,
                                                         1997           1998          1999
                                                          HK$            HK$           HK$
                                                     ------------   ------------ -------------
        <S>                                          <C>           <C>           <C>


         Commission and miscellaneous income          3,736,733     3,615,700         4,630
         Foreign exchange gains/(losses), net          (194,290)     (826,195)      (72,123)
         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             -             -
                                                    ------------   -----------    -----------
                                                     22,625,018     2,789,505       (67,493)
                                                    ============   ===========    ===========
</TABLE>


                                      F-13
<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
                                                    Ended        Year Ended      Year Ended
                                                December 31,    December 31,    December 31,
                                                    1997            1998            1999
                                                     HK$             HK$             HK$
                                                -------------   -------------   -------------
       <S>                                    <C>              <C>              <C>


         Income/(loss) before income taxes:
           Hong Kong                              177,843      (6,332,226)       (8,396,983)
           PRC                                111,687,009     121,693,832       238,713,697
                                             -------------   --------------    --------------
                                              111,864,852     115,361,606       230,316,714
                                             =============   ==============    ==============
         Income tax provision:
         Current:
           Hong Kong                           (2,157,306)        102,270             9,698
           PRC                                 12,158,000      22,297,048        24,118,692
                                             -------------   --------------    --------------
                                               10,000,694      22,399,318        24,128,390
                                             =============   ==============    ==============
</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, 1998 and  December  31, 1999 income tax  payables  included
     foreign currency payables  equivalent to HK$96,487,847  (US$12,450,045) and
     HK$118,448,796 (US$15,283,716), respectively.


                                      F-14

<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
                                                                 Ended        Year Ended       Year Ended
                                                             December 31,     December 31,    December 31,
                                                                 1997            1998             1999
                                                                  HK$             HK$              HK$
                                                            --------------   --------------   -------------
       <S>                                                <C>               <C>               <C>

         Statutory Hong Kong tax rates                           16.5%           16.5%              16.5%

         Computed expected tax expense                     18,457,701      19,034,665         38,002,257
         (Decrease) increase resulting from PRC tax
          at a different composite tax rate               (7,699,316)         944,644        (14,732,455)
         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    (94,644)        (63,680)                 -
           Other provisions                                2,574,726       2,483,689            530,971
         Disposal of short-term investments               (3,090,743)              -                  -
         Others                                             (147,030)              -            327,617
                                                         -------------   ------------      -------------
                                                          10,000,694      22,399,318         24,128,390
                                                         =============   ============      =============
</TABLE>

     Undistributed  earnings of the Company's non-U.S.  subsidiaries amounted to
     approximately  HK$838,000,000 at December 31, 1999.  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,  1999  was  approximately
     HK$293,000,000.



                                      F-15
<PAGE>


                    CHINA CONTINENTAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


7.   TRADE RECEIVABLES, NET
<TABLE>

                                                                            As of            As of
                                                                        December 31,      December 31,
                                                                            1998             1999
                                                                             HK$              HK$
                                                                        ------------      ------------
          <S>                                                          <C>                <C>

          Trade receivables                                             72,002,050        57,433,900

          Less: Provision for doubtful debts                                     -                 -
                                                                      -------------      ------------
          Trade receivables, net                                        72,002,050        57,433,900
                                                                      =============      ============
          Movements in provision for doubtful debts:
               Balance at beginning of year                              8,602,321                 -
               Write-off against specifically reserved receivables*     (8,602,321)                -
                                                                      -------------      ------------
          Balance at December 31                                                 -                 -
                                                                      =============      ============
</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           As of
                                                                     December 31,    December 31,
                                                                         1998            1999
                                                                          HK$             HK$
                                                                     ------------    -------------
         <S>                                                          <C>            <C>

          Prepayments, deposits and other receivables                  4,747,901          8,540
          Less: Provision for doubtful debts                                   -              -
                                                                      -----------       ---------
          Prepayments, deposits and other receivables, net             4,747,901          8,540
                                                                      ===========       =========
          Movements in provision for doubtful debts:
               Balance at beginning of year                            4,898,213              -
               Write-off against specifically reserved receivables*   (4,898,213)             -
                                                                      -----------       ---------
          Balance at December 31                                               -              -
                                                                      ===========       =========
</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-16

<PAGE>

                    CHINA CONTINENTAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


9.   FIXED ASSETS
<TABLE>

                                                                                  As of            As of
                                                                               December 31,    December 31,
                                                                                  1998             1999
                                                                                   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                                                  603,484           603,484
               Motor vehicles                                                  1,244,030         1,244,030
                                                                            --------------     -------------
                                                                               6,787,571         6,787,571

          Less: accumulated depreciation                                      (3,631,691)       (3,760,730)
                                                                            --------------     -------------
          Net book value                                                       3,155,880         3,026,841
                                                                            ==============     =============
</TABLE>

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


10.  INTERESTS IN ASSOCIATED COMPANIES
<TABLE>

                                                                                  As of            As of
                                                                               December 31,    December 31,
                                                                                  1998             1999
                                                                                   HK$              HK$
                                                                              --------------   -------------
         <S>                                                                 <C>               <C>
          Unlisted investments, at cost                                       73,145,120         73,145,120
          Share of post-acquisition gains, net                                 1,909,454          1,909,454
          Write off for diminutions in values                                 (8,114,000)        (8,114,000)
          Accumulated amortization                                            (5,766,000)        (8,984,000)
                                                                            --------------     -------------
                                                                              61,174,574         57,956,574

          Due to associated companies, net                                      (322,493)                 -
                                                                            --------------     -------------
                                                                              60,852,081         57,956,574
                                                                            ==============     =============
          Movement in provisions for diminutions in values:
               Balance at beginning of year                                    8,114,000          8,114,000
          Provisions for diminutions in value                                          -                  -
                                                                            --------------     -------------
               Balance at December 31                                          8,114,000          8,114,000
                                                                            ==============     =============
</TABLE>



                                      F-17

<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,
     except for Megaway Development Limited, 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 years
     ended December 31, 1998 and 1999. The Group's share of the post-acquisition
     gains of associated companies was HK$1,113,459, HK$795,995 and HK$0 for the
     nine months ended  December 31, 1997 and the years ended  December 31, 1998
     and 1999, respectively.

     Details of the associated companies at December 31, 1999 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

         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>


     (1) The  excess  of cost  over the  underlying  net  assets  at the date of
     acquisition in the amount of approximately HK$48,271,000 is being amortized
     over  fifteen  years,  using the  straight-line  method.  The  amortization
     expense was HK$2,548,000,  HK$3,218,000 and HK$3,218,000 for 1997, 1998 and
     1999, respectively.

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-18
<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-19

<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$1.58 for the nine
     months ended December 31, 1997.

     On October 4, 1999, Sun's International sold its 100% interest in WAL to an
     unrelated third party for a consideration of  approximately  HK$773,127,341
     (US$100,000,000).

     The following amounts represent the noncash portion of this transaction:

             Cash disposed of with sale of subsidiary$     HK$     1,664,486
             Accounts receivable                                   1,338,318
             Prepayments, deposits and other                       1,214,953
             Amounts due from directors                           39,525,000
             Land lease rights, net                              613,158,926
             Income taxes payable                                   (627,103)
             Accounts payable and accrued liabilities               (267,099)
             Minority interest                                  (656,007,481)
                                                               ---------------
                                                           HK$             -
                                                               ===============

     On October 9, 1999,  the Company  initiated the purchase of a 100% interest
     in Battonic Co., Ltd. for a consideration of US$160,000,000  and 30,000,000
     shares of stock in the  Company.  The shares were valued at  US$11,250,000,
     based upon the trading value of the shares on this date. The cash and stock
     were both transferred to the seller, an unrelated individual, on that date.
     Subsequently, that individual became an employee of the Company.

     The  principal  asset of  Battonic  Co.,  Ltd.  is a 100%  interest in East
     Wu-Zhu-Mu-Qin Banner Green Demonstration Farm (Banner). The principal asset
     of Banner is a 100% interest in Dongwu Demonstration Farm (Dongwu).  Dongwu
     has been  established to run a breeding  center to propagate Boer goats and
     other livestock  breeds.  Dongwu's  principal asset is the right to use 156
     square  miles of land  located in Inner  Mongolia for 25 years from July 1,
     1999 to July 1, 2024. Based upon an independent appraisal dated October 20,
     1999  by  Vigers  Hong  Kong  Limited,  the  value  of 100%  of  Dongwu  is
     US$361,772,645 (HK$2,803,738,000).

     Had the 30,000,000  shares of common stock been outstanding  throughout the
     periods  presented,  earnings per share would have been HK$1.87 and HK$1.22
     for the nine months ended December 31, 1997 and the year ended December 31,
     1998, respectively.



                                      F-20
<PAGE>



                    CHINA CONTINENTAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11.  ACQUISITIONS AND DISPOSITIONS (Continued)

     In the PRC, an investment such as Dongwu is not legally  transferable until
     all of the appropriate  levels of governmental  authority have approved the
     transaction. However, according to an outside legal opinion obtained by the
     Company, governmental procedures for the official change have commenced and
     such  procedures  are in  accordance  with  the  relevant  PRC laws and the
     transfer  of  title  ownership  is  deemed  to be  achievable  through  the
     commenced  procedures.  At December 31, 1999,  this  investment had not yet
     been properly approved. The company is therefore appropriately carrying the
     funds expended as a deposit on investment in land. The company is confident
     that all necessary  approvals will be obtained.  In the unlikely event that
     the  transaction  is not approved,  the company would take steps to rescind
     the shares issued and to recover the cash deposit.

12.  BANK LOANS

     The import loans with banks carry  interest at 1% above the Hong Kong prime
     lending rate  (weighted  average of 10.9% and 9.5% per annum as of December
     31, 1998 and December 31, 1999, 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 13.9% and 12.5% per annum as of December 31, 1998
     and December 31, 1999, 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,  1999  is
     HK$9,782,479 and is payable as follows:

                                                                    HK$
                                                                  -------
                2000                                               134,845
                2001                                               143,734
                2002                                               157,607
                2003                                               172,820
                2004                                               189,502
                2005                                               207,793
                Remaining years                                  8,776,178
                                                                -----------
                                                                 9,782,479
                Less current portion                              (134,845)
                                                                -----------
                                                                 9,647,634
                                                                ===========



                                      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) Amounts due from related companies (See Note 18)

     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.

     At December  31,  1999,  approximately  24%, 18% and 49% of the amounts due
     from related companies were due from New Skyland  Industrial Ltd.,  Billion
     Pearl   International   Limited   and  New  Skyland   International   Ltd.,
     respectively.  These  amounts have been fully  reserved for at December 31,
     1999. See Note 10.

     The Group does not have the policy of requiring collateral.

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

     (iv) Deposit on investment in land holding company (See Note 11)

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  ("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, 1999 amounted to approximately HK$16,450,000.

     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$3,027,000.

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

     iii. personal  guarantee  by  a  director,   Mr.  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, 1998 and 1999 were in RMB. The amount of
     debts  due  from  customers  in the PRC  subject  to  control  amounted  to
     HK$71,309,250   and   HK$57,433,900   at   December   31,  1998  and  1999,
     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,  Mr.  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:

                                         Nine months
                                            Ended      Year Ended   Year Ended
                                        December 31,  December 31, December 31,
                                            1997          1998         1999
                                             HK$           HK$          HK$
                                        -------------  ----------- ------------
         Sales to associated companies:
              Raw materials              12,357,168    11,953,242   5,192,312
                                        ============  ============ ===========

     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 was 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  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, 1999,  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.

<TABLE>

                                                        Nine months
                                                           Ended          Year Ended      Year Ended
                                                       December 31,      December 31,    December 31,
                                                           1997              1998            1999
                                                            HK$               HK$             HK$
                                                      --------------    --------------  --------------
         <S>                                         <C>              <C>               <C>
         Sales
              Automatic production lines             145,436,500       254,247,430       282,361,440
              Raw materials                           14,682,789        12,353,242         5,192,312
              Breeding center                                  -        18,506,627        13,719,626
                                                    -------------    --------------     -------------
              Total sales                            160,119,289       285,107,299       301,273,378
                                                    =============    ==============     =============
         Operating Income (Loss)
              Automatic income                        91,605,000       160,358,850       179,668,390
              Raw income                               5,368,427         1,689,518        (5,088,072)
              Breeding                                         -       (30,651,824)      (19,249,017)
                                                    -------------    --------------     -------------
              Total operating income                  96,973,427       131,396,544       155,331,301

         Less : General corporate expenses             5,856,201        15,127,221         9,341,156
                Financial expense                        442,851         1,275,217           979,546
                Other (income) expense               (22,625,018)       (2,789,505)      (88,524,115)
                Share of gains of associated
                 companies                            (1,113,459)         (795,995)                -
                                                    -------------    --------------     -------------
         Amortization of investment premium            2,548,000         3,218,000         3,218,000
         Income before income taxes                  111,864,852      115,361,6066       230,316,714
                                                    =============    ==============     =============

</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>

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
                                          ---------------     -------------      ------------
Year ended December 31, 1999:
Automatic production lines                    64,128,710                 -                 -
Raw materials                                     41,612                 -                 -
Breeding center                                        -                 -        26,856,493
Other                                                  -                 -           129,038
                                          ---------------     --------------     ------------
                                              64,170,322                 -        26,985,531
                                          ===============     ==============     ============
</TABLE>


Reconciliation to Total Assets As Reported
<TABLE>

                                                     Nine months
                                                        Ended          Year Ended       Year Ended
                                                    December 31,      December 31,    December 31,
                                                        1997              1998             1999
                                                         HK$               HK$              HK$
                                                    -------------    --------------   --------------
<S>                                                <C>               <C>              <C>

ASSETS :
Total reportable segments - identifiable assets   1,532,336,301    1,674,481,651       64,170,322
Unallocated amounts:
  Cash                                                  13,896             8,096            7,196
  Deposit on investment in land                              -                 -    1,323,966,245
  Prepayments, deposits and other receivables        5,613,775         3,235,373            8,540
  Due from related parties                          73,636,911        50,605,247       10,164,655
  Plant and other property and equipment             3,486,981         3,155,880        3,026,841
  Interests in associated companies                 69,053,638        60,852,081       57,956,574
  Other                                              7,000,000         5,000,000        5,000,000
                                                ---------------   ---------------  ---------------
Total Consolidated Assets                        1,691,141,502     1,797,338,328    1,464,300,373
                                                ===============   ===============  ===============
</TABLE>

                                      F-26
<PAGE>

                    CHINA CONTINENTAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


20.  SEGMENT INFORMATION (continued)

     Much  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.
<TABLE>

         Sales by Major Customers                                 Sales
                                              ----------------------------------------------------
                                               Nine months                                           Accounts
                                                 Ended           Year ended       Year ended        Receivable
                                               December 31,     December 31,     December 31,      December 31,
                                                 1997              1998             1999              1999
                                                  HK$               HK$              HK$               HK$
                                              --------------    --------------   -------------     -------------
         <S>                                 <C>                <C>              <C>               <C>

         Kin Heng Xin Investment &
          Development Company Limited           85,870,000       83,414,430        81,396,900                 -
         Shenzhen San Gao Enterprises
          Company Limited (Shenzhen)            59,566,500       88,276,600       118,253,540        57,433,900
         Chit Tat Industrial Development
          Limited                                        -       82,556,400        82,711,000                 -
         Others                                 14,682,789       30,859,869                 -                 -
                                              -------------    -------------     -------------      ------------
                                               160,119,289      285,107,299       282,361,440        57,433,900
                                              =============    =============     =============      ============
</TABLE>

21.  PRIOR PERIOD ADJUSTMENTS

     Due to a change in control of the Company in February  1998 from the former
     chairman,  Mr. Chan Kwai Chui to the current  chairman,  Mr.  Harry Ho (see
     Note 11),  certain  amounts due from companies  controlled by Mr. Chan Kwai
     Chui  ceased  to be  actively  pursued  for  collection.  Therefore,  these
     amounts,  or HK$23,444,402,  have been reclassified as a deemed dividend to
     Mr. Chan Kwai Chui as of this date, and the 1998 financial  statements have
     been restated to reflect this adjustment.  The effect of the adjustment was
     to decrease retained earnings and total assets by this amount.

     In 1999, the Company determined that the 1997 and 1998 financial statements
     should have reflected  amortization  expense  associated with the Company's
     initial investment in an associated company,  Megaway Development  Limited.
     Accordingly,  the 1997 and 1998 consolidated statements of income have been
     restated to reflect  additional  expense of HK$2,548,000 and  HK$3,218,000,
     respectively,  with  corresponding  adjustments  to decrease the  Company's
     investment in this entity. See Note 10.




                                      F-27
<PAGE>
                    CHINA CONTINENTAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


22.  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.

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

     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                                            -
                                                             ============

     1999
     ----
     Mr. Chan Kwai Chui,  stockholder  and director of the  Company,  assumed on
     December 31, 1999, pursuant to a signed written agreement with the Company,
     HK$711,797 of the Company's  accrued  liabilities.  Mr. Chan Kwai Chui then
     contributed  his  assumption of those  liabilities  to  additional  paid-in
     capital.


                                      F-28