================================================================================


                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K
              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

                   For the fiscal year ended December 31, 1997

                        CHINA RESOURCES DEVELOPMENT, INC.
             (Exact name of Registrant as specified in its Charter)


           Nevada                       33-5628-NY               87-02623643
----------------------------       ---------------------        -------------
(State or other jurisdiction       (Commission File No.)        (IRS Employer
      of incorporation)                                      Identification No.)

                       23/F Office Tower, Convention Plaza
                       1 Harbour Road, Wanchai, Hong Kong
                          Telephone: 011-852-2810-7205
          (Address and telephone number of principal executive offices)

      Securities registered under Section 12(b) of the Exchange Act: None
                                                                     ----

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

                          Common Stock, $.001 par value
                          -----------------------------
                                (Title of class)

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes  X  No    
                                             ----    ----

         Indicate by check mark if disclosure of delinquent filers in pursuant
to Item 405 of Regulation S-K (Section 229.405) is not contained herein, and
will not be contained, to the best of registrant's 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-K. X  
                                             ----
         State the aggregate market value of the voting stock held by
non-affiliates of the registrant computed by reference to the price at which the
stock was sold, or the average bid and asked prices of such stock, as of a
specified date within 60 days prior to the date of filing. (See definition of
affiliate in Rule 405, 17 CFR 230.405.): $10,209,795 as of March 31, 1998.

         Note: If a determination as to whether a particular person or entity is
an affiliate cannot be made without involving unreasonable effort and expense,
the aggregate market value of the common stock held by non-affiliates may be
calculated on the basis of assumptions reasonable under the circumstances,
provided that the assumptions are set forth in this Form.

         Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date. 6,029,004 shares of
Common Stock, $.001 par value (as of March 31, 1998).

         DOCUMENTS INCORPORATED BY REFERENCE: Definitive Proxy Statement for
1997 Annual Meeting of Shareholders (Schedule 14A) is incorporated by reference
in Part I, Item 4, hereof.


================================================================================


<PAGE>


                                   CONVENTIONS


         Unless otherwise specified, all references in this report to "U.S.
Dollars," "Dollars," "US$," or "$" are to United States dollars; all references
to "Hong Kong Dollars" or "HK$" are to Hong Kong dollars; and all references to
"Renminbi" or "Rmb" or "yuan" are to Renminbi yuan, which is the lawful currency
of the People's Republic of China ("China" or "PRC"). The Company and Billion
Luck maintain their accounts in U.S. Dollars and Hong Kong Dollars,
respectively. HARC and the Operating Subsidiaries maintain their accounts in
Renminbi. The financial statements of the Company and its subsidiaries are
prepared in Renminbi. Translations of amounts from Renminbi to U.S. Dollars and
from Hong Kong Dollars to U.S. Dollars are for the convenience of the reader.
Unless otherwise indicated, any translations from Renminbi to U.S. Dollars or
from U.S. Dollars to Renminbi have been made at the single rate of exchange as
quoted by the People's Bank of China (the "PBOC Rate") on December 31, 1997,
which was U.S.$1.00 = Rmb8.28. Translations from Hong Kong Dollars to U.S.
Dollars have been made at the single rate of exchange as quoted by the Hongkong
and Shanghai Banking Corporation Limited on December 31, 1997, which was US$1.00
= HK$7.75. The Renminbi is not freely convertible into foreign currencies and
the quotation of exchange rates does not imply convertibility of Renminbi into
U.S. Dollars or other currencies. All foreign exchange transactions 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.
No representation is made that the Renminbi or U.S. Dollar amounts referred to
herein could have been or could be converted into U.S. Dollars or Renminbi, as
the case may be, at the PBOC Rate or at all.

         References to "Billion Luck" are to Billion Luck Company Ltd., a
British Virgin Islands company, which is a wholly-owned subsidiary of the
Company.

         References to "Central Government" refer to the national government of
the PRC and its various ministries, agencies, and commissions.

         References to "Common Stock" are to the Common Stock, $.001 par value,
of China Resources Development, Inc.

         References to "Company" are to China Resources Development, Inc., and
include, unless the context requires otherwise, the operations of Billion Luck,
HARC, First Supply, and Second Supply (all as hereinafter defined).

         References to "Farming Bureau" are to the Hainan Agricultural
Reclamation General Company, a division of the Ministry of Agriculture, the PRC
government agency responsible for matters relating to agriculture.

         References to "First Supply" are to First Goods And Materials Supply
And Sales Corporation, a company organized in the PRC and a wholly-owned
subsidiary of HARC.

         References to "GAAP" or "U.S. GAAP" are to generally accepted
accounting principles of the United States.

         References to "Guilinyang Farm" are to Hainan Province Guilinyang State
Farm, a PRC entity which is owned and controlled by the Farming Bureau.

         References to "Hainan" are to Hainan Province of the PRC.

         References to "Hainan Reclamation Area" are to the 2,110,234 acres of
formerly barren land in Hainan that the PRC Government has converted to
productive agricultural use since 1952, which includes the largest rubber
production base in China, as well as rubber production facilities, timber
production facilities, cultivation areas for tea and tropical crops, and other
industries.

         References to "Hainan State Farms" are to the rubber farms in Hainan
controlled by the Farming Bureau.

         References to "HARC" are to Hainan Zhongwei Agricultural Resources


                                      -2-
<PAGE>

Company Limited (formerly known as Hainan Agricultural Resources Company
Limited), a Sino-foreign joint stock company organized in the PRC, whose capital
is owned 56% by Billion Luck, 39% by the Farming Bureau and 5% by Guilinyang
Farm.

         References to "Local Governments" are to governments in the PRC,
including governments at all administrative levels below the Central Government,
including provincial governments, governments of municipalities directly under
the Central Government, municipal governments, county governments, and township
governments.

         References to "MU" are to an area of approximately 667 square meters.

         References to "Operating Subsidiaries" are to the consolidated
operations, assets and/or activities, as the context indicates, of First Supply,
and Second Supply.

         References to the "PRC" or "China" include all territory claimed by or
under the control of the Central Government, except Hong Kong, Macau, and
Taiwan.

         References to "PRC Government" include the Central Government and Local
Governments.

         References to "Provinces" include provinces, autonomous regions, and
municipalities directly under the Central Government.

         References to "Restructuring Agreements" are to the Shareholders'
Agreement on Business Restructuring among Billion Luck, the Farming Bureau and
Guilinyang Farm, and the Assets and Staff Transfer Agreement among HARC, First
Supply, Second Supply and the Farming Bureau, both of which were effective as of
October 1, 1996.

         References to "Second Supply" are to Second Goods And Materials Supply
And Sales Corporation, a company organized in the PRC and a wholly-owned
subsidiary of HARC.

         References to "Series A Preferred Stock" are to the Company's Series A
Preferred Stock, $1.00 par value, of which no shares are outstanding.

         References to "Series B Convertible Preferred Stock" are to the
Company's formerly designated series B convertible preferred stock, $.001 par
value, of which no shares are outstanding and which is no longer so designated.

         References to "Series B Preferred Stock" are to the Company's Series B
Preferred Stock, $.001 par value, of which 3,200,000 shares are outstanding.

         References to the "State Plan" refer to the plans devised and
implemented by the PRC Government in relation to the economic and social
development of the PRC.

         References to "Tons" are to metric tons.

Forward-Looking Statements

         This report contains statements that constitute forward-looking
statements. Those statements appear in a number of places in this report and
include, without limitation, statements regarding the intent, belief and current
expectations of the Company, its directors or its officers with respect to (i)
the effect of the restructuring of HARC and the Operating Subsidiaries; (ii) the
Company's ability to hedge against the risks associated with natural rubber
prices by trading in natural rubber commodities futures; (iii) the Company's
policies regarding investments, dispositions, financings, conflicts of interest
and other matters; and (iv) trends affecting the Company's financial condition
or results of operations. Any such forward-looking statement is not a guarantee
of future performance and involves risks and uncertainties, and actual results
may differ materially from those in the forward-looking statement as a result of
various factors. The accompanying information contained in this report,
including without limitation the information set forth above and the information
set forth under the heading, "Management's Discussion and Analysis of Results of
Operations and Financial Condition," identifies important factors that could
cause such differences. With respect to any such forward-looking statement that


                                      -3-
<PAGE>


includes a statement of its underlying assumptions or bases, the Company
cautions that, while it believes such assumptions or bases to be reasonable and
has formed them in good faith, assumed facts or bases almost always vary from
actual results, and the differences between assumed facts or bases and actual
results can be material depending on the circumstances. When, in any
forward-looking statement, the Company, or its management, expresses an
expectation or belief as to future results, that expectation or belief is
expressed in good faith and is believed to have a reasonable basis, but there
can be no assurance that the stated expectation or belief will result or be
achieved or accomplished.



                                      -4-
<PAGE>


                                     PART I

[Item 1]                            BUSINESS

GENERAL

         The Company was incorporated as Magenta Corp. on January 15, 1986, in
the State of Nevada. The Company was formed to acquire businesses that would
provide a profit to the Company. The Company had no operating business until
control of it was acquired in December, 1994, by the former shareholders of
Billion Luck, who exchanged all of the issued and outstanding shares of capital
stock of Billion Luck for 10,800,000 shares of the Company's Common Stock (which
would now be 1,080,000 shares). As a result of the acquisition, the former
shareholders of Billion Luck acquired 90% of the issued and outstanding shares
of the then outstanding Common Stock of the Company and the Company became the
owner of all the outstanding shares of capital stock of Billion Luck.

         Billion Luck was incorporated in the British Virgin Islands on December
14, 1993. It conducts its activities through the Operating Subsidiaries, which
it controls through its 56% interest in HARC. HARC was established in Hainan
Province, the People's Republic of China, by Billion Luck, Guilinyang Farm, and
the Farming Bureau. Pursuant to an approval document dated March 16, 1997,
issued by the Hainan Provincial Securities Management Office, the name of HARC
was approved to be changed from "Hainan Agricultural Resources Company Limited"
to "Hainan Zhongwei Agricultural Resources Company Limited." A new business
license, valid until June 28, 2000, and dated March 26, 1997, effecting the new
name was obtained from the Hainan Provincial Industrial and Commercial
Administration Bureau.

         HARC is a Chinese company incorporated on June 28, 1994, with a
registered capital of Rmb100 million (US$12.08 million). Billion Luck made a
cash contribution of Rmb56 million (US$6.76 million) to purchase a 56% interest
in HARC. The remaining interests in HARC were acquired by Guilinyang Farm (5%)
for a cash contribution of Rmb5 million (US$0.60 million) and by the Farming
Bureau (39%) through the contribution of its interests in two of its
subsidiaries, First Supply and Second Supply, which were valued at Rmb39 million
(US$4.71 million). Pursuant to an agreement dated January 31, 1994, between
Billion Luck, Guilinyang Farm, and the Farming Bureau, the parties thereto
agreed to establish HARC to act as the holding company of First Supply and
Second Supply.

         The Company, through HARC and the Operating Subsidiaries, First Supply
and Second Supply, purchases natural rubber produced by the 92 farms on the
island of Hainan in the PRC, which are controlled by the Farming Bureau. In
1996, according to data published in China Statistical Yearbook 1997 and
Statistical Yearbook of Hainan 1997, Hainan Province accounted for approximately
56% of the domestic production of natural rubber in the PRC, of which
approximately 80% of that 56% is from the Hainan State Farms and approximately
20% is from non-state farms. Accordingly, the Hainan State Farms control 45% of
the PRC's domestic output of natural rubber. The Operating Subsidiaries market
and distribute the rubber to customers throughout the PRC, such as tire
manufacturers, rubber processing plants, and import and export companies. These
customers include state-owned and non-state-owned enterprises. Because of the
price risk associated with certain firm commitments for the purchase of natural
rubber, the Company, through HARC and the Operating Subsidiaries, enters into
natural rubber commodities futures contracts to hedge the risk. As opportunities
arise, HARC and the Operating Subsidiaries also have a team of futures experts
to manage and enter into natural rubber commodities futures contracts that are
not specific hedges, in anticipation of a rise or fall in the price of natural
rubber, based on their knowledge of the supply and demand situation with respect
to natural rubber in the PRC. In addition, the Operating Subsidiaries procure,
for the Farming Bureau, the Hainan State Farms and other affiliated customers,
many types of production materials, such as automobiles, farm equipment, fuel,
and chemicals, as well as for other customers unaffiliated with the Farming
Bureau. First Supply and Second Supply were originally established as
state-owned enterprises in the PRC by the Farming Bureau.

                                      -5-
<PAGE>

         The following chart illustrates the equity ownership by percentage of
each of the Company's subsidiaries as of December 31, 1997:


<TABLE>
<CAPTION>

<S>                                        <C>                                            <C>
 
                                           --------------------------------
                                                   CHINA RESOURCES
                                                 DEVELOPMENT, INC.,
                                                a Nevada corporation
                                           --------------------------------
                                                        |
                                                        |
                                                      100%
                                           --------------------------------
                                                BILLION LUCK COMPANY
                                                        LTD.,
                                              a British Virgin Islands
                                                       company
                                           --------------------------------
                                                        |
                                                        |
-----------------------------                           |                                ----------------------------
      GUILINYANG FARM,        5%                        |                           39%        FARMING BUREAU,
 a PRC entity controlled by                             |                                   a division of the PRC
     the Farming Bureau                                 |                                  Ministry of Agriculture
-----------------------------                           |                                ----------------------------
                                                       56%
                                                        |
                                           --------------------------------
                                              HAINAN ZHONGWEI AGRICULT-
                                              URAL RESOURCES CO. LTD.,
                                                    a PRC company
                                         --------------------------------    
                                         |                              |
                                         |                              |
                                         |                              |
                                             100%                   100%
                              ------------------------          ------------------------
                                   FIRST SUPPLY,                    SECOND SUPPLY,
                                   a PRC company                     a PRC company
                                  (an "Operating                    (an "Operating
                                   Subsidiary")                      Subsidiary")
                              ------------------------          ------------------------
</TABLE>





         Organizational and Management Structure of HARC

         The assets of HARC consist primarily of the Operating Subsidiaries,
First Supply and Second Supply, which together are divided into thirteen trading
and servicing divisions. During the fourth quarter of 1996, HARC undertook a
restructuring plan in order to rationalize and streamline its business
operations and assets. The terms of the restructuring are set forth in a
Shareholders' Agreement on Business Restructuring among the Farming Bureau,
Guilinyang Farm and Billion Luck, and an Assets and Staff Transfer Agreement
among the Farming Bureau, HARC, First Supply and Second Supply, both of which
were effective on October 1, 1996, and are included as exhibits hereto and
incorporated herein by reference.

         The purpose of the restructuring plan is to control management overhead
and improve efficiency in order to enhance long-term benefits to the Company.
The plan has resulted in the reduction of duplicative business divisions and
associated management overhead, the elimination of excessive labor headcounts
and redundant positions, the restructuring of HARC's asset base and the sale of
non-core assets to improve liquidity ratios. The various former trading and
servicing divisions of the Operating Subsidiaries have now been reduced to only
a few principal trading and servicing divisions. Cash management and policy
making have become more centralized, ensuring that capital resources can be
allocated to trading divisions more efficiently and effectively. A simplified
management structure has also enhanced the efficiency of HARC's management
reporting system. The Company's management believes that HARC's selling and
administrative expenses have been substantially reduced following the full
implementation of the restructuring. Savings resulting from reduced
administrative expenses, staff costs and related costs, as well as proceeds from
the sale of non-core assets, have improved the Company's liquidity and allowed
it to pursue additional investment opportunities.

         The business of HARC is principally divided into the natural rubber
trade and materials trade. Each trading or servicing division is a profit center
or cost center and has its own accounting function. Every quarter, each division
submits its financial statements to First Supply or Second Supply for
consolidation. Those companies, in turn, submit the combined accounts to HARC
for consolidation. The General Manager of each division accounts for its results
to the General Manager of First Supply or Second Supply, who, in turn, accounts
for the overall results to the board of directors of HARC.

         HARC has a two-tier structure with a board of directors and a
supervisory board. The board of directors is responsible for the day-to-day
management of and all major decisions relating to HARC (except decisions that
may be made by HARC's shareholders during a general meeting of the shareholders)


                                      -6-
<PAGE>

and, as of December 31, 1997, was made up of 11 members, of which five were
nominated by the Farming Bureau and six were nominated by Billion Luck. The
Chairman of HARC was nominated by the Farming Bureau, and the Vice-Chairman was
nominated by Billion Luck. The General Managers of First Supply and Second
Supply are also members of the board of directors of HARC. The General Manager
and the Chief Finance Officer of HARC are also members of the board. The General
Manager of HARC was nominated by the Farming Bureau, and the Chief Finance
Officer was nominated by Billion Luck.

         The supervisory board is responsible for supervising the board of
directors and the senior management of HARC in order to prevent the abuse of
rights and infringement of the interests of HARC and its shareholders and
employees. Among other responsibilities, members of the supervisory board attend
meetings of the board of directors and observe HARC's managers to ensure that
their acts do not contravene any laws or regulations or HARC's articles of
association or the resolutions of HARC's shareholders in meetings thereof. As of
December 31, 1997, the supervisory board was made up of five members, two of
which were nominated by Billion Luck and three of which were nominated by the
Farming Bureau. Two of the three members nominated by the Farming Bureau were
elected by the workers of HARC.

         The following chart illustrates the organizational and management
structure of HARC:


<TABLE>
<CAPTION>

<S>                                           <C>                                         <C>

                                             ----------------------------                ----------------------------
                                                      BOARD OF                                   SUPERVISORY
                                                      DIRECTORS          ------------------       COMMITTEE
                                             ----------------------------                ----------------------------
                                                         |
                                                         |
                                             ----------------------------
                                                       GENERAL
                                                       MANAGER
                                             ----------------------------
                                                         |
                                                         |
                                                         |
                ------------- -------------- -------------- ------------- -------------- -------------
            |                                            |                                            |
-----------------------------                ----------------------------                ----------------------------
           DEPUTY                                      DEPUTY                                      DEPUTY
      GENERAL MANAGER                              GENERAL MANAGER                             GENERAL MANAGER
-----------------------------                ----------------------------                ----------------------------
            |                                            |                                            |
            |                                            |                                            |
            |                                            |                                            |
            |                                            |                                            |
-----------------------------                ----------------------------                ----------------------------
           FIRST                                       SECOND                                   HEADQUARTERS
         SUPPLY (1)                                  SUPPLY (2)                                      (3)
-----------------------------                ----------------------------                ----------------------------

</TABLE>

----------

(1)  The principal businesses in which First Supply's divisions engage include:
     Natural Rubber, Fuels & Chemicals, Farm Equipment & Machinery, Futures
     Trading, Fertilizers, Automobile Trading, Transport & Delivery.

(2)  The principal businesses in which Second Supply's divisions engage include:
     Natural Rubber, Fuels & Chemicals, Automobiles & Machinery, Futures
     Trading, Farm Equipment, Transport & Delivery.

(3)  The principal businesses in which the HARC headquarters engages include:
     Investment Holding, Trading of Agricultural Products and Futures Trading.


         Activities of HARC and the Operating Subsidiaries

         The Operating Subsidiaries function as affiliated trading partners of
the Farming Bureau and the Hainan State Farms. They purchase raw natural rubber
(both dried and latex) from the Hainan State Farms and resell the raw natural
rubber to customers throughout the PRC. In 1997, the Operating Subsidiaries have
reduced the scope of procurement of certain material and supplies in view of the
weak consumption market and unsatisfactory profit margin. Currently, the
Operating Subsidiaries sell production materials, including fertilizers, fuels,
chemicals, farm equipment and machinery, automobiles to the Hainan State Farms,
the Farming Bureau, and other unaffiliated customers, and they trade natural
rubber commodities futures to hedge the price risk associated with certain firm
commitments for the purchase of natural rubber. HARC and the Operating
Subsidiaries also enter into natural rubber commodities futures contracts which
are not specific hedges. See Financial Statements and Notes included therein
attached as Appendix A hereto.

         In fulfilling their role as trading partners of the Farming Bureau, the



                                      -7-
<PAGE>

Operating Subsidiaries serve as a sales outlet for the raw natural rubber
produced by the Hainan State Farms and procure production materials for the
Farming Bureau and the Hainan State Farms. Before 1994, the Farming Bureau
generally established the selling price of natural rubber in order to allow the
Operating Subsidiaries to earn a pre-determined profit margin. Commencing in
1994, however, the Farming Bureau generally ceased establishing the selling
price of natural rubber, and instead allowed the Operating Subsidiaries to
determine the selling price according to market conditions, subject to a minimum
gross profit margin of 3.5% to be earned by the Operating Subsidiaries on
natural rubber purchased from the Hainan State Farms as set forth in the Sale
and Purchase Agreement (as defined hereinbelow).

         With respect to the procurement of materials and supplies, the
Operating Subsidiaries generally do not maintain significant levels of
inventory, but instead locate suppliers and the necessary products upon the
receipt of orders. Management of the Operating Subsidiaries has determined that
this policy reduces holding costs and minimizes exposure to price fluctuations.
However, in anticipating favorable market conditions or with respect to certain
common items, the Operating Subsidiaries may maintain inventory levels in these
limited circumstances sufficient to satisfy estimated demand for one to three
months. With respect to the distribution of natural rubber, due to the seasonal
nature of rubber production, the Operating Subsidiaries stockpile a certain
amount of rubber inventory during the peak production season for sales in those
periods with no rubber output (usually the first quarter of each year).

         Pursuant to a Long-Term Sale and Purchase Agreement dated November 5,
1994 (the "Sale and Purchase Agreement"), among the Farming Bureau, HARC and the
Operating Subsidiaries, the Farming Bureau agreed to direct the Hainan State
Farms to sell to HARC and the Operating Subsidiaries on a priority basis, and
HARC and the Operating Subsidiaries have agreed to purchase from the Hainan
State Farms raw natural rubber for sale under the same terms and conditions as
are offered to other purchasers. If HARC or the Operating Subsidiaries are
offered the same quantity and same price for natural rubber from a Hainan State
Farm and a non-state farm, HARC or the Operating Subsidiaries, as the case may
be, must purchase from the Hainan State Farm. If the price offered by the Hainan
State Farm is higher than that from a non-state farm, HARC or the Operating
Subsidiaries, as the case may be, may purchase from the non-state farm.
Otherwise, there is no condition requiring the purchase of any particular
quantity of raw natural rubber from the Hainan State Farms. The Sale and
Purchase Agreement has a term of 15 years and, subject to applicable law, may
not be terminated except upon the agreement of the parties.


INDUSTRY SEGMENTS

         The Operating Subsidiaries are principally engaged in the distribution
of natural rubber and the procurement of materials and supplies in the PRC.

         In conformity with Item 101(b) of Regulation S-K, the following table
sets forth the audited historical financial information related to Industry
Segments (amounts in thousands):


<TABLE>
<CAPTION>
                                                                   Year Ended December 31,
------------------------------------------------------------------------------------------------------------------------------------
                                                                    1995               1996              1997                1997
                                                                    (Rmb)              (Rmb)             (Rmb)               (US$)
                                                                  ---------          ---------          ---------          ---------
<S>                                                               <C>                <C>                  <C>                <C>
Net sales to unaffiliated customers:

  Distribution of natural rubber                                  1,776,641          1,519,060            858,211            103,649
  Procurement of materials,
    supplies and distribution of
    other agricultural products                                      72,880            102,745             12,909              1,559
                                                                  ---------          ---------          ---------          ---------

Total net sales to unaffiliated
  customers                                                       1,849,521          1,621,805            871,120            105,208
                                                                  ---------          ---------          ---------          ---------

Net sales to affiliated customers:

  Distribution of natural rubber                                      1,630               --              245,934             29,702
  Procurement of materials,
    supplies and distribution of
    other agricultural products                                     106,092            205,694             32,117              3,879
                                                                  ---------          ---------          ---------          ---------

Total net sales to affiliated
  customers                                                         107,722            205,694            278,051             33,581
                                                                  ---------          ---------          ---------          ---------

Total net sales                                                   1,957,243          1,827,499          1,149,171            138,789
                                                                  =========          =========          =========          =========

Operating income:

  Distribution of natural rubber                                     47,188             40,460             17,672              2,134
  Procurement of materials &
    supplies and distribution of
    other agricultural products                                       1,607             57,682              4,164                503
                                                                  ---------          ---------          ---------          ---------

Total operating income                                               48,795             98,142             21,836              2,637
                                                                  =========          =========          =========          =========

Identifiable assets:

  Distribution of natural rubber                                    423,701            542,005            203,015             24,519
  Procurement of materials &
    supplies and distribution of
    other agricultural products                                     231,748            151,458             87,916             10,618
                                                                  ---------          ---------          ---------          ---------
Total identifiable assets                                           655,449            693,463            290,931             35,137
Investments                                                          11,963             10,601            145,928             17,624
Goodwill                                                              1,076              1,049              1,021                123
                                                                  ---------          ---------          ---------          ---------
Total assets                                                        668,488            705,113            437,880             52,884
                                                                  =========          =========          =========          =========
</TABLE>



                                       -8-
<PAGE>

         GENERAL

         The main business of the Operating Subsidiaries is the purchase and
sale of natural rubber produced in Hainan. The Operating Subsidiaries are the
primary distributors of the natural rubber produced by the Hainan State Farms,
which constitute the largest natural rubber production base in China. Hainan
State Farms' natural rubber output was approximately 182,000 tons in 1996 (a
sales value of approximately Rmb2.4 billion (US$289 million) for 1996).
According to the Farming Bureau's Ninth Five-Year Plan (1995-2000), it is
anticipated that the aggregate rubber output of the Hainan State Farms for the
years 1995 to 2000 will be 1,100,000 tons, and that by the year 2000 the annual
rubber output will reach 230,000 tons, with a sales value of approximately
Rmb2.2 billion (US$266 million) at the 1997 average price level. It is also
anticipated that by the year 2010, the annual rubber output of the Hainan State
Farms will reach 250,000 tons, with a sales value of approximately Rmb2.4
billion (US$290 million) at the 1997 average price level.

         In addition, the Operating Subsidiaries engage in the trading of
production materials and supplies and related commodities, such as fuels and
chemicals, including fertilizers and pesticides; and other products, including
farm equipment and machinery; and automobiles which are connected with the
agricultural production in Hainan. The foregoing materials are key elements in
the continuation of the Hainan State Farms' rubber production.

         All of the Operating Subsidiaries' sourcing and trading activities are
divided into (1) State Plan allocations, and (2) free market activities. With
respect to State Plan allocations, the Central Government determines the price
and quantity of the materials and supplies sold to designated end users, and the
Operating Subsidiaries must strictly follow the allocation. However, the scale
of State Plan Allocations is decreasing gradually and currently accounts for
approximately 30% of the fuels and chemicals supplied by the Operating
Subsidiaries. All of the other production materials and natural rubber supplied
by the Operating Subsidiaries are provided through free market sales. The price


                                      -9-
<PAGE>

set forth in the State Plan is such that any profit derived from the sourcing
and trading of fuels and chemicals, if any, is comparatively lower than that
derived from free market sales. With respect to natural rubber and related
products, although they are provided through free market sales, the Operating
Subsidiaries are guaranteed a minimum gross profit margin of 3.5% (before
purchase discount and other adjustments) for sales of natural rubber purchased
from the Hainan State Farms. To the extent that the gross profit for a
particular year is less than this rate, the Farming Bureau is obligated to pay
to HARC or the Operating Subsidiaries the shortfall.

         The combined net income before taxes, minority interests and
reorganization expenses of HARC and the Operating Subsidiaries was Rmb48.6
million (US$5.9 million) in 1995, Rmb92.4 million (US$11.2 million) in 1996 and
Rmb65.6 million (US$7.9 million) in 1997.

         RUBBER DISTRIBUTION

         The Company, through HARC and the Operating Subsidiaries, engages in
the marketing and distribution of natural rubber and its complementary products
and materials produced by the Hainan State Farms. Natural rubber occupies a
position of strategic importance in the PRC, comparable to the iron, steel,
coal, and oil industries. Industrial rubber consists of synthetic rubber and
natural rubber, which have similar uses but different characteristics, so the
two are not completely interchangeable. Both types of rubber can be used for
making tires, but heavy duty tires, such as for planes and for some motor
vehicles, must be made of natural rubber.

         Natural rubber can only be planted in limited geographical areas in the
world. Today, most of the rubber plantations in the world are in Southeast and
Southern Asia, which in 1995 accounted for over 90% of the world's natural
rubber output. According to China Statistical Yearbook 1997, China ranks 5th in
the world in terms of natural rubber output. China's output accounted for 6.10%,
6.70% and 7.43% of the world's natural rubber output in 1993, 1994 and 1995,
respectively. With its geographical location and humid tropical climate, Hainan
province is the most suitable area for planting rubber trees in China, and
Hainan has become the single most important production base of natural rubber in
China, according to Statistical Yearbook of Hainan 1997.

                World Output of Natural Rubber by Country in 1995
                -------------------------------------------------

Country or Region                                                    Tons
-----------------                                               (in thousands)

Thailand                                                             1,721
Indonesia                                                            1,312
Malaysia                                                             1,074
India                                                                  485
China                                                                  424
Philippines                                                            178
Nigeria                                                                105
Sri Lanka                                                              105
Ivory Coast                                                             97
Vietnam                                                                 84
Others                                                                 123
                                                                     -----

TOTAL                                                                5,708
                                                                     =====

----------
(Source: China Statistical Yearbook 1997)

         Since January 1, 1952, the Farming Bureau, which controls approximately
one quarter of the land area in Hainan, has developed the largest natural rubber
production base in China with plantations covering approximately 3.6 million MU
(approximately 620,470 acres or 968 square miles) in 1996, according to the
Statistical Yearbook of Hainan 1997.

         The natural rubber output of the Farming Bureau and the Hainan State
Farms was approximately 182,000 tons in 1996, accounting for approximately 45%
of the total domestic output in China in 1996. According to the Farming Bureau's
expansion plans and production capacity, it is anticipated that the aggregate
natural rubber produced by the Hainan State Farms in the years 1995 to 2000 will



                                      -10-
<PAGE>

be 1,100,000 tons, and that annual rubber output will reach 230,000 tons in the
year 2000 and 250,000 tons in the year 2010.

         The Operating Subsidiaries function as affiliated trading partners of
the Farming Bureau and the Hainan State Farms. They purchase raw natural rubber
(both dried and latex) from the Hainan State Farms and resell the raw natural
rubber to customers throughout the PRC. As described above, before 1994, the
Farming Bureau generally established the selling price of natural rubber, based
upon the then existing market conditions, in order to allow the Operating
Subsidiaries to earn a pre-determined gross profit margin. Commencing in 1994,
however, the Farming Bureau generally ceased establishing the selling price of
natural rubber, and instead allowed the Operating Subsidiaries to determine the
selling price according to market conditions, subject to a minimum gross profit
margin of 3.5%.

         The natural rubber market in 1997 remained sluggish and became worse in
the second half year due to the currency crisis in Southeast Asia. The average
unit price of Chinese domestic natural rubber was approximately Rmb12,700
(US$1,534) per ton and Rmb9,600 (US$1,159) per ton in 1996 and 1997,
respectively. The rubber price in the international market varies according to
the demand by major rubber consuming countries (the largest being the United
States, followed by China and Japan) and the supply from the major rubber
producing countries (such as Thailand, Indonesia and Malaysia). In 1997, due to
continuous weakening of rubber consumption, especially in Japan and Korea,
increasing supply from certain major rubber producers in Asia and large amount
of natural rubber inventory accumulated in 1996, the rubber price in the
international market dropped significantly.

         Since the second half year of 1997, the currency crisis in Southeast
Asia caused the Asian currencies to deflate against US dollars, while the
Renminbi yuan remained relatively stable against US dollars. The currency
deflation of most of the largest natural rubber producing countries like
Thailand, Indonesia and Malaysia caused a significant drop in the international
rubber price by approximately 40% during 1997. The crisis also induced the
rubber producing countries to increase their exports. The increase in the
worldwide supply of natural rubber further pushed down the natural rubber price
in 1997. Major Asian rubber exporting countries, such as Thailand and Indonesia,
have targeted China (the world's second largest consumer of rubber) for the sale
of their natural rubber. These exporting countries have offered China many
preferential policies to stimulate export sales of natural rubber, including
longer credit terms, sales discounts and delivery in advance of payment. China
imported approximately 550,000 tons and 450,000 tons of natural rubber in 1996
and 1997, respectively. This large influx of natural rubber, coupled with the
weak domestic rubber consuming market in China, has caused the domestic rubber
price in 1997 to drop from approximately Rmb12,000 (US$1,449) per ton at the
beginning of the year to Rmb7,400 (US$894) per ton by the end of the year.

         The Company's gross profit margin on the distribution of natural rubber
has not been seriously affected by the fluctuation of the domestic rubber price
because (i) the Company has entered into rubber futures contracts to hedge
against the risk of adverse price movement of natural rubber; (ii) under the
Long-Term Supply and Purchase Agreement between the Operating Subsidiaries and
the Farming Bureau, a minimum gross profit margin on distribution of natural
rubber of 3.5% was guaranteed by the Farming Bureau. The Company also maintains
a team of experts to monitor the rubber futures market in China. As
opportunities arise, HARC and the Operating Subsidiaries also enter into natural
rubber futures contracts that are not specific hedges, in anticipation of a rise
or fall in the price of natural rubber.

         Suppliers

         HARC and the Operating Subsidiaries purchase natural rubber from the 92
farms comprising the Hainan State Farms, with the value of purchases totaling
approximately Rmb1,653 million (US$200 million) in 1995, Rmb1,438 million
(US$174 million) in 1996 and Rmb1,012 million (US$122 million) in 1997. The
single largest supplier within the Hainan State Farms accounted for
approximately 3% (Rmb57 million, US$6.9 million) in 1995, 3% (RMB44.4 million,
US$5.4 million) in 1996 and 4% (Rmb42.2 million, US$5.1 million) in 1997. No
single farm accounted for more than 5% of the total purchases of natural rubber
in any of the years 1995, 1996 or 1997, but all supplier farms are controlled
under PRC law by the Farming Bureau. The top five supplier farms accounted for
approximately 13% (Rmb223 million, US$26.9 million) in 1995, 12% (Rmb168
million, US$20.3 million) in 1996 and 18.5% (Rmb187 million, US$22.6 million) in
1997. Purchases are principally made in Renminbi on an open account basis
payable within 30 days, or on a "cash on delivery" basis. As a majority of their
purchases are made in Renminbi, HARC and the Operating Subsidiaries have a
limited exposure to fluctuations in exchange rates.

                                      -11-
<PAGE>

         Pursuant to the Sale and Purchase Agreement, the Farming Bureau agreed
to direct the Hainan State Farms to sell to HARC and the Operating Subsidiaries
on a priority basis, and HARC and the Operating Subsidiaries have agreed to
purchase from the Hainan State Farms raw natural rubber for sale under the same
terms and conditions as are offered to other purchasers. If HARC or the
Operating Subsidiaries are offered the same quantity and same price for natural
rubber from a Hainan State Farm and a non-state farm, HARC or the Operating
Subsidiaries, as the case may be, must purchase from the Hainan State Farm. If
the price offered by the Hainan State Farm is higher than that offered by a
non-state farm, HARC or the Operating Subsidiaries, as the case may be, may
purchase from the non-state farm. Otherwise, there is no condition requiring the
purchase of any particular quantity of raw natural rubber from the Hainan State
Farms. The Sale and Purchase Agreement has a term of 15 years and, subject to
applicable law, may not be terminated except upon the agreement of the parties.
The Sale and Purchase Agreement will expire on November 5, 2009.

         Marketing

         The Hainan State Farms are the dominant suppliers of raw natural rubber
and natural rubber products in China. In 1996, they accounted for approximately
45% of the annual domestic output of raw natural rubber. Because of the market
position of the Hainan State Farms, the Operating Subsidiaries are the largest
distributors of raw natural rubber and natural rubber products in China.

         HARC and the Operating Subsidiaries maintain a strong sales and
marketing force consisting of 10 persons in the natural rubber business. The
Operating Subsidiaries' sales and marketing personnel make regular visits to
customers and to the Hainan State Farms to maintain contacts and monitor
requirements. Currently, all sales and distribution of raw natural rubber and
natural rubber products occur within the PRC. The business operations of HARC
and the Operating Subsidiaries are conducted solely within the PRC;
consequently, the Company is solely dependent upon trade in the PRC. The Company
does not currently engage in any export trade from the PRC.

         Customers

         Net sales of natural rubber for 1995, 1996 and 1997 were Rmb1,778
million (US$215 million), Rmb1,519 million (US$183 million) and Rmb1,104 million
(US$133 million), respectively. The five largest customers for rubber, in the
aggregate, accounted for approximately 19%, 27% and 37% of the total revenue
derived from rubber sales for 1995, 1996 and 1997, respectively. The single
largest customer accounted for approximately 7%, 11% and 22% of such revenue for
1995, 1996 and 1997, respectively.

         For the year ended December 31, 1997, HARC and the Operating
Subsidiaries had a total of approximately 480 customers for natural rubber and
natural rubber products with only one customer accounting for more than 5% of
total sales of such products. This customer was Jin Long Corporation, an entity
controlled by the Farming Bureau, which accounted for 22% of total sales of
natural rubber in 1997. No other single customer accounted for more than 5% of
total sales of natural rubber in 1997.

         Seasonality

         The geographic and climatic conditions in Hainan are such that natural
rubber production has high and low seasons. Generally, there is no rubber
harvest from January to March. The high season commences in April. Sales of
natural rubber and natural rubber products generally grow in the second quarter
and reach the peak in the third and fourth quarters due primarily to the
increased production of natural rubber. All sales in the first quarter of a year
relate to inventory maintained from the inventory of the prior year. The high
season ends in November. Sales in the last two quarters accounted for 71%, 61%
and 59% of the total sales for 1995, 1996 and 1997, respectively.

         Distribution

         The Operating Subsidiaries have their own warehouse facilities and
transportation fleet for both natural rubber and materials consisting of 63
warehouses with a total area of 22,669 square meters, 66 trucks and 135 workers.
Some of the natural rubber is shipped to customers by sea freight from the port
of Haikou, Hainan, to other destination ports within the PRC. The Operating



                                      -12-
<PAGE>

Subsidiaries also transport rubber from the Hainan State Farms to the port of
Zhangjiang, PRC, which operates as a distribution center from where the natural
rubber is delivered to customers by rail to destinations within the PRC. Some of
the natural rubber is also delivered locally in Hainan.

         Working Capital Items

         The Operating Subsidiaries generally grant their purchasers the right
to return substandard natural rubber, as determined by laboratories recognized
by both parties. Sales returns or losses borne by the Operating Subsidiaries are
reimbursed by the farm that supplied the substandard rubber. These sales returns
could potentially impact the working capital levels of the Operating
Subsidiaries if such returns were significant; however, in the past such sales
returns have been insignificant.

         Prior to 1994, sales of rubber were made principally on an open account
basis payable within 30 days. Starting in 1994, because of increased rubber
demand, a significant portion of such sales are made on a "cash on delivery"
basis. The Operating Subsidiaries have been working to recover aged accounts
receivable while establishing policies to tighten credit control. Some of these
policies require new customers to place deposits of 5% of the invoiced value of
a purchase upon signing a sales contract or require full payment on or before
delivery for small new customers. In addition, no sales are made to those
customers with long outstanding balances with the Operating Subsidiaries until
past due accounts receivable are settled.

         Following the tightening of the credit control policy, customers are
now required to pay the balance of the invoiced value (after deducting the 5%
deposit paid) on delivery. However, in order to maintain good customer
relationships, extended payment terms of no more than one month may be granted
to certain customers based on their credit and payment history with the
Operating Subsidiaries.

         Due to the seasonal nature of rubber production, the Operating
Subsidiaries stockpile a certain amount of rubber inventory during the peak
production season for sales in those periods with no rubber output.

         Prior to July, 1992, the Farming Bureau was responsible for financing
the Hainan State Farms during the winter months when there was no rubber
production. In July, 1992, the Operating Subsidiaries began providing financing
to the Hainan State Farms (primarily for working capital and to purchase
materials and supplies). Accordingly, the Operating Subsidiaries obtained short
term bank loans, which were generally secured by guarantees of the Farming
Bureau, to provide such financing. When a rubber purchase was made by an
Operating Subsidiary from a farm which had an outstanding balance in favor of
HARC or the Operating Subsidiary from a prior financing advance, it was
customary practice to credit the purchase price of the rubber against the
balance on the financing account of such farm. Neither HARC nor the Operating
Subsidiaries are obligated to provide any future financing advances to any
Hainan State Farms.

         Pursuant to the Shareholders' Agreement on Business Restructuring and
the Assets and Staff Transfer Agreement, both effective as of October 1, 1996
(the "Restructuring Agreements"), HARC and the Operating Subsidiaries agreed to
assign to the Farming Bureau the amounts due from the farms and the affiliates
of the Farming Bureau as of September 30, 1996, and the Farming Bureau agreed to
assume the obligations under the short term bank loans, as part of the corporate
restructuring plan. The assignment of amounts due from farms and affiliates of
the Farming Bureau was effective on October 1, 1996, and the assignments of
short term bank loans were effective upon approval of such banks on March 28,
1997 and March 31, 1997. As of September 30, 1996, the aggregate amount due from
the farms and affiliates of the Farming Bureau amounted to approximately Rmb274
million (US$33 million), and the short term bank loans amounted to approximately
Rmb293 million (US$35 million). According to the Restructuring Agreements, the
Farming Bureau was responsible for the payment of interest incurred on the bank
loans after September 30, 1996.

         Competitors

         There are several companies competing for business in the domestic


                                      -13-
<PAGE>

natural rubber industry in the PRC. Among the Company's competitors are other
major state-owned rubber producers under the control of different farming
bureaus, with no direct relationship to the Hainan Farming Bureau. The market
shares of these rubber producers are generally significantly less than that of
the Farming Bureau. There are also certain small, non-state owned rubber
producers located in the provinces of Hainan, Guangdong, Yunnan, Guangxi, and
Fujian. However, the quantities produced by these non-state owned farms and
individuals are relatively insignificant.

                China Output of Natural Rubber by Region in 1996
                ------------------------------------------------

Region                                                        Tons
------                                                        ----

Hainan                                                      225,793
Yunnan                                                      146,938
Guangdong                                                    26,302
Guangxi                                                       3,017
Fujian                                                          400
                                                            -------

TOTAL                                                       402,450
                                                            =======

(Source:  China Statistical Yearbook 1997)

         According to the China Statistical Yearbook 1997, the rubber output
from Hainan Province was 225,793 tons in 1996. According to the Statistical
Yearbook of Hainan 1997, the rubber output from the Hainan State Farms was
181,598 tons in 1996. Consequently, the rubber output from non-state owned
enterprises in Hainan Province accounted for approximately 44,195 tons,
representing 20% of the total natural rubber output of Hainan Province in 1996.
The natural rubber production by other domestic rubber producers is limited by
the area of land suitable for rubber planting in the region. Due to the specific
tropical climatic conditions required for rubber cultivation, the number of
rubber producers is limited and no new domestic rubber producer is expected to
enter the market. Thus, the competition in the industry may be determined by the
acquisition of land suitable for rubber cultivation. Due to the favorable
climatic conditions in Hainan for rubber plantations and the fact that there is
still land available in Hainan that the Farming Bureau can develop into rubber
plantations, the Farming Bureau will likely remain as China's largest natural
rubber producer in the foreseeable future. Domestic consumption for natural
rubber has far exceeded domestic supply, and it is believed that this situation
will continue. According to the China Statistical Yearbook 1997 and statistics
provided by the China Tropical Agriculture Institute, in 1996, the domestic
rubber output and rubber consumption were 402,000 tons and 770,000 tons,
respectively. Accordingly, the rubber output of the Farming Bureau in 1996
accounted for approximately 45% of the total domestic output of natural rubber
and satisfied approximately 24% of the domestic consumption. However, due to the
influx of imported natural rubber of approximately 550,000 tons in 1996, the
overall supply of natural rubber well exceeded demand, which caused a large
backlog of rubber inventory in 1996. Since the second half of 1997, the currency
crisis in Southeast Asia caused the currencies of most of the largest natural
rubber producing countries, like Thailand, Indonesia and Malaysia, to deflate
against U.S. Dollars and also induced the rubber producing countries to increase
their exports. The management believes that the competition from imported
rubber, together with the weak consumption market, became more severe in 1997
and will also affect the Company's performance in the foreseeable future.

         Environmental Protection

         Management does not believe that there are any material requirements
under PRC environmental law or regulations applicable to the Operating
Subsidiaries and HARC which could have a material adverse effect on the capital
expenditures, including capital expenditures required in order to comply with
environmental laws and regulations, in the rubber distribution segment of the
business of the Operating Subsidiaries and HARC.


         PROCUREMENT OF MATERIALS AND SUPPLIES AND DISTRIBUTION OF OTHER
         AGRICULTURAL PRODUCTS

         The Company, through the Operating Subsidiaries, also engages in the
procurement of materials and supplies, such as fuels and chemicals, including
fertilizers and pesticides; and other products, including farm equipment and
machinery; and automobiles, which are connected with the agricultural production
in Hainan. These sourcing and procurement activities were conducted primarily



                                      -14-
<PAGE>

for the Hainan State Farms. The percentage of such sales to non-affiliates,
which has become less significant in recent years, was 41% in 1995, 33% in 1996
and 29% in 1997. The decrease of such sales to non-affiliates from 1995 through
1997 was due to the reduction of scope of procurement of certain materials and
supplies, such as building and construction materials, iron and metals, and
automobiles, as a result of the slow down of property and automobile markets
(such customers are non-affiliates) due to the PRC Government's austerity
measures to combat the overheated economy. Sales of fertilizers, pesticides,
etc., which are mainly sold to farms (affiliates) remained strong. Therefore,
there were fewer sales to non-affiliates.

         The sourcing and procurement activities generally commence upon the
receipt by an Operating Subsidiary of an order to obtain certain of the various
materials set forth above. Upon such receipt, the Operating Subsidiary
identifies potential suppliers for the required production materials and obtains
quotations from the various suppliers. In order to obtain the most favorable
terms, the Operating Subsidiary will negotiate with many different suppliers,
with pricing and quality being the main points of negotiation.

         The Operating Subsidiaries generally do not maintain significant levels
of inventory, but instead locate suppliers and the necessary products upon the
receipt of orders. Management of the Operating Subsidiaries has determined that
this policy reduces holding costs and minimizes exposure to price fluctuations.
However, in anticipating favorable market conditions or with respect to certain
common items, the Operating Subsidiaries may maintain inventory levels
sufficient to satisfy estimated demand for one to three months.

         Pursuant to the Sale and Purchase Agreement, the Farming Bureau agreed
to direct the Hainan State Farms to purchase all of their requirements of
production materials and other commodities offered by the Operating Subsidiaries
and HARC under the same terms and conditions as are offered by other suppliers.
In the case of production material and other commodities, a Hainan State Farm
requests a price quote for a specified quantity of a particular item from HARC
or the Operating Subsidiaries. Upon receiving the price quote, the Hainan State
Farm can obtain quotes from other suppliers based on the same quantity of the
requested item. The Hainan State Farm must inform HARC or the Operating
Subsidiaries, as the case may be, of the amounts of the other quotes and, if any
of the quotes are lower, HARC or the Operating Subsidiaries have the right to
lower their quote to the level of the competing quote. In the event that the
Operating Subsidiaries are unable to profitably match the terms offered to the
Hainan State Farms by sources other than the Operating Subsidiaries, the
Operating Subsidiaries will be required to sell to the Hainan State Farms at a
loss or forebear from making such sales. If HARC or an Operating Subsidiary
matches the competing quote based upon the same quantity of the item requested,
the Hainan State Farm must purchase the item from HARC or the applicable
Operating Subsidiary. Otherwise, the Hainan State Farm can purchase the item
from the competing supplier. The Sale and Purchase Agreement has a term of 15
years and, subject to applicable law, may not be terminated except upon the
agreement of the parties. The Sale and Purchase Agreement will expire on
November 5, 2009.

         Suppliers

         During 1997, HARC and the Operating Subsidiaries purchased production
materials and supplies from a total of approximately 45 suppliers. The value of
the total purchases of production materials and supplies was approximately
Rmb135 million (US$16.3 million) in 1995, Rmb251 million (US$30.3 million) in
1996 and Rmb37 million (US$4.5 million) in 1997. The single largest supplier
accounted for approximately 11% (Rmb15 million, US$1.8 million) in 1995, 16%
(Rmb39 million, US$4.7 million) in 1996 and 34% (Rmb13 million, US$1.4 million)
in 1997. The three largest suppliers accounted for 11%, 7% and 6%, respectively,
of such purchases in 1995, the four largest suppliers accounted for 16%, 12%, 6%
and 6%, respectively, of such purchases in 1996 and the five largest suppliers
accounted for 34%, 9%, 7%, 7% and 7%, respectively, of such purchases in 1997
(and no other suppliers accounted for more than 5%). The top five suppliers
accounted for approximately 26% (Rmb35 million, US$4.2 million) in 1995, 44%
(Rmb111 million, US$13.4 million) in 1996 and 65% (Rmb24 million, US$2.9
million) in 1997. Purchases are principally made in Renminbi on an open account
basis payable within 30 to 90 days. As a majority of the purchases are made in
Renminbi, HARC and the Operating Subsidiaries have limited exposure to
fluctuations in exchange rates.

         Marketing

         In accordance with the terms of the Sale and Purchase Agreement, HARC
and the Operating Subsidiaries are the principal suppliers of production


                                      -15-
<PAGE>

materials to the Farming Bureau and the 92 farms comprising the Hainan State
Farms. The Operating Subsidiaries maintain a sales and marketing team of 33
persons for the procurement business. The sales and marketing team makes regular
visits to the Farming Bureau, the Hainan State Farms and unaffiliated purchasers
in order to maintain contacts and monitor requirements.

         Currently, all activities of HARC and the Operating Subsidiaries with
respect to production materials and commodities occur within the PRC. The
business operations of HARC and the Operating Subsidiaries are conducted solely
within the PRC; consequently, the Company is solely dependent upon trade in the
PRC. The Company does not currently engage in any export trade from the PRC.

         Customers

         Sales of production materials, supplies and other agricultural products
by HARC and the Operating Subsidiaries for the years 1995, 1996 and 1997 totaled
approximately Rmb179 million (US$21.6 million), Rmb308 million (US$37.2 million)
and Rmb45 million (US$5.4 million), respectively. The five largest customers for
production materials and supplies accounted for approximately 6%, 37% and 8% of
the total revenue derived from sales of production materials and supplies for
1995, 1996 and 1997, respectively. The single largest customer accounted for
less than 5% of such revenue for 1995. The two largest customers accounted for
12% and 9%, respectively, of such revenue in 1996 and the single largest
customers accounted for less than 5%, of such revenue in 1997 (and no other
customers accounted for 5% or more). HARC and the Operating Subsidiaries have a
broad customer base and are not dependent upon any single customer for sales.
However, aggregate sales to affiliates of the Farming Bureau accounted for 59%,
67% and 71% of the total revenue derived from sales of production materials and
agricultural products for 1995, 1996 and 1997, respectively.

         Seasonality

         The seasonal fluctuations experienced by the Operating Subsidiaries in
the production materials procurement segment are significantly less severe than
those experienced in connection with the rubber production operations. However,
to the extent that the Operating Subsidiaries may buy goods and materials
related to the rubber industry from suppliers, but sell such goods and materials
on credit to Hainan State Farms, repayment may be affected by the seasonality of
rubber production.

         Working Capital Items

         Sales by HARC and the Operating Subsidiaries are principally made in
Renminbi. The Operating Subsidiaries have been working to recover aged accounts
receivable while establishing policies to tighten credit control. In the past,
most of the sales were made on an open account basis payable within 30 days. The
new policies require "cash on delivery" terms for small or new customers. In
addition, no sales are made to those customers with long outstanding balances
with the Operating Subsidiaries until past due accounts receivable are settled.
However, in order to maintain good customer relationships, extended payment
terms of one to two weeks may be granted to certain customers based on their
credit and payment history with the Operating Subsidiaries. No extended payment
terms are granted for more than one month. For sales to the Hainan State Farms,
more flexible payment terms may be allowed depending on credit history and
regularity of purchase orders. Such payment terms may include an open account
basis or the netting of the sales value of materials against the cost of natural
rubber purchases by the Operating Subsidiaries.

         Competitors

         Generally, as a result of the Sale and Purchase Agreement, HARC and the
Operating Subsidiaries have few major competitors in their primary market in
Hainan Province with respect to the sourcing and procurement of the wide range
of production materials and commodities needed by the Farming Bureau, its
affiliates, and the Hainan State Farms. With respect to other unaffiliated
purchasers, HARC and the Operating Subsidiaries are subject to significant
competition from certain suppliers owned and controlled by the Hainan Provincial
Government and from a number of smaller suppliers of production materials and
commodities in which the Operating Subsidiaries trade. Management believes that
the Operating Subsidiaries' market share is approximately 30% to 35%. Other



                                      -16-
<PAGE>

suppliers which are owned and controlled by the Hainan Provincial Government
collectively have a market share of approximately 50% with respect to those
production materials and commodities traded by the Operating Subsidiaries.

         Listed below are those competitors owned and controlled by the Hainan
Provincial Government and the products with which they compete with the
Operating Subsidiaries:

 Hainan Provincial Production           Pesticides and fertilizers
 Materials Company

 Hainan Provincial Automobiles          Automobiles and automobile parts
 Trading Company

 Hainan Provincial Farm                 Farm equipment
 Equipment Company

 Hainan Provincial Fuels &              Fuels and chemicals (including coal)
 Chemical Company

         The price and quality of products sold by the competitors are similar
to that of the comparable products sold by the Operating Subsidiaries. However,
the Operating Subsidiaries can usually arrange more prompt fulfillment of orders
and shipment of goods due to their warehouse facilities and transportation
fleet. Also, the Operating Subsidiaries can often offer more flexible payment
terms than their competitors with respect to sales to the Hainan State Farms.

         Environmental Protection

         Due to the business nature of the Operating Subsidiaries in the
procurement segment, management does not believe that there are any material
requirements under PRC environmental law or regulations applicable to the
Operating Subsidiaries which could have a material adverse effect on the capital
expenditures, including capital expenditures required in order to comply with
environmental laws and regulation, in the procurement segment of the business of
the Operating Subsidiaries.


PRC LEGAL SYSTEM

         The PRC is still in the process of developing a comprehensive system of
laws. A significant number of laws and regulations dealing, in particular, with
economic matters and foreign investment, protection of intellectual property,
taxation, technology transfer and trade have been promulgated since 1978 when
the PRC first embarked on its economic reform policy. The Constitution was
amended in December 1982 to authorize foreign investment and to guarantee the
"lawful rights and interests" of foreign investors in the PRC.

         National laws in the PRC are promulgated by the National People's
Congress ("NPC"). However, when the NPC is not in session, its Standing
Committee promulgates laws and the NPC acts as a rubber stamp. The State
Council, certain of the entities affiliated with the State Council and people's
congresses at the provincial and municipal levels are also vested with the power
to promulgate administrative measures, rules and regulations having the force of
law.

         The legal system in the PRC is based on written statutes, and decided
cases do not constitute binding precedents, although such cases are sometimes
referred to for guidance. The main legislation governing the judicial system is
The Law of the People's Republic of China concerning the Organization of the
Judicial System, which came into effect on July 1, 1979 and was amended on
September 2, 1983. The main legislation governing civil procedure is The Law of
the People's Republic of China on Civil Procedure (the "Civil Procedure Law")
which came into effect on April 5, 1991.

         All foreign individuals, enterprises and other entities are given the
same rights and obligations as PRC individuals, enterprises and other entities
in instituting or defending proceedings in courts. If, however, the rights and


                                      -17-
<PAGE>

obligations of PRC individuals, enterprises or other entities to institute or
defend legal proceedings are subject to any restriction in any foreign
jurisdiction, then reciprocal restrictions may be imposed by PRC courts on the
rights and obligations of the individuals, enterprises and other entities of
such jurisdictions to institute or defend legal proceedings in the PRC. Foreign
individuals, enterprises and other entities who wish to retain legal counsel in
instituting or defending any proceedings in a PRC court must retain lawyers
qualified in the PRC.

         All civil cases are decided by the court on the basis of a majority
vote and are subject to a two-tier procedure, with cases being heard by a court
of first instance and then subject to appeal to an appellate court. Courts in
the PRC are divided into four levels: the Supreme People's Court, the High
People's Court, the Intermediate People's Court and the Elementary People's
Court. At each level, there is a criminal division, a civil division, an
economic division and an administrative division. Cases involving foreigners are
usually first brought at the intermediate level. The PRC also has specialty
courts which handle maritime military, maritime, railroad, forestry and traffic
matters. The Supreme People's Court is the highest judicial establishment in the
PRC. It is responsible for supervising all other courts. It has appellate
jurisdiction over High People's Courts and specialty courts, and original
jurisdiction in limited circumstances. It also adjudicates certain special
criminal prosecutions. In case of uncertainty in relation to the interpretation
of any law, rule or regulation, the Supreme People's Court may be asked to
provide an opinion on the interpretation of such law, rule or regulation.

         Most judges in the PRC are members of the Chinese Communist Party (the
"CCP"), and the party expects judges to carry out its policies. In an attempt to
promote judicial independence, a long-standing "examination and approval" system
of review by the CCP, which was used in cases involving the death penalty,
foreigners and certain important decisions, was officially abolished in 1979.
However, review of decisions by the party is still common.

         If a legally binding judgment or ruling is given by a PRC court, but
the party against whom such judgment or ruling is to be enforced is not present
or does not have any assets in the PRC, the person seeking enforcement may apply
to the appropriate foreign court for recognition and enforcement of such
judgment or ruling. Alternatively, where there is an applicable judicial
assistance treaty or other arrangement for reciprocal enforcement of judgments
between the PRC and the country in which the PRC judgment or ruling is sought to
be enforced, the PRC court may be asked to seek the enforcement of such judgment
or ruling directly through the courts in such foreign country.

         Similarly, if a party requests a PRC court to recognize or enforce a
judgment or ruling given by a foreign court, such judgment or ruling will be
recognized and enforced only where there is an applicable judicial assistance
treaty or other arrangement for reciprocal enforcement of judgements between the
PRC and the country of the court by which such judgment or ruling is given.
Where there is an applicable judicial assistance treaty, a foreign court may
directly request a PRC court to recognize and enforce such a judgment. The
enforcement of such judgment or ruling, however, must not violate the public
security, state sovereignty or basic principles of the law of the PRC or
contradict the public interest of the PRC. If it is necessary to enforce such
judgment or ruling, the PRC court will issue an enforcement order and will
proceed with enforcement in accordance with PRC law.

         To date, the PRC has concluded judicial assistance treaties with only a
few countries, including Belgium, France, Poland, Mongolia, Ukraine, Romania,
Spain, Italy, Russia, Cuba, Thailand, Egypt, Khazakstan, Belarus, Turkey, Greece
and Bulgaria.

         Foreign arbitral awards may be enforced in the PRC in accordance with
the Civil Procedure Law, which provides that an application for enforcement
shall be submitted to the Intermediate Peoples Court of the place where the
party against whom enforcement is sought is domiciled or where such party's
property is located. Application for enforcement shall be handled pursuant to
international treaties to which the PRC is a party, most importantly the
Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the
"New York Convention"), to which the PRC acceded in 1987. As of September 20,
1993, 129 states and territories were members of the New York Convention,
including the U.S. and Hong Kong, to which Great Britain extended application of
the Convention pursuant to its own accession.

         There is no express requirement in the Civil procedure Law, as in the
case of foreign court judgments and rulings, that foreign arbitral awards which
are brought for enforcement in the PRC must not violate the public security,


                                      -18-
<PAGE>

state sovereignty or basic principles of the law of the PRC or contradict the
public interest of the PRC. However, the New York Convention does permit a PRC
court to refuse recognition and enforcement of a foreign arbitral course on the
grounds that doing so would be contrary to the public policy of the PRC.
Nonetheless, the Civil Procedure Law and the New York Convention allow PRC
courts significantly less basis for rejecting an application or enforcement of a
foreign arbitral award than exists in the case of foreign court judgments or
rulings. A consistent record of enforcement of foreign arbitral awards, however,
has yet to develop.

         The China International Economic and Trade Arbitration Commission
("CIETAC"), established in Beijing under the auspices of the China Council for
the Promotion of International Trade, is one of two domestic arbitration
organizations in the PRC charged with arbitrating foreign-related disputes.
Under the new CIETAC arbitration rules, which came into effect on June 1, 1994,
CIETAC has jurisdiction over any dispute arising from "international or external
economic and trade transactions" with respect to which an arbitration agreement
selecting CIETAC arbitration has been reached. The other arbitration
organization exclusively arbitrates foreign-related maritime disputes.

         The CIETAC rules provide that an award rendered by a CIETAC tribunal
shall be final and binding on the parties. The Civil Procedure Law also provides
that a PRC court may only refuse to enforce a CIETAC final award in the event of
procedural errors relating to the jurisdiction of CIETAC over a given dispute or
the failure by an arbitration tribunal to abide by CIETAC rules, and may also
deny execution of the award in the event that it determines that doing so would
be against the "public interest".

         Although most arbitrations are conducted in Beijing, parties to a
dispute may agree that the dispute be heard under the auspices of either of the
two CIETAC sub-commissions established in Shenzhen and Shanghai. The parties may
agree to appoint a single arbitrator to arbitrate a dispute, but normally three
arbitrators form the arbitration panel. Each party selects one arbitrator and
the chairman of CIETAC selects the third, who acts as chairman of the tribunal.
Arbitrators must be selected from a panel of arbitrators maintained by CIETAC.
The panel of arbitrators currently comprises 296 arbitrators, of which
approximately one-third are either Hong Kong or foreign individuals. The CIETAC
arbitration rules also describe grounds for challenging arbitrators.

         In deciding the substantive aspects of a dispute, the CIETAC
arbitration tribunal must look to the governing law of the contract. PRC foreign
economic contract law permits the parties to choose foreign or PRC law as the
governing law in most cases. In the event that the parties have not chosen a
governing law, PRC choice of law rules provide for the selection of the law
which has the closest connection to the subject matter of the dispute.

         Also, on September 1, 1995, the Arbitration Law of the People's
Republic of China became effective, allowing arbitration commissions to be
established in major cities of the PRC and authorizing such commissions to
arbitrate foreign-related disputes if the subject arbitration agreement submits
such disputes to such commissions.

         The activities of HARC and the Operating Subsidiaries in China are by
law subject, in some cases, to administrative review and approval by various
national, provincial, and local agencies of the Chinese government. While China
has promulgated an Administrative Procedure Law permitting redress to the courts
with respect to certain administrative actions, this law appears to be largely
untested in this context. Although the Company believes that the support of
local, provincial, and national governmental entities benefits the Company's
operations in connection with administrative reviews and receiving approvals,
there can be no assurance that such approvals, when necessary or advisable, will
be forthcoming.

[Item 2]                           PROPERTIES

         The Company does not own any real property with respect to its
operations. The headquarters of HARC, the warehouse and the other facilities of
the Operating Subsidiaries are all located in Hainan Province in the PRC. HARC
and the Operating Subsidiaries use warehouse and other facilities consisting of
a total gross area of approximately 23,000 square meters. Pursuant to the
Restructuring Agreements, surplus office facilities consisting of a total gross
area of approximately 12,000 square meters were transferred to the Farming


                                      -19-
<PAGE>

Bureau. The sales and administrative offices of the Operating Subsidiaries were
relocated to the headquarters of HARC. As is typical in the PRC, the PRC
government owns all of the land on which the improvements are situated. The
local PRC governmental authorities in Hainan Province granted land use rights
with respect to such land for an indefinite term to two related companies owned
and controlled by the Farming Bureau. The rights of HARC and the Operating
Subsidiaries to use the land on which the warehouse and other facilities are
situated are subject to the rights of those two companies.

         The Farming Bureau has also entered into a rental agreement with HARC
with respect to the rental of a portion consisting of 532 square meters of a
building located in Haikou City, PRC, in which HARC's corporate headquarters are
located. Such rental agreement is for a period of 10 years at an annual rental
of Rmb170,240 (US$20,560) payable in equal semi-annual installments. The rental
agreement further provides that HARC shall be responsible for certain costs and
expenses in connection with its use of the property. On August 9, 1996, an
additional rental agreement was entered into between HARC and the Hainan Farming
Bureau Testing Center, an affiliate of the Farming Bureau, on the same building
to expand the office space and to house the sales and administrative functions
of First Supply and Second Supply. The term of the lease is for a period of
eight years (through September 30, 2004), and it covers an area of approximately
314 square meters at an annual rental rate of Rmb72,000 (US$8,696).


[Item 3]                       LEGAL PROCEEDINGS

         In the opinion of management, there are no material legal proceedings
pending or threatened against the Company or any of its subsidiaries as of
December 31, 1997.


[Item 4]                SUBMISSION OF MATTERS TO A VOTE
                               OF SECURITY HOLDERS

         On December 30, 1997, pursuant to proper notice, the Company held its
annual meeting of shareholders. Several matters were submitted to a vote of the
shareholders of the Company, and proxies were properly solicited from the
holders of shares of the Company's common stock on December 12, 1997, the record
date for the meeting established by the Company's Board of Directors. A quorum
of shares entitled to vote was present at the meeting or represented by proxies,
and the following matters were approved by the holders of a majority of the
outstanding shares of the Company:

         1. the election of Tam Cheuk Ho (1,782,301 votes for, 1,450 votes
         withheld, 12,101 abstentions) and Wong Wah On (1,783,301 votes for, 450
         votes withheld, 12,101 abstentions) to serve as directors in Class I;
         and

         2. the ratification of the appointment of Ernst & Young as the
         Company's independent accountants for the fiscal year ending December
         31, 1997 (1,784,351 votes for, 2,501 votes against, 9,000 abstentions).

         The proxy materials sent to the shareholders of the Company, which
include the notice to shareholders and the full text of each of the above
proposals as proposed and adopted, are incorporated herein by reference.



                                    [PART II]

[Item 5]             MARKET FOR REGISTRANT'S COMMON EQUITY
                         AND RELATED STOCKHOLDER MATTERS

         The Company's Common Stock is quoted on the electronic inter-dealer
quotation system operated by The Nasdaq Stock Market, Inc. ("The Nasdaq Stock
Market"), a subsidiary of the National Association of Securities Dealers, Inc.
("NASD"), in the category of Small Cap Issues. The Company's Common Stock has
been traded since August 7, 1995, on The Nasdaq Stock Market under the symbol


                                      -20-
<PAGE>

"CHRB." Prior to such date, the Company's Common Stock was traded in the
over-the counter market on the OTC Bulletin Board (the "Bulletin Board")
operated by the NASD under the symbol "CEVL." Until August 7, 1995, there was
only a limited trading market for the Company's Common Stock. The following
table sets forth the high and low bid prices for the Company's Common Stock as
reported by The Nasdaq Stock Market for each fiscal quarter of 1996 and 1997,
for that period during the fiscal quarter ended September 30, 1995, during which
high and low bid quotations were reported and for the fiscal quarter ended
December 31, 1995. The bid prices are inter-dealer prices, without retail
markup, markdown or commission, and may not necessarily reflect actual
transactions. All of the below quotations were obtained from the monthly
statistical report provided to the Company by The Nasdaq Stock Market, and the
quotations have been adjusted to give retroactive effect to the one-for-ten
reverse stock split that was effective as of December 31, 1996:


<TABLE>
<CAPTION>

                         Period                          High Bid                 Low Bid
                         ------                          --------                 -------
<S>                                                     <C>                   <C>
         1997 Fiscal Year, quarter ended:
                  March 31, 1997.....................       $3.75                 $1.75
                  June 30, 1997......................        4.69                  2.50
                  September 30, 1997.................        4.25                  3.13
                  December 31, 1997..................        3.94                  1.50
         1996 Fiscal Year, quarter ended:
                  March 31, 1996.....................      $62.50                $18.75
                  June 30, 1996......................        19.69                  3.75
                  September 30, 1996.................         5.94                  3.44
                  December 31, 1996..................         4.69                  2.50
</TABLE>

         On March 31, 1998, there were 224 holders of record of the Company's
Common Stock.

         The Company has not paid any dividends with respect to its Common Stock
and has no present plan to pay any dividends in the foreseeable future. The
Company intends to retain its earnings to support the growth and expansion of
its business.

         Any dividends paid in the future by the Company will be paid at the
discretion of the Company's Board of Directors and will be dependent upon
distributions, if any, made by the Operating Subsidiaries through HARC to the
Company's wholly-owned subsidiary, Billion Luck. Applicable PRC law and HARC's
Articles of Association (the "Articles") require that, before HARC, as a limited
joint stock company, distributes profits to investors, it must (1) satisfy all
taxes; (2) provide for all losses incurred in previous years; and (3) allocate a
specified percentage of remaining profits to each of the following: a surplus
reserve (in the amount of 10% of such remaining profits), a collective welfare
fund (in the amount of 10% of such remaining profits), and an incentive fund (in
an amount between 5% and 10% of such remaining profits). The Articles provide
that the foregoing may be adjusted by the HARC'S board of directors based upon
HARC's business performance and development needs, subject to the approval of
HARC's shareholders. Distributions of profits by the Operating Subsidiaries to
HARC, and by HARC to Billion Luck are required to be pro rata in proportion to
such party's investment in such company. In addition to the foregoing, any
future determination to pay a dividend to holders of shares of Common Stock will
depend on the Company's results of operations, its financial condition and other
factors deemed relevant by the Board of Directors. Since the acquisition of
Billion Luck by the Company in December, 1994, the Company has not received any
distributions from any of its subsidiaries and has not made any distributions to
its shareholders.


[Item 6]                    SELECTED FINANCIAL DATA

         The following table sets forth selected financial data of the Company
and its subsidiaries. The selected consolidated financial data in the table for
the Company's four fiscal years ended December 31, 1994, 1995, 1996 and 1997,
are derived from the consolidated financial statements included elsewhere
herein. The selected pro forma financial data in the table for the Company's
fiscal years ended December 31, 1993 and 1994, are derived from the unaudited



                                      -21-
<PAGE>

pro forma consolidated financial information included elsewhere herein. The data
should be read in conjunction with "Management's Discussion and Analysis of
Results of Operations and Financial Condition," the Consolidated Financial
Statements of the Company and related Notes thereto, the Combined Financial
Statements of the Operating Subsidiaries, the unaudited pro forma consolidated
financial information, and other financial information included elsewhere
herein.

<TABLE>
<CAPTION>
                                  ---------------------------------------------------------------------------------------------
                                                             In Thousands, Except Per Share Amounts

                                                                   Year Ended December 31,

                                     1993        1994           1994          1995         1996          1997          1997
                                    (Rmb)        (Rmb)          (Rmb)         (Rmb)        (Rmb)         (Rmb)        (U.S.$)
                                  ----------   ----------    ----------    ----------    ----------    ----------    ----------
                                  (Unaudited   (Unaudited     (Audited      (Audited      (Audited      (Audited      (Audited
                                  Pro forma)   Pro forma)    Historical)   Historical)   Historical)   Historical)   Historical)
                                  ----------   ----------    ----------    ----------    ----------    ----------    ----------
<S>                                <C>          <C>           <C>           <C>           <C>           <C>             <C>    
Income Statement Data
Sales                              1,479,201    1,754,288     1,308,248     1,957,243     1,827,499     1,149,171       138,789
Sales tax
                                      (6,391)        --            --            --            --            --            --
                                  ----------   ----------    ----------    ----------    ----------    ----------    ----------
Net sales                          1,472,810    1,754,288     1,308,248     1,957,243     1,827,499     1,149,171       138,789
Cost of sales                     (1,421,268)  (1,263,309)   (1,851,186)   (1,677,056)   (1,092,972)     (132,001)
                                  ----------   ----------    ----------    ----------    ----------    ----------    ----------
Gross Profit                          51,542       67,344        44,939       106,057       150,443        56,199         6,788
Depreciation of fixed  ssets          (1,410)      (1,981)       (1,129)       (2,820)       (1,813)       (1,429)         (173)
Selling and
 administrative expenses             (25,318)     (39,403)      (24,627)      (54,442)      (50,488)      (32,934)       (3,978)
                                  ----------   ----------    ----------    ----------    ----------    ----------    ----------
Operating income                      24,814       25,960        19,183        48,795        98,142        21,836         2,637

Financial income/(expense), net       (1,737)       9,613         2,568       (33,212)      (19,870)          145            18
Reorganization
  expenses                            (3,029)        --          (3,029)         --            --            --            --
Other income, net                      5,612        6,054        30,580         3,693        13,238         8,216        28,654

Income before income taxes            33,286       43,789        24,334        44,237        84,326        52,561         6,348
Income taxes                          (3,663)     (13,991)       (9,798)       (1,183)       (6,564)       (6,909)
                                  ----------   ----------    ----------    ----------    ----------    ----------    ----------


Net income before
  minority interests                  27,839       37,225        20,671        37,328        70,335        42,763         5,165
Minority interests                   (10,389)     (34,513)      (24,563)       (2,967)      (16,341)      (18,153)
                                  ----------   ----------    ----------    ----------    ----------    ----------    ----------

Net income after
 minority interests                   35,822       18,200         2,198        14,257        20,884        10,282        19,175
                                  ==========   ==========    ==========    ==========    ==========    ==========    ==========

Basic earnings per share*              10.14         3.05          0.37         11.88         17.40          8.57         15.98
                                  ==========   ==========    ==========    ==========    ==========    ==========    ==========
Diluted earnings per share*            10.02         3.04          0.37         11.88         17.40          8.57         15.49
                                  ==========   ==========    ==========    ==========    ==========    ==========    ==========

Other financial data
Income before income
  taxes, minority interests,
  depreciation and 
  amortization                        86,139       54,018         6,524        34,696        45,770        25,463        47,057
                                  ==========   ==========    ==========    ==========    ==========    ==========    ==========

Balance sheet data
Current assets                       508,583      480,235       480,235       633,958       685,216       281,692        34,021
Working capital                        2,227       65,808        68,709       143,986       301,474       217,927        26,320
Total assets                         537,418      533,305       533,305       668,488       705,113       437,880        52,884
Current liabilities                  506,356      414,427       411,526       489,972       383,742        63,765         7,701
Long-term liabilities                   --         54,075        54,075          --            --            --            --
Minority interests                    13,667       51,609        55,914        74,067       108,580       133,143        16,080
Total liabilities and
 minority  interests                 520,023      520,111       521,515       564,039       492,322       196,908        23,781
Shareholder's Equity                  17,395       13,194        11,790       104,449       212,791       240,972        29,103
</TABLE>


                                      -22-
<PAGE>

*    The earnings per share information for the periods presented represents
     primary earnings per share of the Company as if the reverse stock splits in
     1994 and 1996 had been completed at the beginning of the respective
     periods.


[Item 7]              MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

         The following discussion should be read in conjunction with the
Consolidated Financial Statements of the Company and related Notes thereto, and
other financial information included elsewhere herein. The financial statements
of the Company are prepared in conformity with U.S. GAAP.


OVERVIEW

The Company

         The Company is a Nevada holding company whose only significant asset is
a wholly-owned British Virgin Islands subsidiary, Billion Luck, which owns a 56%
interest in HARC, a limited liability joint stock company organized in the PRC
which, through the Operating Subsidiaries, markets and distributes natural
rubber and rubber products produced by the Hainan State Farms and non-state
farms in the PRC, sources building and production materials, chemicals, farm
equipment and machinery, automobiles and other commodities for use primarily by
the Hainan State Farms and other unaffiliated customers, and trades in natural
rubber commodities futures contracts. Accordingly, the Company will derive its
revenues from the distributions paid to the Company through Billion Luck by HARC
resulting from distributions paid by the Operating Subsidiaries. HARC pays
distributions to its shareholders in accordance with their percentage interests
as follows: Billion Luck (56%), Guilinyang Farm (5%) and Farming Bureau (39%).

         The Statements under "Results of Operations" and "Liquidity and Capital
Resources" relate to the operations and financial condition of the Company and
its subsidiaries.

         The Operating Subsidiaries were originally established as state-owned
enterprises in the PRC by the Farming Bureau, a division of the Ministry of
Agriculture of PRC. HARC was established on June 28, 1994, to act as the holding
company of the Operating Subsidiaries. The Operating Subsidiaries principally
engage in the marketing and distribution of raw natural rubber produced by the
Hainan State Farms and non-state farms, and in the trading of natural rubber
commodities futures contracts to hedge the price risk associated with certain
firm commitments for the purchase of natural rubber. As opportunities arise, the
Operating Subsidiaries also enter into natural rubber commodities futures
contracts that are not specific hedges, in anticipation of a rise or fall in the
price of natural rubber, based on their knowledge of the supply and demand
situation with respect to natural rubber in the PRC. They also procure certain
production materials and supplies which include fertilizers, fuels, chemicals,
farm equipment and machinery, and automobiles for the Farming Bureau, the Hainan
State Farms and other unaffiliated customers. In 1996, HARC and the Operating
Subsidiaries also diversified into trading of other agricultural products like
coffee beans.

         Prior to 1994, selling prices of natural rubber were generally set by
the Farming Bureau in order to control the gross profit margin earned by the
Operating Subsidiaries. Commencing in 1994, however, the Farming Bureau
generally ceased establishing the selling price of natural rubber, and instead
allowed Operating Subsidiaries to determine the selling price according to
market conditions, subject to a minimum gross profit margin of 3.5% on natural
rubber purchased from the Hainan State Farms. Generally, materials and supplies
are sold at a higher profit margin than that of natural rubber. The primary cost
of operating the business is the materials cost of natural rubber and other
materials and supplies, as well as selling and administrative expenses.

         Pursuant to the Restructuring Agreements, HARC and the Operating
Subsidiaries agreed to assign to the Farming Bureau the amounts due from the
farms and the affiliates of the Farming Bureau as of September 30, 1996, and the
Farming Bureau agreed to assume the obligations under the short term bank loans,
as part of the corporate restructuring plan. The assignment of amounts due from
farms and affiliates of the Farming Bureau was effective on October 1, 1996, and


                                      -23-
<PAGE>

the assignments of short term bank loans were effective upon approval of such
banks on March 28, 1997 and March 31, 1997. As of September 30, 1996, the
aggregate amount due from the farms and affiliates of the Farming Bureau
amounted to approximately Rmb274 million (US$33 million), and the short term
bank loans amounted to approximately Rmb293 million (US$35 million). According
to the Restructuring Agreements, the Farming Bureau was responsible for the
payment of interest incurred on the bank loans after September 30, 1996.

Results of Operations

         The following table shows the selected audited consolidated income
statement data of the Company and its subsidiaries for the three fiscal years
ended December 31, 1995, 1996 and 1997. The data should be read in conjunction
with the Consolidated Financial Statements of the Company and related Notes
thereto and other financial information included elsewhere therein:

<TABLE>
<CAPTION>

         (In thousands)
---------------------------------------------------------------------------------------------------------

                                                                       Year Ended December 31,

                                                1995           1996           1997          1997
                                               (Rmb)          (Rmb)         (Rmb)         (U.S.$)
---------------------------------------------------------------------------------------------------------

                                             (Audited       (Audited       (Audited      (Audited
                                            Historical)    Historical)   Historical)    Historical)

<S>                                          <C>            <C>            <C>              <C>
Net sales:
  Distribution of natural rubber             1,778,271      1,519,060      1,104,145        133,351
  Procurement of materials and supplies
   and distribution of other agricultural
   products                                    178,972        308,439         45,026          5,438
                                            ----------     ----------     ----------     ----------

                                             1,957,243      1,827,499      1,149,171        138,789

Gross profit                                   106,057        150,443         56,199          6,787
Gross profit margin                                5.4%           8.2%           4.9%           4.9%

Income before income taxes                      44,237         84,326         52,561          6,348
Income taxes                                    (6,909)       (13,991)        (9,798)        (1,183)
                                            ----------     ----------     ----------     ----------

Net income before minority interests            37,328         70,335         42,763          5,165

Minority interests                             (18,153)       (34,513)       (24,563)        (2,967)
                                            ----------     ----------     ----------     ----------

Net income after minority interests             19,175         35,822         18,200          2,198
                                            ==========     ==========     ==========     ==========
</TABLE>



Year Ended December 31, 1997 Compared to Year Ended December 31, 1996

Sales and Gross Profit

         Total net sales for the year ended December 31, 1997, decreased by
Rmb678 million or 37% to Rmb1,149 million, compared to Rmb1,827 million for the
corresponding period in 1996. Net sales of natural rubber declined by Rmb415
million or 27.3% to Rmb1,104 million, compared to Rmb1,519 million for the
corresponding period in 1996. Net sales revenue for the procurement of materials
and supplies decreased significantly by Rmb263 million or 85.4% to Rmb45
million, compared to Rmb308 million for the corresponding period in 1996.

         The decline in natural rubber sales was mainly due to the decrease in
average natural rubber price from approximately Rmb12,700 per ton in 1996 to
approximately Rmb9,600 per ton in 1997, while the sales quantity remained
relatively stable in 1997 as compared with the corresponding period in 1996. The
decline in rubber price was primarily the result of the keen competition from
overseas suppliers. As previously discussed, the outbreak of currency crisis in
the Southeast Asia since the second half year of 1997 caused a significant
currency deflation of most Asian currencies against US dollars, including the
largest natural rubber producing countries like Thailand, Indonesia and
Malaysia, while the exchange rate of Renminbi against US dollars remained
relatively stable in 1997. This currenciy deflation caused a significant decline



                                      -24-
<PAGE>

in the international rubber price by approximately 40% during 1997. The weak
domestic consumption market together with the influx of imported rubber caused
the overall domestic supply of natural rubber to exceed demand.

         Net sales from procurement of materials and supplies dropped
significantly because of the weak consumption market in 1997. Following the
completion of private offshore placements during 1996, the Company had expanded
into trading of other agricultural products, such as coffee beans which were in
high demand in China as a result of the active trading of coffee commodity
futures in China in 1996. The net sales of such activity amounted to Rmb241
million in 1996 with a gross profit margin of approximately 33%. In 1997, the
Company has decided to reduce the scope in trading of other agricultural
products in view of the weak consumption market and high volatility of the
prices of such products. The Company also has determined to reduce the scope of
trading of certain production materials and supplies, such as construction
materials, machinery and automobiles, because of unsatisfactory historical
profit margin contribution.

         Gross profits decreased by Rmb94 million or 62.6% to Rmb56 million in
1997 from Rmb150 million in 1996. The overall gross profit margin also decreased
from 8.2% in 1996 to 4.9% in 1997. The decrease was primarily attributable to
the reduction in scope of trading of other agricultural products which had high
gross margin contribution in 1996. The gross profit margin on natural rubber
distribution was 4.6% in 1997 compared to 4.1% in 1996. The increase was due to
compensation received from customers who defaulted in fulfilling their purchase
agreements.

Selling and Administrative Expenses

         Selling and administrative expenses decreased by Rmb18 million or 35%
to Rmb32.9 million in 1997 from Rmb50.5 million in 1996. This was primarily due
to the successful implementation of the corporate restructuring and cost control
measures in order to reduce administrative overhead, staff costs and related
expenses pursuant to the Restructuring Agreements effective on October 1, 1996.

Financial Expenses, Net

         The net financial expenses changed from a net expense of Rmb20 million
in 1996 to a net income of Rmb145,000 in 1997. This significant reduction of
financial expenses was primarily attributable to the assignment of bank loans to
Farming Bureau which were effective upon the approval of such banks in March
1997, pursuant to the Restructuring Agreements effective on October 1, 1996.
According to the Restructuring Agreements, the Farming Bureau was responsible
for the payment of interest incurred on the bank loans after September 30, 1996.


Other Income, Net

         Other income increased by Rmb24.5 million or 405% to Rmb30.6 million in
1997 from Rmb6.1 million in 1996. This significant increase was primarily due to
the increase in profit from the trading of commodity futures contracts for
non-hedging purposes. A profit on the trading of commodity futures of Rmb28.4
million was recorded for the year 1997, compared to a profit of only Rmb1.4
million for the year 1996.


Year Ended December 31, 1996 Compared to Year Ended December 31, 1995

Sales and Gross Profit

         Total net sales for the year ended December 31, 1996, decreased
slightly by Rmb130 million or 6.6% to Rmb1,827 million, compared to Rmb1,957
million for the corresponding period in 1995. Net sales of natural rubber
declined by Rmb259 million or 14.6% to Rmb1,519 million, compared to Rmb1,778
million for the corresponding period in 1995. The decline in natural rubber
sales has been partially offset by the increase in procurement of materials and
supplies. Net sales revenue for the procurement of materials and supplies
increased significantly by Rmb129 million or 72% to Rmb308 million, compared to
Rmb179 million for the corresponding period in 1995.

                                      -25-
<PAGE>

         The natural rubber market in 1996 was not as favorable as in 1995
because of a weakened domestic rubber consumption market and a decline in the
domestic natural rubber price caused by the large influx of imported natural
rubber. The quantity of natural rubber sales decreased by approximately 18,000
tons or 13% to 120,000 tons, compared to 138,000 tons for the corresponding
period in 1995. The unit price of natural rubber decreased from approximately
Rmb15,500 per ton at the beginning of 1996 to approximately Rmb11,200 per ton by
the end of 1996. During the third quarter of the year, the Company deliberately
stockpiled natural rubber in anticipation of an upward price movement during the
fourth quarter, when output is generally lower. However, the domestic price of
natural rubber continued to be low during the fourth quarter because of the
large influx of imported rubber during the fourth quarter.

         Following the completion of the Company's private offshore placements
on March 8 and July 8, 1996, portions of the net proceeds from the offerings
were invested into HARC and the Operating Subsidiaries as working capital to
expand the distribution operations. During the year, the Company has expanded
into trading of other agricultural products, such as coffee beans which were in
high demand in China as a result of the active trading of coffee commodity
futures in China. During the year, a quantity of approximately 8,500 tons of
coffee beans were sold and a net sales revenue of approximately Rmb241 million
was recorded, which carried an average gross profit of approximately 33%. The
corresponding sales revenue was recorded under the procurement of materials and
supplies. If sales of these agricultural products were excluded, net sales
revenue from procurement of materials and supplies would drop by approximately
Rmb112 million or 62% to Rmb67 million in 1996 from Rmb179 million in 1995. The
decline was mainly due to the prolonged enforcement of the macroeconomic
austerity measures implemented by the Central Government since mid-1993 to rein
in the overheated Chinese economy, which has hampered the domestic consumption
and demand for materials and supplies.

         Gross profits increased by Rmb44 million or 42% to Rmb150 million in
1996 from Rmb106 million in 1995. The overall gross profit margin also increased
from 5.4% in 1995 to 8.2% in 1996. The increase was primarily attributable to
the high gross profit margin earned from the trading of agricultural products.
The gross profit margin on natural rubber distribution was down to 4.2% in 1996
from 5.3% on 1995 due to competition from imported natural rubber. The Company
has mitigated the effect of adverse price movement for domestic rubber on the
gross profit margin by entering into rubber futures contracts to hedge against
the price risk associated with the holding of rubber inventory, rubber purchase
commitments and anticipation of rubber purchases. The purchase discounts
received from the farms, as well as the 3.5% gross profit margin guarantee, also
helped to shield the Company against the effect of the drop in natural rubber
prices on gross profit margins.

Selling and Administrative Expenses

         Selling and administrative expenses decreased by Rmb3.9 million or 7.2%
to Rmb50.5 million in 1996 from Rmb54.4 million in 1995. Pursuant to the
Restructuring Agreements effective on October 1, 1996, the Company strategically
consolidated and rationalized its various trading divisions in order to
streamline its business operations and improve cost control. The successful
implementation of the corporate restructuring and cost control measures has
resulted in reduced administrative overhead, staff costs and related expenses.
This reduction of administrative overhead, staff costs and related welfare
expenses more than offset the increased legal and professional fees associated
with regulatory compliance and public relations costs incurred as a result of
the Nasdaq listing status of the Company.

Financial Expenses, Net

         The net financial expenses decreased by Rmb13.3 or 40% to Rmb19.9
million in 1996 from Rmb33.2 million in 1995. The decrease in net financial
expenses was primarily attributable to the reduction in bank interest expenses
commencing in the fourth quarter of 1996 following the execution of the
Restructuring Agreements effective on October 1, 1996. According to the
Restructuring Agreements, all outstanding bank loans of the Operating
Subsidiaries were deemed assigned to the Farming Bureau, together with the
assignment of certain accounts receivable from the farms and certain affiliates
of the Farming Bureau. As a result, all bank interest incurred by the Operating
Subsidiaries commencing October 1, 1996, was borne by the Farming Bureau.

                                      -26-
<PAGE>

Other Income, Net

         Other income decreased by Rmb22.6 million or 79% to Rmb6.1 million in
1996 from Rmb28.7 million in 1995. This significant reduction in other income
was primarily due to the reduction in profit from the trading of commodity
futures contracts for non-hedging purposes. A profit on the trading of commodity
futures of Rmb10.6 million was recorded for the year 1995, compared to a profit
of only Rmb1.4 million for the year 1996. In addition, a service fee of Rmb5
million was paid to the Farming Bureau in accordance with the Agreement on
Service and Cooperation entered into between the Farming Bureau and HARC dated
November 5, 1994. The agreement stipulates that the Farming Bureau is entitled
to a service fee up to a maximum of Rmb5 million, calculated at a rate of 10% of
HARC's annual net income before the service fee, as determined in accordance
with U.S. GAAP, provided that the annual net income of HARC exceeds Rmb40
million after deducting such fee. No service fee was paid to the Farming Bureau
in 1995 because the financial criteria for such payment was not met.


LIQUIDITY AND CAPITAL RESOURCES

         The Operating Subsidiaries' primary liquidity needs are to fund
accounts receivable, inventories and, to a lesser extent, to expand business
operations. The Operating Subsidiaries have financed their working capital
requirements through the internally generated cash.

         Net cash provided by/(used in) operating activities was (Rmb119
million), Rmb130 million and (Rmb3 million) in fiscal 1995, 1996 and 1997,
respectively. Net cash flows from the Operating Subsidiaries' operating
activities are attributable to the Operating Subsidiaries' income and changes in
operating assets and liabilities. The substantial increase in cash used in
operating activities in 1995 was mainly due to the increase in purchase deposits
paid to Hainan State Farms and to the increase in inventory held at the year end
in anticipation of a higher selling price for natural rubber during the
non-harvest season in early 1996. Effective from January 1, 1997, the Operating
Subsidiaries were no longer require to pay deposits on purchases from Hainan
State Farms.

         The Operating Subsidiaries do not have outstanding bank loans as at
December 31, 1997. The outstanding short term bank loans as at December 31, 1996
were assumed by the Farming Bureau upon the approval of such banks on March 28,
1997 and March 31, 1997. According to the Restructuring Agreements, the Farming
Bureau was responsible for the payment of interest incurred on the bank loans
after September 30, 1996.

         The Farming Bureau has guaranteed the recoverability of current
accounts receivable from the Hainan State Farms and other related companies
controlled and owned by the Farming Bureau.

         The Company believes that the internally generated funds will be
sufficient to satisfy its anticipated working capital needs for at least the
next 12 months.

Inflation

         As a measure to control inflation, the PRC government has reinstated
controls on bank credits, limits on loans for fixed assets and restrictions on
state bank lending. This austerity plan, first announced in June 1993, seems to
have been relaxing during the first half of 1996. There is no assurance that the
austerity program will be completed in the proximate future, nor any assurance
that if it were terminated it might not be later reinstated. While inflation has
moderated since 1994, with the national retail inflation rate falling to 14.8%
6.1% and 1.8% per annum in 1995, 1996 and for the first eight months of 1997,
respectively, there can be no assurance that inflation will not increase in the
future or that further measures to combat inflation and speculative activities
will not be implemented in a manner that may adversely affect the profitability
of the Operating Subsidiaries and HARC over time.

Impact of recently issued accounting standard

         In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"), to established new rules for the reporting and display of
comprehensive income and its components. However, adoption of SFAS 130 in 1998
will have no impact on the Company's consolidated net income or shareholders'
equity.

                                      -27-
<PAGE>

         In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"), to establish standards for the
way public business enterprises report information about operating segments. The
Company has not completed the assessment of SFAS No. 131. However, it is
anticipated that, at a minimum, operating segments would consist of the
distribution of natural rubber and the procurement of materials, supplies and
other agricultural products. SFAS 131 is effective for financial statements for
fiscal year beginning after December 15, 1997 and will be adopted in 1998.

Impact of year 2000

         The Securities and Exchange Commission, in Staff Legal Bulletin No. 5
(CF/IM), has stated that public operating companies should consider whether they
will be affected by any material expenditures, problems or uncertainties
associated with the year 2000 issue, which affects many existing computer
systems that use only two digits to identify a year in the date field. The
Company believes that the matters raised by Staff Legal Bulletin No. 5 are not
applicable in any material way to its own computer systems, and the Company
intends to confirm that any computer systems that the Company may purchase or
lease in the future will have addressed the year 2000 issue.

         The Company is currently determining the extent to which it may be
impacted by third parties' failure to remedy their own year 2000 issues. The
Company is having, and will continue to have, formal communications with all of
its significant customers, payers, suppliers, and other third parties to
determine the extent, if any, to which the Company's interface systems could be
impacted by any third party year 2000 issues and related remedies. There can be
no assurance that the systems of other companies with which the Company's
systems interact will be timely converted and would not have an adverse effect
on the Company's business.

[Item 8]          FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The Company's Consolidated Financial Statements for the three fiscal
years ended December 31, 1997, 1996 and 1995 are included herewith as Appendix A
and incorporated herein by reference.


[Item 9]          CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
                     ON ACCOUNTING AND FINANCIAL DISCLOSURE

         Not applicable.


                                   [PART III]

[Item 10]      DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS

         The following table sets forth the current directors and executive
officers of the Company as of March 31, 1998, and the ages of and positions with
the Company held by each of such persons:

<TABLE>
<CAPTION>


                                  Age                          Position
                                  ---                          --------

<S>                               <C>                                                
Han Jian Zhun                     49               Chairman of the Board of Directors

Li Shunxing                       47               Director and President

Zhang Yibing                      31               Vice Chairman of the Board of Directors

Tam Cheuk Ho                      35               Director and Chief Financial Officer

Wong Wah On                       34               Director, Secretary and Financial Controller

Ching Lung Po                     51               Director

Wan Ying Lin                      49               Director
</TABLE>


                                      -28-
<PAGE>

         Mr. Han Jian Zhun has been a Director of the Company since December,
1994 and Chairman since December 30, 1997. He is also the President and General
Manager of HARC. Mr. Han joined the Farming Bureau in 1968 and has consistently
addressed agriculture production and management issues. Mr. Han joined the top
management of the Farming Bureau in 1986 and became the Deputy Director in 1991.
Mr. Han was also the General Manager of Ba Ye State Rubber Farm from 1990
through 1991. Mr. Han is heavily involved in industrial management of the
Farming Bureau.

         Mr. Li Shunxing has been the President of the Company since December,
1994, and a Director since March 15, 1995. He is also a Director of HARC. He has
been the Director and General Manager of Worlder International Company Limited,
a shareholder of the Company, and Director and Deputy General Manager of Worlder
Shipping Limited, both of which are Hong Kong based, wholly-owned subsidiaries
of SINOTRANS GROUP, a PRC state-owned enterprise, since September, 1992. From
June, 1990 through August, 1992, Mr. Li was the Director and Executive Deputy
General Manager of Cheemimet Finance Ltd. Hong Kong in charge of finance,
property development and investment matters. For over 15 years, he has been
working with conglomerates in China and their subsidiaries abroad under the
Ministry of Foreign Trade and Economic Corporation and has extensive experience
in corporate management, finance, investment and foreign trade. Mr. Li graduated
from the University of International Business & Economics, Beijing, in 1976 with
a Bachelor's degree.

         Mr. Zhang Yibing has been a Director since December, 1994 and Vice
Chairman since December 30, 1997. He is also a Director of HARC. Mr. Zhang
joined Bank of China Beijing Head Office in 1987, working in the Treasury and
Asset Liability Sector. Mr. Zhang was assigned to Bank of China Sydney Branch in
1988 where he was in charge of foreign exchange and money market areas of the
treasury. In March, 1991, Mr. Zhang was transferred to the Bank of China Beijing
Head office where he was the Assistant Manager of Fixed Income Division until
December, 1992, when he resigned from the Bank and joined China Everbright
Holdings Co., Ltd. as Finance Manager. Mr. Zhang became the Corporate Finance
Manager of China Everbright Financial Holdings Limited (formerly known as
"Everbright Finance & Investment Co. Limited"), a wholly-owned subsidiary of
China Everbright Holdings Co. Ltd. in October, 1993, and, in March, 1994, was
appointed the Senior Manager of China Everbright Financial Holdings Limited,
where he was in charge of investment and lending. In February, 1995, Mr. Zhang
became a director of China Everbright Financial Holdings Limited. Mr. Zhang
graduated from Beijing Foreign Languages Institute with a Bachelor's Degree.

         Mr. Tam Cheuk Ho has been a Director and the Chief Financial Officer of
the Company since December, 1994. Prior to joining the Company, from July, 1984
through January, 1992, he worked as Audit Manager at Ernst & Young, Hong Kong,
and from February, 1992 through September, 1992, as Financial Controller at Tack
Hsin Holdings Limited, a listed company in Hong Kong, where he was responsible
for accounting and financial functions. From October, 1992, through December,
1994, Mr. Tam was Finance Director of Hong Wah (Holdings) Limited. He is an
associate of the Hong Kong Society of Accountants and a fellow of the Chartered
Association of Certified Accountants. He is also a certified public accountant
in Hong Kong. He holds a Bachelor's degree in Business Administration from the
Chinese University of Hong Kong.

         Mr. Wong Wah On has been a director since December 30, 1997. Mr. Wong
is also the Financial Controller and Secretary of the Company and a member of
the supervisory committee of HARC. He is responsible for assisting the Chief
Finance Officer with the Company's treasury, accounting and secretarial
functions. From October, 1992, through December, 1994, Mr. Wong was the Deputy
Finance Director of Hong Wah (Holdings) Limited. From July, 1988, through
October, 1992, he was the audit supervisor at Ernst & Young, Hong Kong. He
received a professional diploma in Company Secretaryship and Administration from
the Hong Kong Polytechnic University and is a fellow of the Chartered


                                      -29-
<PAGE>

Association of Certified Accountants, the Hong Kong Society of Accountants, and
the Institute of Chartered Secretaries and Administrators. He is also a
certified public accountant in Hong Kong.

         Mr. Ching Lung Po has been a director of the Company since February 4,
1998. Mr. Ching also has been the Chairman of the Board of Directors and
President of OVM International Holding Corp. (OTC Bulletin Board: OVMI) which is
included on the OTC Bulletin Board operated by the Nasdaq since September 1996,
and the Chariman of Harbin Asibao Chemical Fiber Company Limited since October
1995. Mr. Ching has been involved in more than 20 years in the management of
production and technology of industrial enterprises in PRC. He worked in
Heilongjiang Suihua Electronic Factory as an engineer from 1969 to 1976 and was
the Head of the Heilongjiang Suihua Industrial Science & Technology Research
Institute from 1975 to 1976. Mr. Ching joined the Heilongjiang Qingan Factory in
1976 and became the General Manager since 1976. In 1988, Mr. Ching started his
own business and established the Shenzhen Hongda Science & Technology Company
Limited in Shenzhen which manufactures electronic products. Mr. Ching is
graduated from the Harbin Military and Engineering Institute and holds the title
of Senior Engineer.

         Mr. Wan Ying Lin has been a director of the Company since February 4,
1998. Mr. Wan also has been the Director and Deputy General Manager of OVM
International Holding Corp. (OTC Bulletin Board: OVMI) which is included on the
OTC Bulletin Board operated by the Nasdaq since September 1996. Mr. Wan was
graduated from the Guangxi Liuzhou Institute of Medical Specialty specializing
in administration and management. From January 1986 through December 1987, he
was the manager of Lam Ko Mould Company in charge of th China marketing and
development division in Hong Kong. Then in January 1988 through February 1993,
he worked as the marketing manager in Wai Tong Trading Company in Hong Kong. In
1993, he joined the Hong Kong Prestressing Concrete Engineering Company Limited,
where he serves as manager.

         At the annual meeting of shareholders on December 30, 1997, Messrs. Tam
Cheuk Ho and Wong Wah On were elected to serve as Class I Directors until the
annual meeting to be held in 2000 and until their successors have been duly
elected and qualified. Also, information regarding the resignations of former
director and Chairman Yang Jiangang and former director and Vice Chairman Wang
Faren, and the appointments of Ching Lung Po and Wan Ying Lin to fill the vacant
director positions, is disclosed in the Company's Current Report on Form 8-K,
dated December 29, 1997. Messrs. Han Jian Zhun and Ching Lung Po serve in Class
II until the annual meeting to be held in 1998 and until their successors have
been duly elected and qualified; and Messrs. Li Shunxing, Wan Ying Lin and Zhang
Yibing serve in Class III until the annual meeting to be held in 1999 and until
their successors have been duly elected and qualified.

         The officers of the Company are elected annually at the first Board of
Directors meeting following the annual meeting of shareholders, and hold office
until their respective successors are duly elected and qualified, unless sooner
displaced.

IDENTIFICATION OF SIGNIFICANT EMPLOYEES

         The following table sets forth certain significant employees of the
Company as of December 31, 1997 and the ages of and positions with the Company
held by each of such persons:

         Name                    Age                  Position
         ----                    ---                  --------

         Li Fei Lie               31               Project Manager

         Mr. Li Fei Lie is the Project Manager of the Company. He is also vice
president and a director of HARC, where he is responsible for accounting and
financial control. In 1987, he obtained a Bachelor's degree in Economics from
the Beijing University. In 1990, he obtained a Master's degree in Economics from
the same university. From 1990 through April 1991, he was the Vice Chairman of
the Beijing Agency of Guangxi Wuzhou Boiler Factory. From April, 1991 through
October, 1992, he was the General Manager of the Development Department of
Shenzhen Hong Wah Industrial and Commerce Company Ltd., a Sino-foreign limited
liability joint stock company. In October, 1992, Mr. Li became Assistant to the
General Manager of Hong Wah (Holdings) Limited and was responsible for the
preparatory work relative to the incorporation of HARC.

                                      -30-
<PAGE>
                             
[Item 11]                    EXECUTIVE COMPENSATION

                           SUMMARY COMPENSATION TABLE


<TABLE>
<CAPTION>

                                                                                =================
                                                   Annual Compensation              Long Term
                                                                                  Compensation
                                          --------------------------------------=================

                                                                     Other         Securities
                                                                    Annual         Underlying         All Other
                                           Salary     Bonus      Compensation        Options        Compensation
Name and Principal Position       Year      (US$)     (US$)          (US$)             (1)              (US$)
--------------------------------------------------------------------------------=================------------------
<S>                               <C>        <C>        <C>           <C>              <C>               <C>
Li Shunxing, President            1997      -0-        -0-           -0-              -0-               -0-

                                  1996      -0-        -0-           -0-              -0-               -0-

                                  1995      -0-        -0-           -0-              -0-               -0-


Han Jian Zhun, Chairman of the    1997     1,548       -0-           -0-              600               -0-
Board of Directors, President
of HARC

                                  1996     1,548       -0-           -0-              600               -0-

                                  1995      645        -0-           -0-              600               -0-


Li Fei Lie, Project Manager,      1997     30,968     2,581        38,709            10,000             -0-
Vice President of HARC

                                  1996     30,968     2,581        38,709                               -0-

                                                                                     10,000

                                  1995     56,290      -0-           -0-             10,000             -0-
============================================================================================================

</TABLE>


(1) As of December 31, 1997, none of the stock options held by Mr. Han or Mr. Li
were exercisable. None of such options was "in-the-money" at such date, as the
fair market value (as defined in the Company stock option plan and adjusted as a
result of the one-for-ten reverse stock split) of the common stock on December
31, 1997, was US$1.75 per share.

         The Company paid its Chief Executive Officer, Li Shunxing, no annual
salary or bonus in 1995, 1996 and 1997. During the fiscal years ended December
31, 1995, 1996 and 1997, no director or executive officer of the Company or any
of its subsidiaries was paid a total annual salary and bonus in excess of
US$100,000. Han Jian Zhun, the Chairman of the Board of Directors and the
president of HARC, was paid an annual salary and bonus of HK$5,000 (US$645) for
the year ended December 31, 1995, HK$12,000 (US$1,548) for each of the two years
ended December 31, 1996 and 1997. As of August 1, 1995, Billion Luck entered
into an Employment Agreement with Mr. Han. In accordance with the terms of the
Employment Agreement, Mr. Han has been employed by Billion Luck to perform such
duties with respect to Billion Luck as Billion Luck's Board of Directors shall
from time to time determine. Mr. Han shall receive a base salary of HK$12,000
(US$1,548) annually, which base salary shall be adjusted on each anniversary of
the Employment Agreement to reflect a change in the applicable consumer price
index or such greater amount as Billion Luck's Board of Directors may determine.
The Employment Agreement has a term of three (3) years unless earlier terminated
as provided therein. See "Certain Relationships and Related Transactions."

         Li Fie Lie, the Project Manager of the Company and the vice president
and a director of HARC, was paid annual compensation of HK$436,250 (US$56,290)
for the year ended December 31, 1995, HK$560,000 (US$72,258) for each of the two
years ended December 31, 1996 and 1997. Also, as of August 1, 1995, Billion Luck
entered into an Employment Agreement with Li Fei Lie. In accordance with the
terms of the Employment Agreement, Mr. Li has been employed by Billion Luck to
perform such duties with respect to Billion Luck as Billion Luck's Board of
Directors shall from time to time determine. Mr. Li shall receive a base salary
of HK$240,000 (US$30,968) plus allowances of HK$300,000 (US$38,710) annually,
which base salary shall be adjusted on each anniversary of the Employment
Agreement to reflect a change in the applicable consumer price index or such



                                      -31-
<PAGE>

greater amount as Billion Luck's Board of Directors may determine. The
Employment Agreement has a term of three (3) years unless earlier terminated as
provided therein. See "Certain Relationships and Related Transactions."

         In addition, on May 1, 1997, the Company entered into a consulting
agreement with Brender Services Limited, a British Virgin Islands company
beneficially owned by Mr. Wong Wah On, the Director, Secretary and Financial
Controller of the Company, pursuant to which, Brender Services Limited agreed to
provide consulting services to the Company for a period of three years
commencing on May 1, 1997. In consideration of the services to be rendered by
Brender Services Limited, the Company agreed to pay a consultancy fee of
HK$270,000 (US34,839) per month. The Company also agreed to reimburse Brender
Services Limited for all out-of-pocket costs incurred in connection with
rendering services under the agreement. During the year ended December 31, 1997,
a consulting fee of HK$2,840,000 (US$366,452), was paid to Brender Services
Limited. See "Certain Relationships and Related Transactions."

         Except for the foregoing, the Company has no employment contracts with
any of its officers or directors and maintains no retirement, fringe benefit or
similar plans for the benefit of its officers or directors. The Company may,
however, enter into employment contracts with its officers and key employees,
adopt various benefit plans and begin paying compensation to its officers and
directors as it deems appropriate to attract and retain the services of such
persons.

         The Company does not pay fees to directors for their attendance at
meetings of the Board of Directors or of committees; however, the Company may
adopt a policy of making such payments in the future. The Company will reimburse
out-of-pocket expenses incurred by directors in attending Board and committee
meetings.

         During the fiscal year ended December 31, 1997, no holder of stock
options exercised such options, and all stock options granted remained
outstanding. Also during such fiscal year, no long-term incentive plans or
pension plans were in effect with respect to any of the Company's officers,
directors or employees.


COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         The Company's Board of Directors did not have a compensation committee
or a committee performing similar functions during the year ended December 31,
1997, and no other relationship existed during such year for which disclosure is
required pursuant to Item 401(j) of Regulation S-K.

[Item 12]       SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
                                 AND MANAGEMENT

BENEFICIAL OWNERS OF MORE THAN 5%
OF THE COMPANY'S COMMON STOCK

         The following table sets forth, to the knowledge of management, each
person or entity who is the beneficial owner of more than 5% of the outstanding
shares of the Company's Common Stock or Series B Preferred Stock outstanding as
of March 31, 1998 the number of shares owned by each such person and the
percentage of the outstanding shares represented thereby.

<TABLE>
<CAPTION>

                                                      Amount and
         Name and Address                              Nature of                               Percent of
        of Beneficial Owner                    Beneficial Ownership (1)                           Class
        -------------------                    ------------------------                           -----

<S>                                         <C>                                                  <C>  
Everbright Growth Fund                         334,800 Common Stock                                5.55%
36/F., Far East Finance Centre
16 Harcourt Road
Admiralty, Hong Kong

Worlder International Company                  486,000 Common Stock                                8.06%
 Limited (2)
21/F., Great Eagle Centre
No. 23 Harbour Road
Hong Kong

China Everbright Financial Holdings          3,200,000 Series B Preferred                          100%
Limited
36/F., Far East Finance Centre
16 Harcourt Road
Admiralty, Hong Kong
</TABLE>


                                      -32-
<PAGE>


(1) The inclusion herein of any shares deemed beneficially owned does not
constitute an admission of beneficial ownership of these shares.

(2) Of the 486,000 shares of Common Stock indicated, Worlder International
Company Limited ("Worlder") directly owns 351,000 shares, and the remaining
135,000 shares represent shares of Common Stock owned by Silverich Limited,
which is wholly-owned by Worlder.


SHARE OWNERSHIP OF OFFICERS AND DIRECTORS

         The following table sets forth certain information with respect to the
beneficial ownership of Common Stock as of March 31, 1998, by (i) each director
of the Company, (ii) each executive officer of the Company named in the summary
compensation table, and (iii) all directors and executive officers of the
Company as a group. All information with respect to beneficial ownership has
been furnished by the respective director or executive officer (in the case of
shares beneficially owned by each of them). Unless otherwise indicated in a
footnote, each stockholder possesses sole voting and investment power with
respect to the shares indicated as beneficially owned.

<TABLE>
<CAPTION>
                                                      Amount and
              Name of                                  Nature of                              Percent of
         Beneficial Owner                      Beneficial Ownership (1)                         Class
         ----------------                      ------------------------                         -----

<S>                                            <C>                                        <C>
         Li Shunxing                                    -0-                                      N/A

         Han Jian Zhun                                  -0- (2)                                  N/A

         Tam Cheuk Ho                                   -0- (3)                                  N/A

         Zhang Yibing                                   -0-                                      N/A

         Li Fei Lie                                     -0- (4)                                  N/A

         Wong Wah On                          43,200 Common Stock(5)                             0.72%

         All executive officers               43,200 Common Stock                                0.72%
         and directors as a group
</TABLE>

(1) The inclusion herein of any shares deemed beneficially owned does not
constitute an admission of beneficial ownership of these shares.

(2) Han Jian Zhun was granted options to purchase 600 shares of Common Stock
under the Company's Stock Option Plan as described under "Stock Options," below.

(3) Tam Cheuk Ho was granted options to purchase 600 shares of Common Stock
under the Company's Stock Option Plan as described under "Stock Options," below.

                                      -33-
<PAGE>

(4) Li Fei Lie was granted options to purchase 10,000 shares of Common Stock
under the Company's Stock Option Plan as described under "Stock Options," below.

(5) Brender Services Limited owns 43,200 shares of Common Stock. Brender
Services Limited is beneficially owned by Wong Wah On, the Director, Secretary
and Financial Controller of the Company. In addition, Brender was granted
options to purchase 10,000 shares of Common Stock under the Company's Stock
Option Plan, and Mr. Wong was granted options to purchase 600 shares of Common
Stock under the Plan, as described under "Stock Options," below.

STOCK OPTIONS

         The Company adopted a Stock Option Plan (the "Plan") as of March 31,
1995. The Plan allows the Board of Directors, or a committee thereof at the
Board's discretion, to grant stock options to officers, directors, key
employees, consultants and affiliates of the Company. Initially, 2,400,000
shares of common stock could be issued and sold pursuant to options granted
under the Plan. "Incentive Stock Options" within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), may be granted to
employees, including officers, whether or not they are members of the Board of
Directors, and nonqualified stock options may be granted to any such employee or
officer and to directors, consultants, and affiliates who perform substantial
services for or on behalf of the Company or its subsidiaries.

         The Board of Directors, or a committee appointed by the Board (the
"Committee"), is vested with authority to (i) select persons to participate in
the Plan; (ii) determine the form and substance of grants made under the Plan to
each participant, and the conditions and restrictions, if any, subject to which
grants will be made; (iii) interpret the Plan; and (iv) adopt, amend, or rescind
such rules and regulations for carrying out the Plan as it may deem appropriate.
The Board of Directors has the power to modify or terminate the Plan and from
time to time may suspend, and if suspended may reinstate, any or all of the
provisions of the Plan except that (i) no modification, suspension, or
termination of the Plan may, without the consent of the grantee affected, alter
or impair any grant previously made under the Plan; and (ii) no modification
shall become effective without prior consent of the shareholders of the Company
that would (a) increase the maximum number of shares reserved for issuance under
the Plan, except for certain adjustments allowed by the Plan; (b) change the
classes of employees eligible to participate in the Plan; or (c) materially
increase the benefits accruing to participants in the Plan.

         The Plan provides that the price per share deliverable upon the
exercise of each Incentive Stock Option shall not be less than 100% of the fair
market value of the shares on the date the option is granted, as the Committee
determines. In the case of the grant of any Incentive Stock Option to an
employee who, at the time of the grant, owns more than 10% of the total combined
voting power of all classes of stock of the Company or any of its subsidiaries,
such price per share, if required by the Code at the time of grant, shall not be
less than 110% of the fair market value of the shares on the date the option is
granted. The price per share deliverable upon the exercise of each nonqualified
stock option shall not be less than the higher of (i) the net tangible assets
per share of the Company as of the end of the fiscal year immediately preceding
the date of such granting; or (ii) 80% of the fair market value of the shares on
the date the option is granted, as the Committee determines.

         Options may be exercised in whole or in part upon payment of the
exercise price of the shares to be acquired. Payment shall be made in cash or,
in the discretion of the Committee, in shares previously acquired by the
participant or in a combination of cash and shares of Common Stock. The fair
market value of shares of Common Stock tendered on exercise of options shall be
determined on the date of exercise.

         As of July 1, 1995, pursuant to the recommendation of a committee of
disinterested persons appointed by the board of directors in accordance with the
terms of the Plan, the board of directors granted options to the following
officers and directors to purchase shares of the Company's Common Stock:

     Yiu Yat Hung (former director)                  6,000 shares
     Tam Cheuk Ho                                    6,000 shares
     Han Jian Zhun                                   6,000 shares
     Wong Wah On                                     6,000 shares
     Li Fei Lie                                    100,000 shares

                                      -34-
<PAGE>

In addition, the board of directors granted options to the following employees
and consultant to purchase shares of the Company's Common Stock:

     Brender Services Limited                      100,000 shares
     Cheung Yu Shum                                500,000 shares
     Tse Chi Kai                                   300,000 shares
     Ma Sin Ling                                   500,000 shares
     Cheung Siu Yin                                 10,000 shares
     Woo Pui Yan                                    10,000 shares
     Kwok Kwan Hung                                386,000 shares
     Fu Yang Guang                                 200,000 shares
     Lin Jia Ping                                  270,000 shares

All of the stock options were issued in accordance with the terms of the Plan at
an exercise price of US$3.78 (the fair market value of the Common Stock as of
July 1, 1995) and would have been exercisable beginning on July 1, 1996, and
until July 1, 2005.

         As of May 20, 1996, the board of directors, in accordance with the
recommendation, with respect to stock options granted to directors and officers,
of a committee of disinterested persons appointed by the board of directors in
accordance with the terms of the Plan, reduced the exercise prices of all of the
outstanding options to US$0.42 (the fair market value of the Common Stock as of
May 20, 1996). By virtue of this action, the outstanding options are now
exercisable beginning on May 20, 1997, and until May 20, 2006.

         On January 30, 1996, the shareholders of the Company adopted an
amendment to the Plan (a) to change the number of shares of Common Stock subject
to the Plan to that number of shares which would, in the aggregate and if deemed
outstanding, constitute 20% of the Company's then-outstanding shares of Common
Stock, as determined at the time of granting stock options, and (b) to allow
Nonqualified Stock Options, as defined in the Plan, to be exercisable in less
than one year (no currently outstanding options were changed by such amendment).
Also, by virtue of the one-for-ten reverse stock split approved by the
shareholders on January 30, 1996, and made effective by the board of directors
on December 31, 1996, the number of shares subject to each outstanding option
was reduced by a factor of ten, and the exercise price for the outstanding
options was increased to US$4.20 per share (the fair market value of the Common
Stock as of May 20, 1996, multiplied by ten). Other terms of the outstanding
options were not affected, and the following stock options, which have been
granted with respect to 240,000 shares of Common Stock, remain outstanding:

     Yiu Yat Hung                                      600 shares
     Tam Cheuk Ho                                      600 shares
     Han Jian Zhun                                     600 shares
     Wong Wah On                                       600 shares
     Li Fei Lie                                     10,000 shares
     Brender Services Limited                       10,000 shares
     Cheung Yu Shum                                 50,000 shares
     Tse Chi Kai                                    30,000 shares
     Ma Sin Ling                                    50,000 shares
     Cheung Siu Yin                                  1,000 shares
     Woo Pui Yan                                     1,000 shares
     Kwok Kwan Hung                                 38,600 shares
     Fu Yang Guang                                  20,000 shares
     Lin Jia Ping                                   27,000 shares

                                      -35-
<PAGE>


 [Item 13]       CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The following transactions with the management of the Company and
others are noted:

         On January 31, 1994, the Farming Bureau, Guilinyang Farm, and Billion
Luck entered into a Contract On Investment For The Setting Up Of Hainan
Agricultural Resources Company Ltd. pursuant to which such parties agreed to
establish HARC as a limited liability joint stock company under the Rules for
Standardized Incorporated Companies in the PRC and the regulations of Hainan
Province. The agreement provided that HARC's total initial capitalization of
Rmb100 million (US$12 million) in assets and cash was to be contributed as
follows: the Farming Bureau (39%), Guilinyang Farm (5%) and Billion Luck (56%).

         On July 7, 1994, HARC entered into a Contract of Investment in the
Xilian Timber Mill with the Xilian State Rubber Farm, a subsidiary farm owned
and controlled by the Farming Bureau, pursuant to which HARC subscribed for a
12.64% equity interest in the Xilian Farm Timber Mill ("Xilian Mill"), a timber
factory in Hainan, PRC, for consideration of Rmb5.21 million (US$629,227).
According to the agreement, HARC will be entitled to a fixed 20% return on its
investment in Xilian Mill for a three-year period from the date of subscription.
Thereafter, HARC will be entitled to Xilian Mill's profit in proportion to its
percentage ownership of shares therein, subject to a minimum return of 20% on
its investment. On December 24, 1994, the parties entered into a supplementary
agreement reducing the amount of HARC's investment to Rmb5 million (US$603,865)
but keeping unchanged HARC's percentage ownership of Xilian Mill at 12.64%.

         On July 11, 1994, HARC entered into an agreement with Guilinyang Farm
pursuant to which Guilinyang Farm agreed to sell and HARC agreed to buy a 6.6%
equity interest in Zhong Ya Aluminum Factory (the "Aluminum Factory"), an
aluminum processing plant in Hainan, for consideration totalling Rmb5 million
(US$603,865). In accordance with the terms of the agreement, HARC will be
entitled to a minimum annual return of Rmb1 million ($120,773) in the Aluminum
Factory for a two-year period from the date of acquisition. Thereafter, HARC
will be entitled to pro rata distributions of the profit obtained from the
operation of the Aluminum Factory in proportion to its percentage interest
therein. The 6.6% equity interest in the Aluminum Factory was subsequently
assigned to First Supply by HARC. On December 29, 1997, First Supply entered
into an agreement with Guilinyang Farm pursuant to which HARC agreed to sell the
6.6% equity interest in the Aluminum Factory and to assign the amount receivable
from the Aluminum Factory to Guilingyang Farm at a total consideration of
Rmb7,000,000 (US$845,411).

         On July 15, 1994, the Farming Bureau and HARC entered into a Rental
Agreement for the rental of 532 square meters of a building located in Haikou
City, PRC, in which HARC's corporate headquarters are located. Such rental
agreement is for a period of 10 years at an annual rental of Rmb170,240
(US$20,560) payable in equal semi-annual installments. The rental agreement
further provides that HARC shall be responsible for certain costs and expenses
in connection with its use of the property.

         On November 5, 1994, the Farming Bureau, HARC, First Supply and Second
Supply entered into a Sale and Purchase Agreement, in connection with the
Operating Subsidiaries' natural rubber purchases, materials sourcing and
procurement activities. With respect to the natural rubber segment, the Farming
Bureau agreed to direct the Hainan State Farms to sell to HARC and the Operating
Subsidiaries on a priority basis, and HARC and the Operating Subsidiaries have
agreed to purchase from the Hainan State Farms under the same terms and
conditions as are offered to other purchasers. If HARC or the Operating
Subsidiaries are offered the same quantity and same price for natural rubber
from a Hainan State Farm and a non-state farm, HARC or the Operating
Subsidiaries, as the case may be, must purchase from the Hainan State Farm. If
the price offered by the Hainan State Farm is higher than that from a non-state
farm, HARC or the Operating Subsidiaries, as the case may be, may purchase from
the non-state farm. Otherwise, there is no condition requiring the purchase of
any particular quantity of raw natural rubber from the Hainan State Farms. The
Operating Subsidiaries are also guaranteed a minimum gross profit margin of 3.5%
for sales of natural rubber purchased from the Hainan State Farms.

         With respect to the production materials segment, the Sale and Purchase
Agreement provides that the Farming Bureau will direct the Hainan State Farms to
purchase all of their production materials and other commodities offered by HARC
and the Operating Subsidiaries under the same terms and conditions as are
offered by other suppliers. In the case of production material and other


                                      -36-
<PAGE>

commodities, a Hainan State Farm requests a price quote for a specified quantity
of a particular item from HARC or the Operating Subsidiaries, and HARC or an
Operating Subsidiary provides a quote. Upon receiving the price quote, the
Hainan State Farm can obtain quotes from other suppliers based on the same
quantity of the requested item. The Hainan State Farm must inform HARC or the
Operating Subsidiaries, as the case may be, of the amounts of the other quotes
and, if any of the quotes are lower, HARC or the Operating Subsidiaries have the
right to lower its quote to the level of the competing quote. If HARC or an
Operating Subsidiary matches the competing quote based upon the same quantity of
item requested, the Hainan State Farm must purchase the item from HARC or the
applicable Operating Subsidiary. Otherwise, the Hainan State Farm can purchase
the item from the competing supplier. The Sale and Purchase Agreement has a term
of 15 years and, subject to applicable law, may not be terminated earlier except
upon the agreement of the parties. The Sale and Purchase Agreement will expire
on November 5, 2009. On March 30, 1995, parties entered into a Supplementary
Agreement which clarified certain terms of the Sale and Purchase Agreement among
the parties dated November 5, 1994, including the definitions of "annual gross
profit margin" and "rubber sales revenue." The Supplementary Agreement is
effective as long as the Sale and Purchase Agreement remains effective.

         As of March 31, 1995, the Company entered into an Exchange Agreement
with several of its shareholders whereby the Company's outstanding indebtedness
to those shareholders, in the amount of approximately US$6,400,000, was
exchanged for 6,400,000 shares of Series A Preferred Stock, which was authorized
and issued by the Company as of that date. The shares of Series A Preferred
Stock were issued pursuant to the Exchange Agreement to the shareholders as
follows: Hong Wah Investment Holdings Limited (2,432,000 shares), China
Everbright Financial Holdings Limited. (1,184,000 shares), Worlder International
Company Limited (1,184,000 shares), and Silverich Limited (1,600,000 shares).

         As of March 31, 1995, the Company adopted a Stock Option Plan (the
"Plan") pursuant to which the Company's Board of Directors, or a committee
thereof at the Board's discretion, is authorized to grant stock options to
officers, directors, key employees, consultants and affiliates of the Company.
Initially, 2,400,000 shares of Common Stock were authorized for issuance under
the Plan. As of July 1, 1995, the Board, in accordance with the recommendation,
with respect to stock options granted to directors and officers, of a committee
of disinterested persons appointed by the board of directors in accordance with
the terms of the Plan, granted options for all 2,400,000 shares of Common Stock
authorized under the Plan to various officers, directors and employees of the
Company and to a consultant of the Company. As of May 20, 1996, the Board, in
accordance with the recommendation, with respect to stock options granted to
directors and officers, of a committee of disinterested persons appointed by the
board of directors in accordance with the terms of the Plan, reduced the
exercise prices of all of the outstanding options to US$0.42 (the fair market
value of the Common Stock as of May 20, 1996). By virtue of this action, the
outstanding options became exercisable beginning on May 20, 1997, and until May
20, 2006. On December 30, 1996, the shareholders of the Company adopted an
amendment to the Plan (a) to change the number of shares of Common Stock subject
to the Plan to that number of shares which would, in the aggregate and if deemed
outstanding, constitute 20% of the Company's then-outstanding shares of Common
Stock, as determined at the time of granting stock options, and (b) to allow
Nonqualified Stock Options, as defined in the Plan, to be exercisable in less
than one year (no currently outstanding options were changed by such amendment).
Also, by virtue of the one-for-ten reverse stock split approved by the
shareholders on December 30, 1996, and made effective by the board of directors
on December 31, 1996, the number of shares subject to each outstanding option
was reduced by a factor of ten, and the exercise price for the outstanding
options was increased to US$4.20 per share (the fair market value of the Common
Stock as of May 20, 1996, multiplied by ten). Other terms of the outstanding
options were not affected, and all of the outstanding stock options, which have
been granted with respect to 240,000 shares of Common Stock, remain outstanding.
See "Security Ownership of Certain Beneficial Owners and Management" and the
China Resources Development, Inc., Amended and Rested 1995 Stock Option Plan,
which is attached hereto as Exhibit 10.34 and incorporated herein by reference.

         As of April 30, 1995, the Company entered into a consulting agreement
with Brender Services Limited pursuant to which Brender Services Limited agreed
to provide accounting and consulting services to the Company for a period of
five years commencing on May 1, 1995. In consideration of the services rendered
by Brender Services Limited, the Company agreed to pay a consultancy fee of
HK$170,000 (US$21,935) per month during the first two years of the term of the
consulting agreement and a fee to be agreed upon by the parties, but not less
than HK$170,000 (US$21,935) per month, for the remaining three years of the
term. The Company also agreed to reimburse Brender Services Limited for all


                                      -37-
<PAGE>

out-of-pocket costs incurred in connection with rendering services under the
agreement. As of April 30, 1997, the Company renewed the consulting agreement
with Brender Services Limited pursuant to which the Company agreed to pay a
consultancy fee of HK$270,000 (US$32,609) per month effective May 1, 1997 for a
three-year term in consideration of the accounting and consulting services
rendered by Brender Services Limited. During the year ended December 31, 1997, a
consulting fee of HK$2,840,000 (US$366,452) was paid to Brender Services
Limited.

         As of August 1, 1995, Billion Luck entered into an Employment Agreement
with Han Jian Zhun. Mr. Han Jian Zhun is presently the Chairman of the Board of
Directors the Company and the president of HARC, but, in accordance with the
terms of the Employment Agreement, Mr. Han Jian Zhun has been employed by
Billion Luck to perform such duties with respect to Billion Luck as Billion
Luck's Board of Directors shall from time to time determine. Mr. Han Jian Zhun
shall receive a base salary of HK$12,000 (US$1,548) annually, which base salary
shall be adjusted on each anniversary of the Employment Agreement to reflect a
change in the applicable consumer price index or such greater amount as Billion
Luck's Board of Directors may determine. The Employment Agreement has a term of
three (3) years unless earlier terminated as provided therein.

         As of August 1, 1995, Billion Luck entered into an Employment Agreement
with Li Fei Lie. Mr Li is presently the Project Manager of the Company and the
vice president and a director of HARC, but, in accordance with the terms of the
Employment Agreement, Mr. Li has been employed by Billion Luck to perform such
duties with respect to Billion Luck as Billion Luck's Board of Directors shall
from time to time determine. Mr. Li shall receive a base salary of HK$240,000
(US$30,968) annually, which base salary shall be adjusted on each anniversary of
the Employment Agreement to reflect a change in the applicable consumer price
index or such greater amount as Billion Luck's Board of Directors may determine.
The Employment Agreement has a term of three (3) years unless earlier terminated
as provided therein.

         During the three fiscal years ended December 31, 1995, 1996 and 1997,
the Operating Subsidiaries engaged in the trading of natural rubber futures
contracts through a broker owned by Jin Huan Corporation ("Jin Huan"), a PRC
company which is owned by the Farming Bureau. These transactions resulted in
payments of handling fees by the Operating Subsidiaries to the broker which
amounted to Rmb4.4 million (US$531,401), Rmb3.5 million (US$422,705) and Rmb0.3
million (US$36,232) in 1995, 1996 and 1997, respectively.

         On March 25, 1996, HARC entered into a Loan Agreement with the Farming
Bureau by which HARC borrowed Rmb35,867,857 (US$4,331,867) in order to more
effectively utilize capital raised and to enable HARC to more effectively plan
for its production operations and new investment projects. The loan is
interest-free and is to be repaid by conversion of the loan into registered
capital of HARC upon the approval for such conversion by relevant government
authorities. On December 31, 1996, a supplementary agreement was entered into
between the same parties by which a new article was created to impose a right of
set off against the loan or any additional loan made by the Farming Bureau to
HARC against any amounts due to HARC by the Farming Bureau and/or its subsidiary
companies and affiliates.

         On March 25, 1996, HARC entered into a Loan Agreement with the Company
by which HARC borrowed Rmb45,650,000 (US$5,513,285) in order to more effectively
utilize capital raised and to enable HARC to more effectively plan for its
production operations and new investment projects. The loan is interest-free,
and it is to be repaid by conversion of the loan into registered capital of HARC
upon the approval for such conversion by relevant government authorities.

         On July 22, 1996, the Company entered into an Exchange Agreement with
China Everbright Financial Holdings Limited (formerly known as "Everbright
Finance and Investment Co. Ltd."), pursuant to which all 6,400,000 outstanding
shares of the Company's Series A Preferred Stock held by Everbright were
exchanged for 32,000,000 shares of Common Stock, which were subject to
substantial restrictions. Such restrictions included a waiver for seven years of
rights to dividends and distributions upon dissolution and liquidation of the
Company, and a waiver for eight years of the ability to have the shares included
in any registration statement filed by the Company.

         On August 9, 1996, HARC entered into a rental agreement with the Hainan
Farming Bureau Testing Center, an affiliate of the Farming Bureau located on the
same floor of the building where HARC's headquarters is located. The term of the


                                      -38-
<PAGE>

lease is for a period of eight years (through September 30, 2004) at an annual
rental of Rmb72,000 (US$8,696), and it covers an area of approximately 314
square meters.

         As of October 1, 1996, the Farming Bureau, Guilinyang Farm and Billion
Luck entered into a Shareholders' Agreement on Business Restructuring by which
the operations of HARC, First Supply and Second Supply were restructured with
effect from October 1, 1996. The restructuring was aimed to simplify and
streamline the corporate structure of the Operating Subsidiaries by
consolidating the various trading and servicing divisions into a few principal
trading and servicing divisions. Certain non-core assets, liabilities and
surplus employees were transferred to the Farming Bureau.

         As of October 1, 1996, and concurrent with the execution of the
Shareholders' Agreement on Business Restructuring, the Farming Bureau, HARC,
First Supply and Second Supply entered into an Asset and Staff Transfer
Agreement by which certain non-core assets and liabilities with a net
liabilities value of Rmb64.6 million (US$7.80 million), as determined by an
independent professional valuer in the PRC, as well as certain surplus employees
of the Operating Subsidiaries, were transferred to the Farming Bureau.

         As of December 31, 1996, the Company entered into another Exchange
Agreement with China Everbright Financial Holdings. Limited (formerly known as
"Everbright Finance and Investment Co. Ltd."), pursuant to which the 32,000,000
pre-reverse-split shares of restricted Common Stock were exchanged for 3,200,000
post-reverse-split shares of the Company's Series B Preferred stock. The terms
of the Series B Preferred stock were amended by the Board of Directors in
connection with the new Exchange Agreement, and such Series B Preferred stock is
not convertible and has no dividend rights or rights to receive distributions
upon dissolution and liquidation of the Company. The Series B Preferred stock
also may not be included in any registration statement filed by the Company, and
the Company will not take any action to facilitate the registration of the
Series B Preferred stock, until after July 22, 2000.

         As of December 29, 1997, HARC entered into a Stock Transfer Agreement
with Guilingyang Farm pursuant to which Guilinyang Farm agreed to sell and HARC
agreed to buy 28,000,000 legal person shares representing 5.3% of the total
issued and outstanding share capital of Hainan Sundiro Motorcycle Company Ltd.,
a PRC company listed on the Shenzhen Stock Exchange of the PRC, for a
consideration totaling Rmb140,000,000 (US$16,908,213).

         In addition to these transactions, the following business relationships
existed during the fiscal year ended December 31, 1997, for which disclosure is
required: As disclosed in "Management and Certain Security Holders,"
hereinabove, Han Jian Zhun, the Chairman of the Board of Directors of the
Company, also serves as the Deputy Director of the Farming Bureau. The nature
and scope of the relationship between the Company and the Farming Bureau is set
forth in "Business" and elsewhere hereinabove.




                                      -39-
<PAGE>


                                    [PART IV]
                    
[Item 14]           EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
                             AND REPORTS ON FORM 8-K


         The following financial statements are filed as a part of this Form
10-K in Appendix A hereto:


         Independent auditors' report, together with consolidated financial
         statements for the Company and subsidiaries, including:

                  a.       Consolidated statements of income for the three years
                           ended December 31, 1995, 1996 and 1997

                  b.       Consolidated statements of changes in shareholders'
                           equity for the three years ended December 31, 1995,
                           1996 and 1997

                  c.       Consolidated balance sheets as of December 31, 1996
                           and 1997

                  d.       Consolidated statements of cash flows for the three
                           years ended December 31, 1995, 1996 and 1997

                  e.       Notes to consolidated financial statements.


         The following Exhibits are filed as part of this Form 10-K:

Exhibit No.                    Exhibit Description
-----------                    -------------------


3.1      Articles of Incorporation of the Registrant, filed on January 15, 1986
         (Filed with Annual Report on Form 10-K/A for the fiscal year ended
         December 31, 1994, and incorporated herein by reference.)

3.2      By-laws of the Registrant (Filed with Annual Report on Form 10-K/A for
         the fiscal year ended December 31, 1994, and incorporated herein by
         reference.)

3.3      Certificate of Amendment of Articles of Incorporation of the
         Registrant, filed on November 18, 1994 (Filed with Annual Report on
         Form 10-K/A for the fiscal year ended December 31, 1994, and
         incorporated herein by reference.)

3.4      Certificate of Amendment of Articles of Incorporation of the
         Registrant, filed on November 18, 1994 (Filed with Annual Report on
         Form 10-K/A for the fiscal year ended December 31, 1994, and
         incorporated herein by reference.)

3.5      Certificate of Amendment of Articles of Incorporation of the
         Registrant, effective March 31, 1995, and filed on June 19, 1995 (Filed
         with Quarterly Report on Form 10-Q/A for the fiscal quarter ended March
         31, 1995, and with Current Report on Form 8-K dated June 19, 1995, and
         incorporated herein by reference.)

3.6      Certificate of Amendment of Articles of Incorporation of the
         Registrant, effective December 30, 1996 (Filed with Annual Report on
         Form 10-K/A for the fiscal year ended December 31, 1996, and
         incorporated herein by reference.)

                                      -40-
<PAGE>

3.7      Amended and Restated By-laws of the Registrant, as amended on December
         30, 1996 (Filed with Annual Report on Form 10-K/A for the fiscal year
         ended December 31, 1996, and incorporated herein by reference.)

4.1      Certificate of Designation of Series B Convertible Preferred Stock,
         filed on December 13, 1995 (Filed with Current Report on Form 8-K dated
         March 8, 1996, and incorporated herein by reference.)

4.2      Certificate of Amendment of Certificate of Designation of Series B
         Convertible Preferred Stock, effective December 31, 1997 (Filed with
         Annual Report on Form 10-K/A for the fiscal year ended December 31,
         1996, and incorporated herein by reference.)

10.1     Assignment Agreement dated January 21, 1994, by and between Hong Wah
         (Holdings) Limited and Billion Luck Company Ltd. (Filed with Annual
         Report on Form 10-K/A for the fiscal year ended December 31, 1994, and
         incorporated herein by reference.)

10.2     Contract on Investment for the Setting up of Hainan Agricultural
         Resources Company Ltd. dated January 31, 1994, by and among Hainan
         Province Agricultural Reclamation General Company (the Farming Bureau),
         Hainan Province Guilinyang State Farm, and Billion Luck Company Ltd.
         (Original Chinese version with English translation filed with Annual
         Report on Form 10-K/A for the fiscal year ended December 31, 1994, and
         incorporated herein by reference.)

10.3     Loan Agreement dated May 10, 1994, by and among Everbright Finance &
         Investment Co. Limited, Worlder International Company Limited, Hong Wah
         Investment Holdings Limited, Silverich Limited, Brender Services
         Limited, and Billion Luck Company Ltd. (Filed with Annual Report on
         Form 10-K/A for the fiscal year ended December 31, 1994, and
         incorporated herein by reference.)

10.4     Credit Agreement dated June 1, 1994, by and among Everbright Finance &
         Investment Co. Limited, Worlder International Company Limited, Hong Wah
         Investment Holdings Limited and Billion Luck Company Ltd. (Filed with
         Annual Report on Form 10-K/A for the fiscal year ended December 31,
         1994, and incorporated herein by reference.)

10.5     Contract on the Transfer of Share Ownership of Hainan Zhongya Aluminum
         Co., Ltd. dated July 11, 1994, by and between Hainan Province
         Guilinyang State Farm and Hainan Agricultural Resources Co., Ltd.
         (Filed with Annual Report on Form 10-K/A for the fiscal year ended
         December 31, 1994, and incorporated herein by reference.)

10.6     Letter Agreement dated August 8, 1994, by and among Everbright Finance
         & Investment Co. Limited, Worlder International Company Limited, Hong
         Wah Investment Holdings Limited and Billion Luck Company Ltd.,
         supplementing Credit Agreement dated June 1, 1994 (Filed with Annual
         Report on Form 10-K/A for the fiscal year ended December 31, 1994, and
         incorporated herein by reference.)

10.7     Letter Agreement dated October 24, 1994, by and among Everbright
         Finance & Investment Co. Limited, Worlder International Company
         Limited, and Billion Luck Company Ltd. (Filed with Annual Report on
         Form 10-K/A for the fiscal year ended December 31, 1994, and
         incorporated herein by reference.)

10.8     Acquisition Agreement, by and among the Registrant and the shareholders
         of Billion Luck Company Ltd. (Filed with Annual Report on Form 10-K/A
         for the fiscal year ended December 31, 1994, and incorporated herein by
         reference.)

10.9     Agreement on Service and Cooperation dated November 5, 1994, by and
         between Hainan Province Agricultural Reclamation General Company (the
         Farming Bureau) and Hainan Agricultural Resources Company Ltd.
         (Original Chinese version with English translation filed with Annual
         Report on Form 10-K/A for the fiscal year ended December 31, 1994, and
         incorporated herein by reference.)

                                      -41-
<PAGE>

10.10    Land Use Agreement dated November 5, 1994, by and between Hainan
         Province Agricultural Reclamation No. 1 Materials Supply & Sales
         Company (First Supply) and Hainan Province Agricultural Reclamation Jin
         Long Materials General Company (Original Chinese version with certified
         English translation filed with Annual Report on Form 10-K/A for the
         fiscal year ended December 31, 1994, and incorporated herein by
         reference.)

10.11    Land Use Agreement dated November 5, 1994, by and between Hainan
         Province Agricultural Reclamation No. 2 Materials Supply & Sales
         Company (Second Supply) and Hainan Province Agricultural Reclamation
         Jin Huan Materials General Company (Original Chinese version with
         certified English translation filed with Annual Report on Form 10-K/A
         for the fiscal year ended December 31, 1994, and incorporated herein by
         reference.)

10.12    Long-Term Sale and Purchase Agreement dated November 5, 1994, by and
         among Hainan Province Agricultural Reclamation General Company (the
         Farming Bureau), Hainan Agricultural Resources Company Ltd., Hainan
         Province Agricultural Reclamation No. 1 Materials Supply & Marketing
         Company (First Supply), and Hainan Province Agricultural Reclamation
         No. 2 Materials Supply & Marketing Company (Second Supply) (Original
         Chinese version with English translation filed with Annual Report on
         Form 10-K/A for the fiscal year ended December 31, 1994, and
         incorporated herein by reference.)

10.13    Agreement on Assignment of Accounts Receivable dated November 5, 1994,
         by and among Hainan Province Agricultural Reclamation General Company
         (the Farming Bureau), Billion Luck Company Ltd., Hainan Province
         Guilinyang State Farm, Hainan Agricultural Resources Company Ltd.,
         Hainan Province Agricultural Reclamation No. 1 Materials Supply &
         Marketing Company (First Supply), and Hainan Province Agricultural
         Reclamation No. 2 Materials Supply & Marketing Company (Second Supply)
         (Original Chinese version with English translation filed with Annual
         Report on Form 10-K/A for the fiscal year ended December 31, 1994, and
         incorporated herein by reference.)

10.14    Rental Agreement, by and between General Bureau of Hainan State Farms
         (the Farming Bureau) and Hainan Agricultural Resources Company Limited
         (Original Chinese version with English Translation filed with Annual
         Report on Form 10-K/A for the fiscal year ended December 31, 1994, and
         incorporated herein by reference.)

10.15    Guaranty Agreement, by and among Hainan Province Agricultural
         Reclamation General Company (the Farming Bureau), Hainan Agricultural
         Reclamation No. 1 Materials Supply & Sales Company (First Supply) and
         Hainan Agricultural Reclamation No. 2 Materials Supply & Sales Company
         (Second Supply) (Original Chinese version with certified English
         Translation filed with Annual Report on Form 10-K/A for the fiscal year
         ended December 31, 1994, and incorporated herein by reference.)

10.16    Financial Consulting Agreement dated February 1, 1994, by and between
         Brender Services Limited and Billion Luck Company Ltd., and Extension
         Agreement dated November 1, 1994, by and between Brender Services
         Limited and Billion Luck Company Ltd. (Filed with Annual Report on Form
         10-K/A for the fiscal year ended December 31, 1994, and incorporated
         herein by reference.)

10.17    Exchange Agreement, by and among the Registrant, Hong Wah Investment
         Holdings Limited, Everbright Finance & Investment Co. Ltd., Worlder
         International Company Limited and Silverich Limited, executed as of
         March 31, 1995 (Filed with Quarterly Report on Form 10-Q/A for the
         fiscal quarter ended March 31, 1995, and incorporated herein by
         reference.)

10.18    China Resources Development, Inc., 1995 Stock Option Plan, adopted as
         of March 31, 1995 (Filed with Quarterly Report on Form 10-Q/A for the
         fiscal quarter ended March 31, 1995, and the Current Report on Form 8-K
         dated June 19, 1995, and incorporated herein by reference.)

                                      -42-
<PAGE>

10.19    Consulting Agreement between the Registrant and Brender Services
         Limited, dated April 30, 1995 (Filed with Quarterly Report on Form 10-Q
         for the fiscal quarter ended June 30, 1995, and incorporated herein by
         reference.)

10.20    Letter dated June 1, 1995, extending the repayment date to December 31,
         1995, for loans extended to Billion Luck by Everbright Finance &
         Investment Co. Limited, Worlder International Company Limited and Hong
         Wah Investment Holdings Limited, pursuant to Credit Agreement dated
         June 1, 1994 (Filed with Quarterly Report on Form 10-Q for the fiscal
         quarter ended September 30, 1995, and incorporated herein by
         reference.)

10.21    Agreement on Administrative Expenses Apportionment between First Supply
         and Jin Ling Corporation, dated March 15, 1995 (Original Chinese
         version with English translation filed with Annual Report on Form 10-K
         for the fiscal year ended December 31, 1995, and incorporated herein by
         reference.)

10.22    Agreement on Administrative Expenses Apportionment between Second
         Supply and Jin Huan Corporation, dated March 15, 1995 (Original Chinese
         version with English translation filed with Annual Report on Form 10-K
         for the fiscal year ended December 31, 1995, and incorporated herein by
         reference.)

10.23    Agreement on Rubber Purchase Deposits among HARC, First Supply, Second
         Supply and the Farming Bureau, dated March 30, 1995 (Original Chinese
         version with English translation filed with Annual Report on Form 10-K
         for the fiscal year ended December 31, 1995, and incorporated herein by
         reference.)

10.24    Employment Agreement between Billion Luck and Han Jian Zhun, dated
         August 1, 1995 (Filed with Annual Report on Form 10-K for the fiscal
         year ended December 31, 1995, and incorporated herein by reference.)

10.25    Employment Agreement between Billion Luck and Li Fei Lie, dated August
         1, 1995 (Filed with Annual Report on Form 10-K for the fiscal year
         ended December 31, 1995, and incorporated herein by reference.)

10.26    Contract on Investment in the Xilian Timber Mill between HARC and the
         State-Run Xilian Farm of Hainan Province dated July 7, 1994, and
         Supplementary Agreement dated December 24, 1994 (Original Chinese
         version with English translation filed with Annual Report on Form 10-K
         for the fiscal year ended December 31, 1995, and incorporated herein by
         reference.)

10.27    Exchange Agreement, by and between the Registrant and Everbright
         Finance & Investment Co. Limited, dated July 22, 1996 (Filed with
         Quarterly Report on Form 10-Q for the fiscal quarter ended September
         30, 1996, and incorporated herein by reference.)

10.28    Loan Agreement between HARC and the Farming Bureau, dated March 25,
         1996, and the supplementary agreement dated December 31, 1996
         (Certified English translation of original Chinese version filed with
         Annual Report on Form 10-K/A for the fiscal year ended December 31,
         1996,and incorporated herein by reference.)

10.29    Loan Agreement between HARC and the Registrant, dated March 25, 1996
         (Certified English translation of original Chinese version filed with
         Annual Report on Form 10-K/A for the fiscal year ended December 31,
         1996, and incorporated herein by reference.)

                                      -43-
<PAGE>

10.30    Rental Agreement between HARC and the Hainan Farming Bureau Testing
         Center, dated August 9, 1996 (Certified English translation of original
         Chinese version filed with Annual Report on Form 10-K/A for the fiscal
         year ended December 31, 1996, and incorporated herein by reference.)

10.31    Shareholders' Agreement on Business Restructuring among the Farming
         Bureau, Guilinyang Farm and Billion Luck, dated as of October 1, 1996
         (Certified English translation of original Chinese version filed with
         Annual Report on Form 10-K/A for the fiscal year ended December 31,
         1996, and incorporated herein by reference.)

10.32    Assets and Staff Transfer Agreement among the Farming Bureau, HARC,
         First Supply and Second Supply, dated as of October 1, 1996 (Certified
         English translation of original Chinese version filed with Annual
         Report on Form 10-K/A for the fiscal year ended December 31, 1996, and
         incorporated herein by reference.)

10.33    Exchange Agreement, by and between the Registrant and Everbright
         Finance & Investment Co. Limited, dated December 31, 1996 (Filed with
         Annual Report on Form 10-K/A for the fiscal year ended December 31,
         1996, and incorporated herein by reference.)

10.34    China Resources Development, Inc., Amended and Restated 1995 Stock
         Option Plan, as amended on December 30, 1996 (Filed with Annual Report
         on Form 10-K/A for the fiscal year ended December 31, 1996, and
         incorporated herein by reference.)

10.35    Agency Agreement on Natural Rubber Distribution between Hainan General
         Bureau Jin Huan Materials Supply General Company and HARC, dated
         January 2, 1997 (Certified English translation of original Chinese
         version filed with Quarterly Report on Form 10-Q for the fiscal quarter
         ended March 31, 1997, and incorporated herein by reference.)

10.36    Advertising and Media Agreement by and between the Registrant and
         Marketing Direct Concepts, Inc., dated April 1, 1997 (Filed with
         Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
         1997, and incorporated herein by reference.)

10.37    Financial Consulting Agreement by and between the Registrant and
         Integrated Capital Development Group, Inc., dated May 1, 1997 (Filed
         with Quarterly Report on Form 10-Q for the fiscal quarter ended June
         30, 1997, and incorporated herein by reference.)

10.38    Consulting Agreement between the Registrant and Brender Services
         Limited, dated April 30, 1997 (Filed herewith.)

10.39    Stock Purchase Agreement, by and between HARC and Guilinyang Farm,
         dated December 29, 1997. (Certified English translation of original
         Chinese version filed herewith.)

10.40    Agreement for the Sale and Purchase of Share in Hainan Zhongya Aluminum
         Company Ltd., dated December 29, 1997, by and between First Supply and
         Guilinyang Farm. (Certified English translation of original Chinese
         version filed herewith.)

11.3     Computation of Earnings Per Share for Fiscal Year ended December 31,
         1997 (Contained in Financial Statements filed herewith.)

21       Subsidiaries of the Registrant (Contained in Financial Statements filed
         herewith.)

27.4     Financial Data Schedule (Filed herewith. For SEC use only.)

99.2     Notice of Annual Meeting, Proxy Statement and Proxy distributed to
         shareholders in advance of annual meeting held on December 30, 1997
         (Filed with Schedule 14A dated December 20, 1997, and incorporated
         herein by reference.)

                                      -44-
<PAGE>

         During the last quarter of the fiscal year ended December 31, 1997, the
         Company filed no reports on Form 8-K. However, on March 9, 1998, the
         Company filed a report on Form 8-K dated December 29, 1997, which
         reported, in Item 5, the acquisition by HARC of 28,000,000 legal person
         shares of Hainan Sundiro Motorcsycle Company Limited, and certain
         changes to the Company's board of directors. No financial statements
         were filed.


                                      -45-
<PAGE>



                                   SIGNATURES

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


                             CHINA RESOURCES DEVELOPMENT, INC.



                             By: /s/ Li Shunxing
                                ------------------
                                 Li Shunxing, President


         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.

<TABLE>
<CAPTION>

                  Signature                                   Title                             Date
                  ---------                                   -----                             ----

<S>                                               <C>                                     <C>
/s/ Han Jian Zhun                                 Chairman of the Board of                 April 15, 1998
-----------------------------                     Directors
Han Jian Zhun                                     



/s/ Li Shunxing                                   President/Director                       April 15, 1998
-----------------------------
Li Shunxing



/s/ Zhang Yibing                                  Vice President/Director                  April 15, 1998
-----------------------------
Zhang Yibing



/s/ Tam Cheuk Ho                                  Chief Financial Officer/                 April 15, 1998
-----------------------------                     Director
Tam Cheuk Ho                                      



/s/ Wong Wah On                                   Financial Controller/                    April 15, 1998
-----------------------------                     Director/Secretary
Wong Wah On                                       



/s/ Ching Lung Po                                 Director                                 April 15, 1998
-----------------------------
Ching Lung Po



/s/ Wan Ying Lin                                  Director                                 April 15, 1998
-----------------------------
Wan Ying Lin

</TABLE>


                                      -46-
<PAGE>

                                   APPENDIX A

                              Financial Statements



Independent auditors' report, together with consolidated financial statements
for the Company and subsidiaries, including:

a.       Consolidated statements of income for the three years ended December
         31, 1995, 1996 and 1997

b.       Consolidated statements of changes in shareholders' equity for the
         three years ended December 31, 1995, 1996 and 1997

c.       Consolidated balance sheets as of December 31, 1996 and 1997

d.       Consolidated statements of cash flows for the three years ended
         December 31, 1995, 1996 and 1997

e.       Notes to consolidated financial statements.




                                      -47-
<PAGE>



                        Consolidated Financial Statements


               CHINA RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

                        December 31, 1995, 1996 and 1997



<PAGE>


               CHINA RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                     Pages


Report of independent auditors                                        F-1

Consolidated statements of income                                     F-2

Consolidated statements of changes in shareholders' equity            F-3

Consolidated balance sheets                                         F4 - F5

Consolidated statements of cash flows                                 F-6

Notes to consolidated financial statements                        F-7 - F-37



<PAGE>



REPORT OF INDEPENDENT AUDITORS


The Board of Directors and Shareholders
China Resources Development, Inc.


We have audited the accompanying consolidated balance sheets of China Resources
Development, Inc. and its subsidiaries as of December 31, 1996 and 1997, and the
related consolidated statements of income, changes in shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1997.
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 auditing standards generally accepted
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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of China Resources
Development, Inc. and its subsidiaries at December 31, 1996 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with accounting
principles generally accepted in the United States of America.







ERNST & YOUNG
Hong Kong
February 18, 1998


                                      F-1
<PAGE>


               CHINA RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

                       CONSOLIDATED STATEMENTS OF INCOME

            (Amounts in thousands, except share and per share data)



<TABLE>
<CAPTION>

                                                                            Year ended December 31,
                                        Notes               1995           1996             1997             1997
                                                            RMB             RMB              RMB              US$


<S>                                    <C>              <C>             <C>              <C>                <C>    
NET SALES*                                               1,957,243       1,827,499        1,149,171          138,789

COST OF SALES*                                          (1,851,186)     (1,677,056)      (1,092,972)        (132,001)
                                                         ---------       ---------        ---------        ---------

GROSS PROFIT                                               106,057         150,443           56,199            6,788

DEPRECIATION                                                (2,820)         (1,813)          (1,429)            (173)

SELLING, GENERAL AND

  ADMINISTRATIVE EXPENSES*                                 (54,442)        (50,488)         (32,934)          (3,978)


FINANCIAL INCOME/
  (EXPENSES), NET*                           4             (33,212)        (19,870)             145               18

OTHER INCOME, NET*                           5              28,654           6,054           30,580            3,693
                                                         ---------       ---------        ---------        ---------

INCOME BEFORE INCOME TAXES                                  44,237          84,326           52,561            6,348

INCOME TAXES                                 6              (6,909)        (13,991)          (9,798)          (1,183)
                                                         ---------       ---------        ---------        ---------

INCOME BEFORE MINORITY
  INTERESTS                                                 37,328          70,335           42,763            5,165

MINORITY INTERESTS                                        (18,153)         (34,513)         (24,563)          (2,967)
                                                         ---------       ---------        ---------        ---------

NET INCOME                                                  19,175          35,822           18,200            2,198
                                                         =========       =========        =========        =========

EARNINGS PER SHARE                           7
    Basic                                                    15.98           10.14             3.05             0.37
                                                         =========       =========        =========        =========


    Diluted                                                  15.49           10.02             3.04             0.37
                                                         =========       =========        =========        =========

</TABLE>



* Including the following amounts resulting from transactions with related
parties (note 14):
<TABLE>
<CAPTION>

                                                       Year ended December 31,
                                          1995           1996             1997             1997
                                          RMB             RMB              RMB              US$

<S>                                     <C>             <C>             <C>              <C>   
NET SALES                               107,722         205,694         278,051          33,581
COST OF SALES                        (1,619,392)     (1,412,835)       (993,557)       (119,995)
SELLING, GENERAL AND
  AND ADMINISTRATIVE EXPENSES            (1,985)         (2,381)         (6,981)           (843)
FINANCIAL INCOME/(EXPENSES), NET         12,492          25,031          10,509           1,269
OTHER INCOME, NET                         3,576            (926)          1,485             179


</TABLE>

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

                                      F-2
<PAGE>


               CHINA RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

            (Amounts in thousands, except share and per share data)

<TABLE>
<CAPTION>

                                                                  Series B
                                                      Series A   convertible Series B    Additional
                                             Common   preferred   preferred  preferred     paid-in               Retained
                                  Notes       stock     stock       stock      stock       capital    Reserves   earnings    Total
                                               RMB       RMB         RMB        RMB          RMB         RMB        RMB        RMB

<S>                               <C>         <C>       <C>         <C>         <C>         <C>         <C>        <C>        <C>   
Balance at December 31, 1994                    101        --          --         --        1,407       2,657      7,625      11,790
Issuance of 6,400,000
  shares of series A
  preferred stock                     12       --        53,930        --         --         --          --         --        53,930
Issuance of 370 shares of
  series B convertible
  preferred stock, net of
  share offering costs                12       --          --          --         --       19,554        --         --        19,554
Net income                                     --          --          --         --         --          --       19,175      19,175
Transfer to reserves                  18       --          --          --         --         --         6,273     (6,273)       --
                                             ------      ------     ------     ------     -------       -----   --------    --------

Balance at December 31, 1995                    101      53,930        --         --       20,961       8,930     20,527     104,449

Issuance of 1,283 shares of
  series B convertible
  preferred stock, net of
  share offering costs                12       --          --          --         --       72,520        --         --        72,520
Conversion of 1,653 shares of
  series B convertible preferred
  stock to 4,579,004 shares
  of common stock                     12        383        --          --         --         (383)       --         --          --
Exchange of 6,400,000 shares
  of series A preferred stock
  for 3,200,000 shares of
  common stock with
  substantial restrictions
  ("Restricted Common Stock")         12        270     (53,930)       --         --       53,660        --         --          --
Reverse stock split, ten-to-one       12       (679)       --          --         --          679        --         --          --
Exchange of 3,200,000 shares
  of Restricted Common Stock
  for 3,200,000 shares of
  series B preferred stock            12        (27)       --          --           27       --          --         --          --
Net income                                     --          --          --         --         --          --       35,822      35,822
Transfer to reserves                  18       --          --          --         --         --         8,818     (8,818)       --
                                             ------      ------     ------     ------     -------       -----   --------    --------

Balance at December 31, 1996                     48       --          --            27    147,437     17,748      47,531    212,791

Issuance of 250,000 shares
  of common stock                     12          2        --          --         --        6,298        --         --         6,300
Issuance of 350,000 common
  stock warrants to non-
  employees                           13       --          --          --         --        3,681        --         --         3,681
Net income                                     --          --          --         --         --          --       18,200      18,200
Transfer to reserves                  18       --          --          --         --         --         7,766     (7,766)       --
                                             ------      ------     ------     ------     -------       -----   --------    --------

Balance at December 31, 1997                     50       --          --            27    157,416     25,514      57,965    240,972
                                           ========    ========    ========   ========   ========    ========   ========    ========
</TABLE>


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

                                      F-3

<PAGE>


               CHINA RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

            (Amounts in thousands, except share and per share data)


<TABLE>
<CAPTION>

                                                                               December 31,
                                                   Notes            1996           1997            1997
                                                                     RMB            RMB             US$

<S>                                               <C>            <C>            <C>              <C>
ASSETS

CURRENT ASSETS
Cash and cash equivalents                                        131,006        124,547          15,042
Trade receivables                                                  4,212         11,249           1,359
Inventories                                           8           55,452         61,792           7,463
Other receivables, deposits and
  prepayments                                                     48,755         29,139           3,519
Amount due from Farming Bureau                       14          298,570         14,921           1,802
Amounts due from related companies                   14          147,221         40,044           4,836
                                                                 -------        -------         -------

TOTAL CURRENT ASSETS                                             685,216        281,692          34,021

PROPERTY AND EQUIPMENT, NET                           9            6,504          7,496             905

INVESTMENTS                                          10           12,344        147,671          17,835

GOODWILL                                                           1,049          1,021             123
                                                                 -------        -------         -------

TOTAL ASSETS                                                     705,113        437,880          52,884
                                                                 =======        =======         =======
</TABLE>

                                      F-4

<PAGE>


               CHINA RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

                    CONSOLIDATED BALANCE SHEETS (continued)

            (Amounts in thousands, except share and per share data)


<TABLE>
<CAPTION>

                                                                                    December 31,
                                                    Notes             1996             1997               1997
                                                                       RMB              RMB                US$
<S>                                                 <C>           <C>                <C>                <C>
LIABILITIES AND SHAREHOLDERS'
  EQUITY

CURRENT LIABILITIES
Bank loans                                            11           292,560                -                  -
Accounts payable                                                    25,848           20,284              2,450
Other payables and accrued liabilities                              43,295           21,106              2,549
Amounts due to shareholders                           14             4,976                -                  -
Income taxes payable                                                17,063           22,375              2,702
                                                                   -------          -------            -------

TOTAL CURRENT LIABILITIES                                          383,742           63,765              7,701

MINORITY INTERESTS                                                 108,580          133,143             16,080
                                                                   -------          -------            -------

TOTAL LIABILITIES AND MINORITY
  INTERESTS                                                        492,322          196,908             23,781
                                                                   -------          -------            -------

COMMITMENTS AND CONTINGENCIES                         19

SHAREHOLDERS' EQUITY 
Common stock, US$0.001 par value:
  Authorized - 200,000,000 shares
    in 1997 and 1996
  Issued and outstanding -
    6,029,004 shares in 1997 and
    5,779,004 shares in 1996                          12                48               50                  6
Preferred stock, authorized -
  10,000,000 shares in 1997
  and 1996:
      Series B preferred stock, US$0.001
        par value:
        Authorized - 3,200,000 shares in
           1997 and 1996
        Issued and outstanding - 3,200,000
           shares in 1997 and 1996                    12                27               27                  3
Additional paid-in capital                                         147,437          157,416             19,012
Reserves                                              18            17,748           25,514              3,081
Retained earnings                                     18            47,531           57,965              7,001
                                                                   -------          -------            -------

TOTAL SHAREHOLDERS' EQUITY                                         212,791          240,972             29,103
                                                                   -------          -------            -------

TOTAL LIABILITIES AND
   SHAREHOLDERS' EQUITY                                            705,113          437,880             52,884
                                                                   =======          =======            =======
</TABLE>


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


                                      F-5

<PAGE>


               CHINA RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

            (Amounts in thousands, except share and per share data)

<TABLE>
<CAPTION>

                                                                               Year ended December 31,
                                                                  1995           1996           1997            1997
                                                                   RMB            RMB            RMB             US$
<S>                                                               <C>            <C>            <C>             <C>
OPERATING ACTIVITIES
Net income                                                        19,175         35,822         18,200          2,198
Adjustments to reconcile net income to net cash
  provided by/(used in) operating activities:
    Depreciation and amortization                                  2,848          1,840          1,457            176
    Stock-based compensation issued to non-employees                --             --            3,680            445
    Minority interests                                            18,153         34,513         24,563          2,967
    Loss/(gain) on disposal of property and equipment, net        (1,326)          --              463             56

Decrease/(increase) in assets:
  Trade receivables                                               (9,995)       (64,774)        (7,037)          (850)
  Inventories                                                    (12,025)        20,338         (6,340)          (766)
  Other receivables, deposits and prepayments                     (8,249)       (38,549)        25,917          3,130
  Amount due from Farming Bureau                                 (80,427)       (26,061)        (8,911)        (1,076)
  Amounts due from related companies                             (23,793)       (65,718)       (27,823)        (3,360)
  Other current assets                                            (5,054)         5,054           --             --
Increase/(decrease) in liabilities:
  Accounts payable                                                (2,364)        47,661         (5,564)          (672)
  Other payables and accrued liabilities                          (6,647)        59,697        (22,189)        (2,680)
  Amount due to Farming Bureau                                   (14,978)          --             --             --
  Amounts due to related companies and shareholders                 (813)       113,280         (4,976)          (601)
  Income taxes payable                                             6,602          6,798          5,312            641
                                                                --------       --------       --------       --------
Net cash provided by/(used in) operating activities             (118,893)       129,901         (3,248)          (392)
                                                                --------       --------       --------       --------

INVESTING ACTIVITIES
Purchases of property and equipment                               (4,275)        (2,663)        (2,884)          (348)
Purchases of investments                                            --           (2,342)          (327)           (40)
Proceeds from sale of construction in progress                    19,299           --             --             --
Proceeds from sale of property and equipment                       1,935             16           --             --
Proceeds from the sale of investments                                 59           --             --             --
Loans to related companies                                       (21,072)       (67,046)          --             --
                                                                --------       --------       --------       --------
Net cash used in investing activities                             (4,054)       (72,035)        (3,211)          (388)
                                                                --------       --------       --------       --------

FINANCING ACTIVITIES
Issue of share capital less share offering costs                   9,831         86,914           --             --
Loans from shareholders                                            5,807           --             --             --
Repayment of loans from shareholders                                --          (15,727)          --             --
Proceeds from bank borrowings                                    175,000           --             --             --
Repayments of bank borrowings                                   (170,323)          (440)          --             --
Loan from Farming Bureau                                            --           35,868           --             --
Short term advances                                               86,917           --             --             --
Repayment of short term advances                                    --          (86,917)          --             --
Loans from related companies                                       3,500           --             --             --
Repayment of loans from related companies                           --           (3,500)          --             --
                                                                --------       --------       --------       --------
Net cash provided by financing activities                        110,732         16,198           --             --
                                                                --------       --------       --------       --------

NET INCREASE/(DECREASE) IN CASH AND CASH
   EQUIVALENTS                                                   (12,215)        74,064         (6,459)          (780)

Cash and cash equivalents, at beginning of year                   69,157         56,942        131,006         15,822
                                                                --------       --------       --------       --------

Cash and cash equivalents, at end of year                         56,942        131,006        124,547         15,042
                                                                ========       ========       ========       ========
</TABLE>


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

                                      F-6

<PAGE>


               CHINA RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            (Amounts in thousands, except share and per share data)


1.       ORGANIZATION AND PRINCIPAL ACTIVITIES

         China Resources Development, Inc. (the "Company") was formerly known as
         Magenta Corporation ("Magenta") which was incorporated on January 15,
         1986 in the State of Nevada, the United States of America. Following a
         reverse acquisition by the former shareholders of Billion Luck Company
         Limited ("Billion Luck") in December 1994, the Company became the
         holding company of Billion Luck and its subsidiaries (collectively the
         "Group").

         Billion Luck was incorporated in the British Virgin Islands on December
         14, 1993. Billion Luck's principal activity is to conduct activities
         through its subsidiaries and its principal asset is a 56% equity
         interest in Hainan Agricultural Resources Company Limited, which
         changed its name to Hainan Zhongwei Agricultural Resources Company
         Limited ("Hainan Agricultural") in 1997.


         Pursuant to an agreement dated January 31, 1994 between Billion Luck,
         Guilinyang State Farm (the "Guilinyang"), and the Hainan Farming Bureau
         (the "Farming Bureau"), a division of the Ministry of Agriculture of
         the People's Republic of China (the "PRC"), Hainan Agricultural was
         established as a joint stock company in the PRC on June 28, 1994 to act
         as the holding company of First Goods And Materials Supply And Sales
         Corporation ("First Supply") and Second Goods And Materials Supply And
         Sales Corporation ("Second Supply") which are principally engaged in
         the distribution of natural rubber and the procurement of materials,
         supplies and other agricultural products in the PRC.


         Hainan Agricultural has a registered capital of RMB100,000. The
         contributions to the registered capital are as follows:

         Billion Luck                                                56%
         Farming Bureau                                              39%
         Guilinyang                                                   5%



2.       BASIS OF PRESENTATION

         The consolidated financial statements included the accounts of the
         Company and its subsidiaries.

         The consolidated financial statements are prepared in accordance with
         accounting principles generally accepted 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 the PRC which
         are prepared in accordance with the accounting principles and the
         relevant financial regulations in the PRC ("PRC GAAP").

         The principal adjustments made to the PRC GAAP statutory financial
         statements of PRC subsidiaries to conform with US GAAP are the
         write-off of pre-operating expenses and the recognition/deferral of
         realized and unrealized gains or losses from commodity futures
         contracts for hedging and non-hedging purposes.

                                      F-7

<PAGE>


               CHINA RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            (Amounts in thousands, except share and per share data)


3.       SUMMARY OF PRINCIPAL ACCOUNTING POLICIES

         (a)      Principles of consolidation
                  The consolidated financial statements include the accounts of
                  the Company and its subsidiaries. Significant intercompany
                  balances and transactions have been eliminated on
                  consolidation.

         (b)      Cash and cash equivalents
                  The Group considers cash and cash equivalents to include cash
                  on hand and demand deposits with banks with original terms to
                  maturity of three months or less.

                  At December 31, 1996 and 1997, cash and cash equivalents
                  included foreign currency deposits equivalent to RMB37,772
                  (US$3,445 and HK$8,578) and RMB3,442 (US$384 and HK$246),
                  respectively.

         (c)      Inventories
                  Inventories are stated at the lower of cost and market value,
                  net of any hedging adjustments for realized and unrealized
                  gains or losses on qualifying hedging contracts. Cost is
                  determined using the first-in, first-out method.

         (d)      Property and equipment
                  Property and equipment are stated at cost less accumulated
                  depreciation.

                  Depreciation 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:

                  Buildings                                                 4%
                  Leasehold improvements              Over the term of the lease
                  Machinery, equipment and motor vehicles                 8-10%

         (e)      Investments
                  Investments in companies that are at least 20% to 50% owned,
                  and over which the Group is in a position to exercise a
                  significant influence but does not control the financial and
                  operating decisions, are accounted for by the equity method.

                  All other equity investments, not being a subsidiary and which
                  do not have a readily determinable fair value, are accounted
                  for by the cost method.


                                      F-8

<PAGE>


               CHINA RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            (Amounts in thousands, except share and per share data)


3.       SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)

         (f)      Retirement benefits
                  The contributions to the retirement plans for employees under
                  defined contribution retirement plans are charged to earnings
                  as services are provided.

         (g)      Goodwill
                  Goodwill is amortized on the straight-line basis over 40 
                  years.

         (h)      Long-lived assets
                  Statement of Financial Accounting Standard No. 121,
                  "Accounting for the Impairment of Long-Lived Assets and for
                  Long-Lived Assets to be Disposed of" ("SFAS 121") requires
                  impairment losses be recognized for long-lived assets, whether
                  these assets are held for disposal or continue to be used in
                  operations, when indicators of impairment are present and the
                  fair value of these assets are estimated to be less than their
                  carrying amounts.

         (i)      Stock-based compensation
                  The Group has elected to follow Accounting Principles Board
                  Opinion No. 25, "Accounting for Stock Issued to Employees"
                  ("APB 25") and related interpretations in accounting for its
                  employee stock options. Under APB 25, because the exercise
                  price of employee stock options equals the market price of the
                  underlying stock on the date of grant, no compensation expense
                  is recorded. For disclosure purposes, pro forma information in
                  accordance with Statement of Financial Accounting Standards
                  No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123")
                  has been included in the note 13 to the consolidated financial
                  statements.


                  In accordance with SFAS 123, except for transactions with
                  employees that are within the scope of APB 25, all
                  transactions in which services are received and the
                  consideration given is the issuance of equity instruments are
                  accounted for based on the fair value of the consideration
                  received or the fair value of the equity instruments issued.
                  The cost of such services is charged to earnings over the
                  respective service period.

                                      F-9

<PAGE>


               CHINA RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            (Amounts in thousands, except share and per share data)


3.       SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)

         (j)      Futures contracts
                  As part of its risk management strategy, the Group enters into
                  commodity futures contracts to hedge the price risk associated
                  with existing inventories and certain firm commitments for the
                  purchase of goods. Such contracts are designated as hedges,
                  are short term in nature to correspond to the
                  exposure/commitment periods, and are effective in hedging the
                  Group's exposure to price changes. Future contracts are marked
                  to market and gains or losses on qualifying hedges are
                  deferred and recognized as an adjustment of the carrying
                  amount of the inventories being hedged or are deferred and
                  included as part of the cost of inventories received under the
                  firm purchase commitments and recognized in earnings when
                  realized as an adjustment to cost of sales. Unrealized changes
                  in fair value of contracts no longer effective as hedges are
                  recognized in income from the date the contract becomes
                  ineffective until their expiration.

                  The Group also enters into natural rubber commodity futures
                  contracts that are not specific hedges and gains or losses
                  resulting from changes in the market value of these types of
                  futures contracts on a mark to market basis are recognized as
                  income in the period of the change.

         (k)      Revenue recognition
                  Sales represent the invoiced value of goods sold, net of
                  returns. Revenue is recognized upon delivery of goods to
                  customers.

         (l)      Income taxes
                  Income taxes have been provided using the liability method in
                  accordance with Statement of Financial Accounting Standards
                  No. 109, "Accounting for Income Taxes" ("SFAS 109").

         (m)      Reverse stock split
                  On December 30, 1996, the Company's shareholders approved a
                  ten-to-one reverse split of the Company's common stock (the
                  "Reverse Stock Split"). With the par value unchanged at
                  US$0.001 per share, the Reverse Stock Split was effected by a
                  transfer to the additional paid-in capital account. All
                  references in the consolidated financial statements referring
                  to share, stock option and per share amounts of the common
                  stock of the Company have been adjusted retroactively for the
                  Reverse Stock Split.


                                      F-10

<PAGE>


               CHINA RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            (Amounts in thousands, except share and per share data)


3.       SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)


         (n)      Earnings per share
                  In 1997, the Financial Accounting Standards Board issued
                  Statement of Financial Accounting Standards No. 128, "Earnings
                  per Share" ("SFAS 128"). SFAS 128 replaced the calculation of
                  primary and fully diluted earnings per share with basic and
                  diluted earnings per share. Unlike primary earnings per share,
                  basic earnings per share excludes any dilutive effects of
                  options, warrants and convertible securities. Diluted earnings
                  per share is very similar to the previously reported fully
                  diluted earnings per share. All earnings per share amounts for
                  all periods have been presented and, where appropriate,
                  restated to conform to SFAS 128 requirements.

         (o)      Foreign currency translation
                  The financial records of the subsidiaries except for Billion
                  Luck are maintained and their statutory financial statements
                  are stated in Renminbi ("RMB"), the national currency of the
                  PRC.

                  Transactions and monetary assets and liabilities denominated
                  in other currencies are translated into RMB at the respective
                  applicable rates of exchange quoted by the People's Bank of
                  China (the "Exchange Rate"). Monetary assets and liabilities
                  denominated in other currencies are translated into RMB at the
                  applicable Exchange Rate at the respective balance sheet
                  dates. Income statement amounts are translated at the average
                  Exchange Rates for the period. The resulting exchange gains or
                  losses are credited or charged to the consolidated statements
                  of income.

                  The books and records of the Company and Billion Luck are
                  maintained in United States dollars ("US$") and Hong Kong
                  dollars ("HK$"), respectively. The records of the Company and
                  Billion Luck are translated into RMB using the respective
                  applicable Exchange Rate prevailing at the date of the
                  transactions. Monetary assets and liabilities in US$, HK$ and
                  other foreign currencies are translated using the applicable
                  Exchange Rates at the balance sheet dates. Income statement
                  amounts are translated at the average Exchange Rates for the
                  period. The resulting exchange gains or losses are credited or
                  charged to the consolidated statements of income.


                                      F-11


<PAGE>


               CHINA RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            (Amounts in thousands, except share and per share data)


3.       SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)

         (o)      Foreign currency translation (continued)
                  The translation of amounts from RMB into US$ for the
                  convenience of the reader has been made at the Exchange Rate
                  quoted by the People's Bank of China on December 31, 1997 of
                  US$1.00 = RMB8.28, and accordingly, differs from the
                  underlying foreign currency amounts. No representation is made
                  that the RMB amounts could have been, or could be, converted
                  into US$ at that rate on December 31, 1997 or at any other
                  date.

                  The market risks associated with changes in exchange rates and
                  the restrictions over the convertibility of RMB into foreign
                  currencies are discussed in note 20.

         (p)      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.


         (q)      Comparative amounts
                  Certain comparative amounts have been reclassified to conform
                  with the current year's presentation.



4.       FINANCIAL INCOME/(EXPENSES), NET

         Financial income/(expenses), net represent:

<TABLE>
<CAPTION>

                                                                 Year ended December 31,
                                                         1995            1996              1997
                                                          RMB             RMB               RMB

<S>                                                   <C>             <C>               <C>     
         Interest expenses                            (52,409)        (48,495)          (15,007)
         Interest income                               18,575          29,602            14,849
         Foreign exchange gains/(losses), net             622            (977)              303
                                                       ------          ------            ------

                                                      (33,212)        (19,870)              145
                                                       ======          ======            ======
</TABLE>


         In connection with the restructuring of operations as set out in note
         14(e), with effect from October 1, 1996, the amounts due from certain
         related companies have become interest-free and the interest expense on
         bank loans of the Group was borne by the Farming Bureau until the
         effective transfer of the bank loans to the Farming Bureau in March
         1997 (note 14(e)).

                                      F-12


<PAGE>


               CHINA RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            (Amounts in thousands, except share and per share data)


5.       OTHER INCOME, NET

         Other income, net represents:

<TABLE>
<CAPTION>

                                                                                    Year ended December 31,
                                                          Notes               1995            1996              1997
                                                                               RMB             RMB               RMB

<S>                                                       <C>                <C>             <C>               <C>                  
         Income from long term investments                                   2,000           1,525                 -
         Rental income                                                       5,297           3,474             1,024
         Net gains on trading of commodity
           futures contracts                              3(j)              10,614           1,374            28,375
         Service fee to the Farming
           Bureau                                         14(c)                  -          (5,000)                -
         Management fee income                            14(d)              6,000           6,000                 -
         Commission received from Jin Huan                14                     -               -             1,833
         Loss/(gain) on disposal of property and
           equipment, net                                                    1,326               -              (463)
         Others                                                              3,417          (1,319)             (189)
                                                                            ------          ------            ------
                                                                            28,654           6,054            30,580
                                                                            ======          ======            ======
</TABLE>


6.       INCOME TAXES

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


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


         The Group's PRC subsidiaries are subject to a tax rate of 15% on income
         reported in their statutory financial statements. However, Hainan
         Agricultural has been granted a tax holiday under the PRC income tax
         laws with a tax exemption in the first year which is the period from
         June 28, 1994 (date of registration) to December 31, 1994 and a 50% tax
         deduction in the second year of operation which is the year ended
         December 31, 1995 (tax saving attributable to the Group of RMB209 or
         RMB0.17 per share, after adjusting for the Reverse Stock Split in
         1996). There will be no tax deduction thereafter.


                                      F-13

<PAGE>


               CHINA RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            (Amounts in thousands, except share and per share data)


6.       INCOME TAXES (continued)

         A reconciliation between the actual income tax expenses and income
         taxes computed by applying the statutory PRC tax rate applicable to
         foreign investment enterprises operating in Hainan, a Special Economic
         Zone in the PRC, to the income before income taxes is as follows:

<TABLE>
<CAPTION>


                                                                                    Year ended December 31,
                                                                            1995             1996               1997
                                                                             RMB              RMB                RMB
<S>                                                                          <C>              <C>                <C>
         Statutory PRC tax rate                                              15%              15%                15%

         Computed expected tax expenses                                    6,636           12,649              7,884
         Impact of tax holiday of Hainan Agricultural                       (374)               -                  -
         Item which gives rise to no tax benefit:
           Net loss of the Company and Billion Luck                          669            1,160              1,974
         Others                                                              (22)             182                (60)
                                                                          ------           ------             ------
         Taxation charge for the year                                      6,909           13,991              9,798
                                                                          ======           ======             ======
</TABLE>

         Undistributed earnings of the Company's foreign subsidiaries amounted
         to RMB55,190 and RMB79,549 at December 31, 1996 and 1997,
         respectively. Because those earnings are considered to be indefinitely
         invested, no provision for USA 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 USA
         corporate income taxes. Unrecognized deferred USA corporate income tax
         in respect of these undistributed earnings, less the Company's
         accumulated losses available for deduction for tax purposes, as at
         December 31, 1996 and 1997 was RMB16,161 and RMB19,708, respectively.

         No deferred income taxes have been provided based on the liability
         method prescribed by SFAS 109 because the effect of all temporary
         differences is considered immaterial.

                                      F-14

<PAGE>


               CHINA RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            (Amounts in thousands, except share and per share data)


7.       EARNINGS PER SHARE

         The following table sets forth the computation of basic and diluted
         earnings per share:

<TABLE>
<CAPTION>

                                                                                      Year ended December 31,
                                                                                 1995           1996            1997
                                                                                  RMB            RMB             RMB
<S>                                                                         <C>            <C>             <C>
         Income (numerator):
           Basic and diluted earnings per share:
             Income available to common stockholders                           19,175         35,822          18,200
                                                                            =========      =========       =========
         Shares (denominator):
           Basic earnings per share:
             Weighted average number of shares                              1,200,000      3,533,512       5,958,171

           Effect of dilutive securities:
             Series B convertible preferred stock                               5,789              -               -
             Stock options                                                     32,096         42,446               -
             Warrants                                                               -              -          17,451
                                                                            ---------      ---------       ---------

           Dilutive potential common shares                                    37,885         42,446          17,451
                                                                            ---------      ---------       ---------
           Diluted earnings per share:
             Adjusted weighted average
               shares and assumed conversions                               1,237,885      3,575,958       5,975,622
                                                                            =========      =========       =========

         Basic earnings per share                                               15.98          10.14            3.05
                                                                            =========      =========       =========

         Diluted earnings per share                                             15.49          10.02            3.04
                                                                            =========      =========       =========
</TABLE>


         For the years ended December 31, 1995 and 1996, the weighted average
         numbers of shares used in computing basic and diluted earnings per
         share were adjusted as if the Reverse Stock Split had been completed on
         January 1, 1995.

         Details of the series B convertible preferred stock, stock options and
         warrants of the Company are set out in notes 12 and 13 of the
         consolidated financial statements, respectively.


                                      F-15

<PAGE>


               CHINA RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            (Amounts in thousands, except share and per share data)


7.       EARNINGS PER SHARE (continued)

         Options to purchase 240,000 shares of common stock at US$4.20
         (RMB34.78) per share were outstanding during 1997 but were not included
         in the computation of diluted earnings per share for the year ended
         December 31, 1997 because the options' exercise price was greater than
         the average market price of the common shares during the year and,
         therefore, the effect would be antidilutive. The options, which expire
         on May 20, 2006, were still outstanding at December 31, 1997.


8.       INVENTORIES

         Inventories comprise:

<TABLE>
<CAPTION>
                                                                                                December 31,
                                                                     Note                  1996                 1997
                                                                                            RMB                  RMB

<S>                                                                 <C>                  <C>                  <C>   
         Finished goods, at cost                                                         62,167               61,792
         Less: Deferred gains on
               related hedging futures contracts                     3(j)                (6,715)                 --
                                                                                        -------              -------
         Finished goods, net                                                             55,452               61,792
                                                                                        =======              =======
</TABLE>


9.       PROPERTY AND EQUIPMENT, NET

         Property and equipment comprise:
<TABLE>
<CAPTION>

                                                                                                  December 31,
                                                                                           1996                 1997
                                                                                            RMB                  RMB
<S>                                                                                      <C>                  <C>
         At cost:
           Buildings and leasehold improvements                                           3,806                5,267
           Machinery, equipment and motor vehicles                                        5,909                6,599
                                                                                         ------               ------
                                                                                          9,715               11,866
         Accumulated depreciation                                                        (3,211)              (4,370)
                                                                                         ------               ------
                                                                                          6,504                7,496
                                                                                         ======               ======
</TABLE>

                                      F-16

<PAGE>


               CHINA RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            (Amounts in thousands, except share and per share data)


10.      INVESTMENTS

         Investments comprise:

<TABLE>
<CAPTION>

                                                                                                 December 31,
                                                                       Notes               1996                 1997
                                                                                            RMB                  RMB
<S>                                                                    <C>                <C>                  <C>  
         Equity method investment                                       (a)               1,743                1,743
         Cost method investments                                        (b)              10,601              145,928
                                                                                         ------              -------
                                                                                         12,344              147,671
                                                                                         ======              =======

</TABLE>


         (a)   Equity method investment represents Hainan Agricultural's 30%
               equity interest in Hainan Far East Rubber Development Company
               Limited ("Far East"). As at December 31, 1997, Far East has not
               yet commenced operations.


         (b) Cost method investments comprise:

<TABLE>
<CAPTION>
                                                                                               December 31,
                                                                                         1996               1997
                                                                                          RMB                RMB
<S>                                                                                   <C>                <C>
               Investments in:
                 Unlisted shares                                                          601                928
                 Hainan Sundiro Motorcycle Stock Company
                   Limited ("Sundiro")                                                      -            140,000
                 PRC joint ventures                                                    10,000              5,000
                                                                                       ------            -------

                                                                                       10,601            145,928
                                                                                       ======            =======
</TABLE>


                                      F-17

<PAGE>


               CHINA RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            (Amounts in thousands, except share and per share data)


10.      INVESTMENTS (continued)

         Cost method investments are equity interests in PRC unlisted companies
         in which the Group does not have a significant influence over their
         operating and financial policies.

         The investment in Sundiro represents the cost of Hainan Agricultural's
         5.3% equity interest in the investee acquired from Guilinyang in 1997.

         The PRC joint ventures at December 31, 1996 represented First Supply's
         and Second Supply's investments in Hainan State-owned Zhong Ya Aluminum
         Factory ("Zhong Ya") and Xilian Farm Timber Mill ("Xilian Mill"), of
         RMB5,000 each. In 1997, First Supply disposed of its entire equity
         interest in Zhong Ya to Guilinyang for a total consideration of
         RMB5,000.


         The purchase consideration of Sundiro and the sales proceeds of Zhong
         Ya have been used to offset the amount due from Guilinyang (note 15).


11.      BANK LOANS

         The Group's short term bank loans as at December 31, 1996 were all
         denominated in Renminbi. The short term bank loans were generally
         secured by guarantees given by the Farming Bureau, with original
         maturities not more than one year at a weighted average interest rate
         of 14.32% per annum as at December 31, 1996.

         Pursuant to an Asset and Staff Transfer Agreement, all the bank loans
         were transferred to the Farming Bureau in March 1997 (note 14(e)).


12.      SHARE CAPITAL

         On March 31, 1995, the Board of Directors of the Company approved an
         Action by Written Consent to amend the Company's Articles of
         Incorporation to authorize 10,000,000 shares of preferred stock, of
         which 6,400,000 shares were designated as series A preferred stock, par
         value US$1 (RMB8.32) per share.

         In 1995, pursuant to the Action by Written Consent and an exchange
         agreement between the Company and certain shareholders of the Company,
         long term loans from certain shareholders of the Company in the
         aggregate of US$6,400 (RMB53,930) were exchanged for 6,400,000 shares
         of series A preferred stock of the Company.


                                      F-18

<PAGE>


               CHINA RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            (Amounts in thousands, except share and per share data)


12.      SHARE CAPITAL (continued)

         Pursuant to an exchange agreement dated as of July 22, 1996 between the
         Company and the holder of series A preferred stock at that date (the
         "Holder"), all the 6,400,000 outstanding shares of series A preferred
         stock of the Company were exchanged on a five for one basis for
         3,200,000 shares of common stock of the Company (the "Restricted Common
         Stock"), after adjusting for the Reverse Stock Split in 1996, and the
         Holder waived its rights to participate in dividends and distributions
         on dissolution or liquidation in connection with the Restricted Common
         Stock for a period of seven years and accepted limitations on future
         registration. According to a valuation of the Restricted Common Stock
         and series A preferred stock performed by an independent professional
         valuer in the USA, the exchange ratio of five Restricted Common Stock
         for one series A preferred stock of the Company represents an exchange
         at fair market values.

         On December 9, 1995, the Company designated a series of 2,500 shares of
         the Company's authorized preferred stock as series B convertible
         preferred stock, par value US$0.001 (RMB0.008) per share.

         The Company issued a Confidential Offshore Offering Memorandum on
         October 20, 1995 and a Supplementary Memorandum on December 7, 1995 to
         offer for sale series B convertible preferred stock of the Company (the
         "First Share Offering") to certain non-residents of the United States
         of America in an offshore offering in reliance upon Regulation S
         promulgated under the Securities Act of 1933, as amended. As of
         December 31, 1995, gross proceeds of US$3,700 (RMB30,825) were received
         on the issuance of 370 shares of series B convertible preferred stock
         at a price of US$10,000 (RMB83,311) per share. As of March 8, 1996, the
         closing date of the First Share Offering, further gross proceeds of
         US$8,830 (RMB73,511) were received upon the issuance of 883 shares of
         series B convertible preferred stock at a price of US$10,000
         (RMB83,251) per share. On June 30, 1996, the Company issued another
         Confidential Offshore Offering Memorandum in another offshore offering
         (the "Second Share Offering"), with terms similar to the First Share
         Offering. As of July 8, 1996, the closing date of the Second Share
         Offering, gross proceeds of US$4,000 (RMB33,300) were received on the
         issuance of 400 shares of series B convertible preferred stock at a
         price of US$10,000 (RMB83,251) per share. After deduction of share
         offering costs, net proceeds of RMB19,554 and RMB72,520 were received
         on the issuance of 370 shares and 1,283 shares of series B convertible
         preferred stock for the years ended December 31, 1995 and 1996,
         respectively.

         During the year ended December 31, 1996, all the 1,653 shares of series
         B convertible preferred stock were converted into 4,579,004 shares of
         common stock of the Company, after adjusting for the Reverse Stock
         Split in 1996, in accordance with the terms of the share offerings.

         On December 30, 1996, the Company's shareholders approved the Reverse
         Stock Split, which was made effective by the Board of Directors on
         December 31, 1996.


                                      F-19

<PAGE>


               CHINA RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            (Amounts in thousands, except share and per share data)


12.      SHARE CAPITAL (continued)


         On December 31, 1996, the Board of Directors adopted a resolution
         providing for the amendment to the designation and terms of its 2,500
         shares of authorized preferred stock previously designated as series B
         convertible preferred stock. The certificate of designation of the
         series B convertible preferred stock was amended and the stock was
         redesignated as series B preferred stock, which is no longer
         convertible. The authorized number of series B preferred stock has also
         been increased to 3,200,000 shares. Immediately before the
         redesignation, no shares of the series B convertible preferred stock
         were outstanding.


         The series B preferred stock entitles the holder to voting rights which
         are the same as the common stock of the Company. The shares of series B
         preferred stock have no rights to dividends or to distributions upon
         liquidation or dissolution of the Company and have limitations as to
         future registration.

         On December 31, 1996, the Company entered into another exchange
         agreement with the holder of the Restricted Common Stock whereby
         3,200,000 shares of the Restricted Common Stock, after adjusting for
         the Reverse Stock Split in 1996, were exchanged on an one-for-one basis
         to 3,200,000 shares of series B preferred stock which have restrictions
         that are the same or more stringent than the Restricted Common Stock.
         Unlike the Restricted Common Stock, the restrictions on participation
         of dividends and distributions on dissolution will not lapse through
         the passage of time.


         On April 1, 1997, the Company entered into an agreement with an
         independent public relations company (the "PR Company"). Pursuant to
         that agreement, 150,000 shares of common stock of the Company were
         issued and 350,000 warrants were granted (note 13) to the PR Company as
         consideration for internet and other public relations services to be
         provided by the PR Company.


         On May 1, 1997, the Company entered into a Financial Consultancy
         Agreement with an independent financial consulting company, pursuant to
         which, 100,000 shares of common stock of the Company were issued as
         consideration for the financial consultancy services to be rendered by
         that company.


                                      F-20

<PAGE>


               CHINA RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            (Amounts in thousands, except share and per share data)


13.      STOCK OPTIONS AND WARRANTS

         Stock options
         The Company adopted a stock option plan (the "Plan") as of March 31,
         1995. The Plan allows the Board of Directors, or a committee thereof at
         the Board's discretion, to grant stock options to officers, directors,
         key employees, consultants and affiliates of the Company. Initially,
         240,000 shares of common stock of the Company, after adjusting for the
         Reverse Stock Split in 1996, were permitted to be issued and sold
         pursuant to options granted under the Plan. All of the stock options
         were issued in accordance with the terms of the Plan on July 1, 1995 to
         certain officers, directors, employees and consultants of the Group at
         an exercise price of US$37.8 (RMB314.50) per share (the fair market
         value of the common stock as of July 1, 1995) and are exercisable from
         July 1, 1996 to July 1, 2005. On May 20, 1996, pursuant to an "
         Unanimous Written Consent" of the committee appointed pursuant to the
         Plan and a resolution of a special meeting of the Board of Directors of
         the Company, the exercise price was changed to US$4.20 (RMB34.86) per
         share (the fair market value of the common stock as of May 20, 1996),
         after adjusting for the Reverse Stock Split in 1996. By virtue of that
         action, the outstanding options are now exercisable beginning on May
         20, 1997 and until May 20, 2006. All stock options remained outstanding
         as of December 31, 1997.

         On December 30, 1996, a shareholders' meeting was held authorizing an
         amendment of the Plan increasing the number of common stock issuable
         under the Plan to 20% of the Company's outstanding common stock, as
         determined at the time of granting the stock options. Such shares may
         represent authorized but unissued shares as well as repurchased or
         forfeited shares for any grant under the Plan that was expired or
         unexercised. Further amendments were made to give the Board of
         Directors the ability to set a holding period of less than one year for
         non-qualified stock options.

         The Company has elected to follow APB 25 and related interpretations in
         accounting for its stock options because, as discussed below, the
         alternative fair value accounting provided for under SFAS 123 requires
         the use of option valuation models that were not developed for use in
         valuing employee stock options. Under APB 25, because the exercise
         price of the Company's stock options equals the market price of the
         underlying stock on the date of grant, no compensation expense is
         recognized.

         Pro forma information regarding net income and earnings per share is
         required by SFAS 123, and has been determined as if the Company had
         accounted for its stock options under the fair value method of that
         statement. The fair value for these options was estimated at the date
         of grant using a Black-Scholes option pricing model with the following
         weighted-average assumptions for the date of grant and the date of
         subsequent modification in 1995 and 1996, respectively: risk-free
         interest rates of 6.50% and 6.78%; no dividend yield; volatility
         factors of the expected market price of the Company's common stock of
         141.38% and 42.13%; and a weighted-average expected life of the options
         of 6 years.


                                      F-21
<PAGE>


               CHINA RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            (Amounts in thousands, except share and per share data)


13.      STOCK OPTIONS AND WARRANTS (continued)

         The Black-Scholes option pricing model was developed for use in
         estimating the fair value of traded options which have no vesting
         restrictions and are fully transferable. In addition, option valuation
         models require the input of highly subjective assumptions including the
         expected stock price volatility. Because the Company's stock options
         have characteristics significantly different from those of traded
         options, and because changes in the subjective input assumptions can
         materially affect the fair value estimate, in management's opinion, the
         existing models do not necessarily provide a reliable single measure of
         the fair value of its stock options.

         For the purposes of pro forma disclosures, the estimated fair value of
         the options is amortized to write off the amount over the options'
         vesting period. The Company's pro forma information is as follows:

<TABLE>
<CAPTION>

                                                                                  Year ended December 31,
                                                                            1995             1996               1997
                                                                             RMB              RMB                RMB
<S>                                                                       <C>              <C>                <C>   
         Pro forma net income                                             15,669           28,566             10,770
                                                                          ======           ======             ======
         Pro forma earnings per share (note 7):
           Basic                                                           13.06             8.08               1.81
                                                                          ======           ======             ======
           Diluted                                                         12.66             7.99               1.80
                                                                          ======           ======             ======
</TABLE>
         The Company's stock option activities and related information for the
         years ended December 31, 1995, 1996 and 1997 are summarized as follows:


<TABLE>
<CAPTION>

                                         1995                           1996                           1997
                                               Exercise                       Exercise                     Exercise
                                   Options        price           Options        price        Options         price
                                   --------------------           --------------------        ---------------------
                                                    US$                            US$                          US$
<S>                                <C>           <C>              <C>          <C>            <C>            <C>
         Outstanding at
           beginning of year             -            -               240         37.8            240           4.2
         Granted                       240         37.8                 -            -              -             -
         Exercised                       -            -                 -            -              -             -
         Forfeited                       -            -                 -            -              -             -
                                      ----                           ----                        ----
         Outstanding at end
           of year                     240         37.8               240          4.2*           240           4.2
                                      ====                           ====                        ====
</TABLE>



         *Exercise price modified in 1996.

                                      F-22

<PAGE>


               CHINA RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            (Amounts in thousands, except share and per share data)


13.      STOCK OPTIONS AND WARRANTS (continued)

         Warrants

         Pursuant to the Advertising and Media Agreement set out in note 12, in
         addition to the issue of 150,000 shares of common stock of the Company,
         350,000 warrants for the subscription of 350,000 shares of common stock
         of the Company were granted to the PR Company on April 1, 1997. All
         warrants have a term of three years from April 1, 1997 and have an
         exercise price which ranges from US$2.69 (RMB22.27) to US$5.5
         (RMB45.54) per share or a weighted-average exercise price of US$4.14
         (RMB34.38). None of the warrants have been exercised as at December 31,
         1997.



14.      RELATED PARTY BALANCES AND TRANSACTIONS

         The Group's amounts due from/to Farming Bureau and related companies
         controlled by the Farming Bureau comprise:

<TABLE>
<CAPTION>


                                                                           December 31,
                                                                    1996                 1997
                                                                 -------             --------
                                                                     RMB                  RMB
<S>                                                              <C>                 <C>
         Due from Farming Bureau:
           Deposits for the purchase of natural rubber
             (note 14(a))                                        229,372                    -
           Others                                                 69,198               14,921
                                                                 -------              -------

                                                                 298,570               14,921
                                                                 =======              =======

         Due from related companies:
           Jin Long Corporation ("Jin Long")                      50,562               23,024
           Jin Huan Corporation ("Jin Huan")                      44,359                6,139
           Other related companies                                52,300               10,881
                                                                 -------              -------

                                                                 147,221               40,044
                                                                 =======              =======
</TABLE>

         The balances with the Farming Bureau, related companies and
         shareholders of the Company are unsecured, interest-free and are
         repayable on demand.

         All of the amounts due from related companies are secured by a
         guarantee given by the Farming Bureau.


                                      F-23

<PAGE>


               CHINA RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            (Amounts in thousands, except share and per share data)


14.      RELATED PARTY BALANCES AND TRANSACTIONS (continued)

         In addition to those transactions set out in notes 10(b), 19(a) and 21,
         the Group had the following transactions with the Farming Bureau,
         certain related companies controlled by the Farming Bureau and certain
         shareholders of the Company.


<TABLE>
<CAPTION>

                                                                              Year ended December 31,
                                                           Notes            1995             1996               1997
                                                                    ------------------------------------------------
                                                                             RMB              RMB                RMB
<S>                                                        <C>        <C>              <C>                <C>
         Farming Bureau and related companies
         controlled by the Farming Bureau:


         Purchase of natural rubber                         (a)       (1,652,707)      (1,438,420)        (1,011,662)
         Purchase discounts received                        (a)           31,217           16,162                  -
         Guaranteed gross profit received                   (a)            2,098            9,423             18,105
         Net sales of materials, supplies and
           other agricultural products                      (b)          106,092          205,694             32,117
         Net sales of natural rubber                                       1,630                -            245,934
         Interest income and rental in
           lieu of interest received                                      14,549           25,302             11,947
         Interest expenses paid                                             (679)               -             (1,438)
         Rental expenses paid                                               (170)            (188)            (3,948)
         Disposal of construction in
           progress, property and equipment                              (21,072)               -                  -
         Income from cost method investments                               2,000            1,525                  -
         Service fee paid                                   (c)                -           (5,000)                 -
         Management fees received                           (d)            6,000            6,000                  -

         Handling fee paid for the trading of
           natural rubber futures                                         (4,424)          (3,451)             (348)
         Sales commission received                                             -                -              1,833
         Transfer of assets and liabilities                 (e)                -         (227,950)           292,560
                                                                       =========        =========          =========

         Shareholders of the Company:


         Interest expenses paid                                           (1,378)            (271)                 -
         Consultancy fees paid                              (f)           (1,815)          (2,193)            (3,033)
                                                                       =========        =========          =========

</TABLE>


                                      F-24


<PAGE>


               CHINA RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            (Amounts in thousands, except share and per share data)


14.      RELATED PARTY BALANCES AND TRANSACTIONS (continued)

         (a)      Purchase of natural rubber
                  Pursuant to a sales and purchase agreement dated November 5,
                  1994 (the "S&P Agreement") amongst the Farming Bureau, Hainan
                  Agricultural, First Supply and Second Supply, the Farming
                  Bureau agreed to guarantee the supply of natural rubber to
                  First Supply and Second Supply for a period of 15 years from
                  November 5, 1994 under the same terms and conditions as are
                  offered to other purchasers of natural rubber with a first
                  right of refusal to First Supply and Second Supply. First
                  Supply and Second Supply also, from time to time, sourced
                  natural rubber from other farms not owned or controlled by the
                  Farming Bureau.

                  The Farming Bureau allows First Supply and Second Supply to
                  set the selling price of natural rubber according to market
                  conditions, and guarantees a minimum gross profit margin of
                  3.5% (before purchase discounts set out below) earned by First
                  Supply and Second Supply on natural rubber purchased from
                  farms controlled by the Farming Bureau (the "Farms").


                  On March 30, 1995, the Group entered into an agreement with
                  the Farming Bureau (the "Rubber Deposit Agreement") pursuant
                  to which, with effect from March 30, 1995, the Farming Bureau
                  guaranteed the supply of a minimum of 120,000 tons (the
                  "Guaranteed Quantity") of natural rubber for each of the next
                  3 years. The Group was not obligated to purchase the
                  Guaranteed Quantity. In consideration for this, the Group had
                  maintained a purchase deposit with related companies or the
                  Farming Bureau on a rolling basis equivalent to 15% of the
                  Guaranteed Quantity multiplied by the average market price of
                  natural rubber for the previous quarter. In return, a purchase
                  discount was offered to the Group for the purchase of natural
                  rubber from the Farms.

                  To optimize the return of its liquid funds, the Group entered
                  into a supplementary agreement with the Farming Bureau in 1997
                  to cancel the arrangement under the Rubber Deposit Agreement
                  effective from January 1, 1997, subsequent to the
                  restructuring as detailed in note 14(e).


         (b)      Procurement of materials and supplies
                  Pursuant to the S&P Agreement, the Farming Bureau also agreed
                  to purchase certain products sourced by First Supply and
                  Second Supply for a period of 15 years from November 5, 1994
                  at prices acceptable to all parties with a first right of
                  refusal to First Supply and Second Supply.

                                      F-25

<PAGE>


               CHINA RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            (Amounts in thousands, except share and per share data)


14.      RELATED PARTY BALANCES AND TRANSACTIONS (continued)

         (c)      Service fee payable to the Farming Bureau
                  Pursuant to an agreement dated November 5, 1994 between the
                  Farming Bureau and Hainan Agricultural, the Farming Bureau has
                  agreed to grant Hainan Agricultural and its subsidiaries
                  certain land use and development rights to the land on which
                  the warehouse, factories, and other industrial and office
                  facilities of Hainan Agricultural, First Supply and Second
                  Supply are located and to provide certain related services to
                  Hainan Agricultural. In consideration for this, the Farming
                  Bureau is entitled to an annual service fee to a maximum of
                  RMB5,000, calculated at 10% of Hainan Agricultural's annual
                  consolidated net income before the service fee as determined
                  in accordance with US GAAP, provided that the annual
                  consolidated net income exceeds RMB40,000 after deducting such
                  service fee. The agreement was terminated with effect from
                  January 1, 1997. For the year ended December 31, 1996,
                  RMB5,000, being the maximum amount under the agreement, was
                  paid to the Farming Bureau. For the year ended December 31,
                  1995, no service fee was paid as the above-mentioned condition
                  was not met.

         (d)      Management fee income from Jin Long and Jin Huan
                  For the years ended December 31, 1995 and 1996, management
                  fees of RMB3,000 and RMB3,000, respectively were charged to
                  each of Jin Long and Jin Huan for their share of the Group's
                  administrative expenses and for their use of the Group's
                  office equipment, warehouses and staff.

                  After the restructuring of operations in 1996 as detailed in
                  note 14(e) below, no such services were provided to Jin Long
                  and Jin Huan and accordingly, no management fee was received
                  in 1997.

         (e)      Restructuring of operations

                  In the third quarter of 1996, the Group initiated a plan to
                  restructure its operations in Hainan, the PRC (the
                  "Restructuring"). Pursuant to a Shareholders' Agreement on
                  Business Restructuring (the "Restructuring Agreement"), the
                  operations of Hainan Agricultural, First Supply and Second
                  Supply (collectively, the "Operating Subsidiaries") were
                  restructured effective from October 1, 1996. The Restructuring
                  has resulted in the simplification of corporate structure by
                  consolidating the operations of several trading and servicing
                  divisions and the transfer of certain assets, liabilities,
                  including certain amounts due from the Farms and other related
                  companies of the Farming Bureau, and surplus employees to the
                  Farming Bureau, a 39% shareholder of Hainan Agricultural. In
                  addition, as part of the Restructuring, bank loans of the
                  Operating Subsidiaries were transferred to the Farming Bureau
                  in March 1997 when the proper approval was obtained from the
                  relevant banks. Despite the downsizing of several operations,
                  the Restructuring has not resulted in the discontinuance of
                  any line of business as all the operations have been taken up
                  by the remaining divisions.


                                      F-26

<PAGE>


               CHINA RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            (Amounts in thousands, except share and per share data)


14.      RELATED PARTY BALANCES AND TRANSACTIONS (continued)

         (e)      Restructuring of operations (continued)
                  Pursuant to an Asset and Staff Transfer Agreement (the
                  "Transfer Agreement"), the value of the assets and liabilities
                  transferred was determined based on their fair value at the
                  effective date of transfer as determined by a professional
                  independent valuer in the PRC. Based on their valuation, there
                  were no material differences between the fair value and the
                  carrying values (as determined under US GAAP) of those assets
                  and liabilities at the date of transfer. After the
                  Restructuring, the Farming Bureau took over all the
                  transferred employees and arrangements were made with an
                  insurance company controlled by the Farming Bureau to transfer
                  the retirement plan (note 21) of those employees to the
                  Farming Bureau.

                  Based on the valuation by the independent valuer, the fair
                  value of assets/liabilities of the Operating Subsidiaries that
                  were transferred to the Farming Bureau in 1996 and 1997 are as
                  follows:
<TABLE>
<CAPTION>

                                                                          1996               1997
                                                                           RMB                RMB

<S>                                                                   <C>                <C>                     
                  Trade receivables                                     92,553                 -
                  Other receivables, prepayments
                    and other current assets                            42,665                 -
                  Inventories                                           27,986                 -
                  Amounts due from related companies                   274,046                 -
                  Fixed assets                                          15,821                 -
                  Investments                                            1,961                 -
                  Amounts due to related companies                   (127,458)                 -
                  Accounts payable                                    (61,689)                 -
                  Other payables and accrued liabilities              (37,935)                 -
                  Bank loans                                                 -           (292,560)
                                                                       -------            -------
                                                                       227,950           (292,560)
                                                                       =======            =======


                  Net liabilities transferred to the Farming Bureau,
                    recorded as an adjustment to the amount due from
                    the Farming Bureau                                                    (64,610)
                                                                                           =======
</TABLE>


                  The net credit was applied against the receivable from the
                  Farming Bureau.


                  In connection with the Restructuring and effective from
                  October 1, 1996, the amounts due from the Farming Bureau and
                  other related companies owned and/or controlled by the Farming
                  Bureau have become interest-free. Starting from October 1,
                  1996, interest expense on bank loans of the Group have been
                  borne by the Farming Bureau until the effective transfer of
                  the bank loans to the Farming Bureau in March 1997.

                                      F-27

<PAGE>


               CHINA RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            (Amounts in thousands, except share and per share data)


14.      RELATED PARTY BALANCES AND TRANSACTIONS (continued)

         (f)      Consultancy fees
                  Pursuant to a mandate letter dated February 1, 1994, which was
                  amended on November 1, 1994, between Billion Luck and Brender
                  Services Limited ("Brender"), a shareholder of the Company,
                  Billion Luck agreed to pay Brender consultancy fees of HK$80
                  (RMB89) per month and pursuant to a revised consulting
                  agreement dated April 30, 1995, Brender agreed to provide
                  accountancy and consulting services to the Company for a
                  period of 5 years commencing on May 1, 1995. In consideration
                  of the services to be rendered, the monthly consultancy fee
                  paid by Billion Luck was increased to HK$170 (RMB184) per
                  month during May 1, 1995 to April 30, 1997. In 1997, the
                  consultancy agreement was renewed for another three years
                  effective from May 1, 1997 and in consideration of the
                  additional advisory and coordination works to be performed,
                  the monthly consultancy fee was revised to HK$270 (RMB289) per
                  month.

          (g)     Exchange of series A preferred stock to Restricted Common
                  Stock and exchange of Restricted Common Stock to series B
                  preferred stock As at the dates of the respective exchanges in
                  1996, two directors of the Company were also directors of the
                  holders of series A preferred stock and Restricted Common
                  Stock, respectively.

                  Further details of the exchanges are set out in note 12 to the
                  consolidated financial statements.

         (h)      Loan from the Farming Bureau
                  On March 25, 1996, Hainan Agricultural entered into a loan
                  agreement with the Farming Bureau by which Hainan Agricultural
                  borrowed RMB35,868. The loan is unsecured, interest-free and
                  it is expected to be repaid by conversion of the loan into
                  registered capital of Hainan Agricultural upon the approval
                  for such conversion by relevant government authorities.

                  On December 31, 1996, a supplementary agreement was entered
                  into between Hainan Agricultural and the Farming Bureau to
                  apply the loan to set off the balance due from the Farming
                  Bureau to Hainan Agricultural against any amounts due to
                  Hainan Agricultural and its subsidiaries in 1996.


                                      F-28

<PAGE>


               CHINA RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            (Amounts in thousands, except share and per share data)


15.      SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

<TABLE>
<CAPTION>

                                                                                  Year ended December 31,
                                                                          1995               1996               1997
                                                                           RMB                RMB                RMB

<S>                                                                   <C>                 <C>                <C>
         Cash paid during the year for:
           Interest expenses                                            49,963             28,258              2,178
           Income tax                                                      307              7,193              4,486
                                                                       =======            =======            =======

         Non-cash investing and financing activities:
           Series A preferred stock issued for
             conversion of long term loans
             from shareholders                                          53,930                  -                  -
           Conversion of 1,653 shares of
             series B convertible preferred stock
             to 4,579,052 shares of common stock                             -                383                  -
           Exchange of 6,400,000 shares of
             Series A preferred stock for
             3,200,000 shares of Restricted
             Common Stock                                                    -             53,930                  -
           Exchange of 3,200,000 shares of
             Restricted Common Stock for
             3,200,000 shares of Series B
             preferred stock                                                 -                270                  -
           Transfer of assets and liabilities to the
             Farming Bureau pursuant to the
             Restructuring (note 14(e)), net                                 -            227,950            292,560
           Acquisition of an investment (note 10(b))                         -                  -            140,000
           Disposal of an investment (note 10(b))                            -                  -              5,000
                                                                       =======            =======            =======
</TABLE>


                                      F-29

<PAGE>


               CHINA RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

             (Amounts in thousands except share and per share data)


16.      CONCENTRATION OF RISK

         Concentration of credit risk:

         Financial instruments that potentially subject the Group to significant
         concentration of credit risk consist principally of cash deposits,
         trade receivables and amounts due from the Farming Bureau and related
         companies.

         (i)      Cash deposits

                  The Group places its cash deposits with an international bank
                  and various PRC State-owned financial institutions.

         (ii)     Trade receivables

                  The Group sells to customers located throughout the PRC.
                  Concentration of credit risk with respect to trade receivables
                  is limited due to the large number of entities comprising the
                  Group's customer base. The Group carefully assesses the
                  financial strength of its customers and generally does not
                  require collateral.

         (iii)    Amounts due from the Farming Bureau and related companies

                  The Farming Bureau has guaranteed the recoverability of all
                  the amounts due from related companies, all of which are
                  State-owned entities owned and/or controlled by the Farming
                  Bureau.

                  The Farming Bureau is a division of the Ministry of
                  Agriculture of the PRC.

         Current vulnerability due to certain concentrations:

         The Group's operating assets and primary source of income and cash
         flows are its interests in its subsidiaries in the PRC. The value of
         the Group's interests in these subsidiaries may be adversely affected
         by significant political, economic and social uncertainties in the PRC.
         Although the PRC government has been pursuing economic reform policies
         for years, no assurance can be given that the PRC government will
         continue to pursue such policies or that such policies may not be
         significantly altered, especially in the event of a change in
         leadership, social or political disruption or unforeseen circumstances
         affecting the PRC's political, economic and social life. There is also
         no guarantee that the PRC government's pursuit of economic reforms will
         be consistent or effective.


                                      F-30

<PAGE>


               CHINA RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            (Amounts in thousands, except share and per share data)


16.      CONCENTRATION OF RISK (continued)

         The Group is dependent on the Farming Bureau for providing
         substantially all of the supply of natural rubber. While Hainan
         Agricultural, First Supply and Second Supply have entered into an
         agreement with the Farming Bureau which requires the Farming Bureau to
         prioritize allocation of natural rubber in favor of First Supply and
         Second Supply (the "Operating Subsidiaries"), there can be no
         assurances that this agreement will result in continued allocations of
         satisfactory supplies of natural rubber.

         Additionally, the Operating Subsidiaries are dependent upon the Farming
         Bureau to purchase a significant portion of the materials and supplies
         sold by the Operating Subsidiaries in their current procurement
         operations. Although the Group and the Farming Bureau have entered into
         a long-term sale and purchase agreement dated November 5, 1994 (the
         "Sale and Purchase Agreement"), which requires the Farming Bureau to
         purchase on a priority basis from the Operating Subsidiaries the types
         of materials and supplies currently procured for it, there can be no
         assurances that the Farming Bureau will actually purchase such
         materials or supplies or that market terms will be sufficient to allow
         the Operating Subsidiaries to sell any such materials or supplies to
         the Farming Bureau on terms which are profitable to the Company. The
         Sale and Purchase Agreement has a 15 year term; however, its
         enforceability in the PRC would be subject to broad discretion and
         interpretive powers of the courts and equitable terms which allow
         either party to terminate the agreement if the other materially
         defaults. Damages for actual losses may be awarded to the
         non-defaulting party.

         Currently, a large proportion of the Group's revenue comes from the
         sale of natural rubber and the procurement of materials and supplies in
         the PRC, which is vulnerable to the increase in the level of
         competition from overseas suppliers of natural rubber and the change in
         the supply and demand relationship with companies owned and/or
         controlled by the Farming Bureau.


         The Group enters into commodity futures contracts to hedge the price
         risk associated with existing inventories and certain firm commitments
         for the purchase of goods, as well as for non-hedging purposes.

         Commodity futures contracts provide the Group a means of managing the
         risks of changing commodity prices. These contracts represent
         commitments either to purchase or sell commodities at a future date and
         at a specific price. The Group is subject to market risk associated
         with changes in value of the underlying commodity as well as the risk
         of non-performance by futures counterparties. The gross contract amount
         of futures contracts represents the extent of the Group's involvement
         and the Group's maximum exposure to credit risk. All the commodity
         futures contracts entered into by the Group are exchange traded
         contracts. The exchange acts as the counterparty to specific
         transactions and, therefore, bears the risk of delivery to and from
         counterparties to specific positions.

                                      F-31

<PAGE>


               CHINA RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            (Amounts in thousands, except share and per share data)


16.      CONCENTRATION OF RISK (continued)


         Market risk resulting from a position in commodity futures contract may
         be offset by other on- or off-balance sheet transactions. The Group
         monitors overall sensitivity to commodity price changes by analyzing
         the net effect of potential changes in commodity prices on the market
         value of commodity futures contracts and the related commodity. The
         Group manages the credit risk of counterparty defaults by limiting the
         total amount of futures contracts outstanding and by monitoring the
         size and maturity structure of the futures contract portfolio.

17.      FAIR VALUE OF FINANCIAL INSTRUMENTS

         The following methods and assumptions were used by the Group in
         estimating its fair value disclosures for financial instruments:

         (i)      Cash and cash equivalents

                  The carrying amounts reported in the consolidated balance
                  sheets for cash and cash equivalents approximate their fair
                  value.

         (ii)     Amounts due to/from the Farming Bureau and related companies

                  The carrying amounts are reasonable estimates of the fair
                  values due to the short maturity of these assets and
                  liabilities.

         (iii)    Cost method investments

                  It was not practicable to estimate the fair values of the
                  Group's cost method investments in non-traded investments
                  because of the lack of quoted market prices and the inability
                  to estimate fair values without incurring excessive costs. The
                  carrying amounts of RMB10,601 and RMB145,928 at December 31,
                  1996 and 1997, respectively, represent the Group's best
                  estimates of current economic values of these investments.

         (iv)     Short term bank loans

                  The carrying amounts of the Group's short term bank loans
                  approximate their fair values due to their short maturity.

                                      F-32

<PAGE>


               CHINA RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            (Amounts in thousands, except share and per share data)


18.      RESERVES AND DISTRIBUTION OF PROFITS

         The movements in reserves during the years are as follows:

<TABLE>
<CAPTION>

                                                                                         Collective
                                                                           Surplus          welfare
                                                                           reserve             fund            Total
                                                                               RMB              RMB              RMB

<S>                                                                        <C>              <C>              <C>  
         Balance at December 31, 1994                                        1,328            1,329            2,657
         Appropriation for the year                                          3,137            3,136            6,273
                                                                           -------          -------          -------
         Balance at December 31, 1995                                        4,465            4,465            8,930
         Appropriation for the year                                          4,409            4,409            8,818
                                                                           -------          -------          -------
         Balance at December 31, 1996                                        8,874            8,874           17,748
         Appropriation for the year                                          3,883            3,883            7,766
                                                                           -------          -------          -------

         Balance at December 31, 1997                                       12,757           12,757           25,514
                                                                           =======          =======          =======

</TABLE>


         In accordance with the relevant PRC regulations and the articles of
         association of Hainan Agricultural (the "Articles of Association"),
         appropriations representing 10% of the net income as reflected in its
         statutory financial statements will be allocated to each of surplus
         reserve and collective welfare fund.

         Subject to certain restrictions set out in the relevant PRC regulations
         and the Articles of Association, the surplus reserve may be distributed
         to Billion Luck, the Farming Bureau and Guilinyang State Farm in the
         form of share bonus issues.

         In accordance with the relevant PRC regulations and the Articles of
         Association, the collective welfare fund must be used for capital
         expenditure on staff welfare facilities. Such facilities are for the
         use of the staff and are owned by Hainan Agricultural.


         According to relevant laws and regulations in the PRC, distributable
         reserves of Hainan Agricultural and its subsidiaries are determined in
         accordance with the relevant PRC accounting rules and regulations. The
         amounts of retained earnings of Hainan Agricultural and its
         subsidiaries that are included in the consolidated balance sheets as of
         December 31, 1995, 1996 and 1997 that are available for distribution
         are RMB27,844, RMB62,951 and RMB86,448, respectively.


                                      F-33

<PAGE>


               CHINA RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            (Amounts in thousands, except share and per share data)


19.      COMMITMENTS AND CONTINGENCIES

         (a)      Lease commitments

                  At December 31, 1997, future minimum payments under operating
                  leases for the leasing of buildings in Hainan, the PRC from
                  the Farming Bureau and companies controlled by the Farming
                  Bureau were as follows:

                                                           RMB
                  Payable in:
                    1998                                   242
                    1999                                   242
                    2000                                   242
                    2001                                   170
                    2002                                   170
                    Thereafter                             298
                                                         -----


                  Total minimum lease payments           1,364
                                                         =====

                  Rental expenses under operating leases for the years ended
                  December 31, 1995, 1996 and 1997 amounted to RMB170, RMB188
                  and RMB242, respectively.

         (b)      Futures contracts

                  As of December 31, 1997, the Group had open short positions in
                  respect of its natural rubber commodity futures contracts,
                  maturing through 1998, with a notional value of RMB3,801
                  (1996: RMB30,497).


20.      FOREIGN CURRENCY EXCHANGE

         The Renminbi ("RMB") is not freely convertible into foreign currencies.

         Effective from January 1, 1994, a single rate of exchange is quoted
         daily by the People's Bank of China (the "Unified Exchange Rate").
         However, the unification of the exchange rates does not imply
         convertibility of RMB into United States dollars ("US$") 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.

         The Unified Exchange Rates at December 31, 1995, 1996 and 1997 were
         US$1 : RMB8.32, US$1 : RMB8.30 and US$1 : RMB8.28, respectively.

                                      F-34

<PAGE>


               CHINA RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

             (Amounts in thousands, except share and per share data)


21.      RETIREMENT BENEFITS

         As stipulated by the PRC regulations, First Supply and Second Supply
         participate in a defined contribution retirement plan (the "Retirement
         Plan") administered by a State-owned insurance company controlled by
         the Farming Bureau. First Supply and Second Supply are required to make
         contributions to the Retirement Plan at a rate of 21% of the aggregate
         of basic salaries, allowances and bonus of its existing staff. All
         staff of First Supply and Second Supply are covered under the
         Retirement Plan and upon retirement, the retired staff are entitled to
         a monthly pension payment borne by the above-mentioned insurance
         company under the Retirement Plan. First Supply and Second Supply are
         not responsible for any payments beyond the contributions to the
         Retirement Plan as noted above.

         The amounts of contributions paid by First Supply and Second Supply,
         which were charged to the consolidated statements of income, amounted
         to RMB1,591, RMB1,588 and RMB368 for the years ended December 31, 1995,
         1996 and 1997, respectively.

         As detailed in note 14(e), the Farming Bureau has arranged with an
         insurance company controlled by it to transfer the retirement plan of
         those employees that were transferred to the Farming Bureau under the
         Restructuring.


                                      F-35

<PAGE>


               CHINA RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

             (Amounts in thousands, except share and per share data)



22.      SEGMENT FINANCIAL INFORMATION

         The Group is principally engaged in the distribution of natural rubber
         and the procurement of materials, supplies and other agricultural
         products in the PRC.

         The Group did not engage in any export sales during the years ended
         December 31, 1995, 1996 and 1997.

         Business segment
         Reportable information on the Group's segments are as follows:

<TABLE>
<CAPTION>


                                                                                     Year ended December 31,
                                                                          1995               1996               1997
                                                                           RMB                RMB                RMB
<S>                                                                  <C>               <C>                <C>
         Net sales:

         Distribution of natural rubber:
           Net sales to unaffiliated customers                       1,776,641          1,519,060            858,211
           Net sales to affiliates                                       1,630                  -            245,934
                                                                     ---------          ---------          ---------
                                                                     1,778,271          1,519,060          1,104,145
                                                                     ---------          ---------          ---------

         Procurement of materials, supplies 
            and other agricultural products:
             Net sales to unaffiliated customers                        72,880            102,745             12,909
             Net sales to affiliates                                   106,092            205,694             32,117
                                                                     ---------          ---------          ---------
                                                                       178,972            308,439             45,026
                                                                     ---------          ---------          ---------

         Total net sales                                             1,957,243          1,827,499          1,149,171
                                                                     =========          =========          =========

         Operating income:
           Distribution of natural rubber                               47,188             40,460             17,672
           Procurement of materials, supplies and
             other agricultural products                                 1,607             57,682              4,164
                                                                       -------            -------            -------

         Total operating income                                         48,795             98,142             21,836
                                                                       =======            =======            =======
</TABLE>


                                      F-36

<PAGE>


               CHINA RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            (Amounts in thousands, except share and per share data)


22.      SEGMENT FINANCIAL INFORMATION (continued)


<TABLE>
<CAPTION>

         Business segment (continued)
                                                                                       Year ended December 31,
                                                                              1995             1996             1997
                                                                               RMB              RMB              RMB
<S>                                                                        <C>             <C>               <C>
         Depreciation:
           Distribution of natural rubber                                    2,562            1,066            1,373
           Procurement of materials, supplies and
             other agricultural products                                       258              747               56
                                                                           -------          -------          -------

         Total depreciation expenses                                         2,820            1,813            1,429
                                                                           =======          =======          =======

         Capital expenditure:
           Distribution of natural rubber                                        -                -            2,884
           Procurement of materials, supplies and
             other agricultural products                                     4,275            2,663                -
                                                                           -------          -------          -------

         Total capital expenditure                                           4,275            2,663            2,884
                                                                           =======          =======          =======

                                                                                            December 31,
                                                                              1995             1996             1997
                                                                               RMB              RMB              RMB
         Identifiable assets:

           Distribution of natural rubber                                  423,701          542,005          203,015
           Procurement of materials, supplies and

             other agricultural products                                   231,748          151,458           87,916
                                                                           -------          -------          -------


         Total identifiable assets                                         655,449          693,463          290,931

         Investments                                                        11,963           10,601          145,928
         Goodwill                                                            1,076            1,049            1,021

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

         Total assets                                                      668,488          705,113          437,880
                                                                           =======          =======          =======

</TABLE>

         Major customers
         For the year ended December 31, 1997, sales under the distribution of
         natural rubber segment to Jin Long amounted to approximately 21% of the
         total net sales of the Group (1995 and 1996 : Nil).

                                      F-37

<PAGE>




                                    EXHIBITS



                                      -88-
<PAGE>


                                 EXHIBITS INDEX
                                 --------------


                  Exhibit No.                          
                  -----------                          

3.1      Articles of Incorporation of the Registrant, filed on January 15, 1986
         (Filed with Annual Report on Form 10-K/A for the fiscal year ended
         December 31, 1994, and incorporated herein by reference.)

3.2      By-laws of the Registrant (Filed with Annual Report on Form 10-K/A for
         the fiscal year ended December 31, 1994, and incorporated herein by
         reference.)

3.3      Certificate of Amendment of Articles of Incorporation of the
         Registrant, filed on November 18, 1994 (Filed with Annual Report on
         Form 10-K/A for the fiscal year ended December 31, 1994, and
         incorporated herein by reference.)

3.4      Certificate of Amendment of Articles of Incorporation of the
         Registrant, filed on November 18, 1994 (Filed with Annual Report on
         Form 10-K/A for the fiscal year ended December 31, 1994, and
         incorporated herein by reference.)

3.5      Certificate of Amendment of Articles of Incorporation of the
         Registrant, effective March 31, 1995, and filed on June 19, 1995 (Filed
         with Quarterly Report on Form 10-Q/A for the fiscal quarter ended March
         31, 1995, and with Current Report on Form 8-K dated June 19, 1995, and
         incorporated herein by reference.)

3.6      Certificate of Amendment of Articles of Incorporation of the
         Registrant, effective December 30, 1996 (Filed with Annual Report on
         Form 10-K/A for the fiscal year ended December 31, 1996, and
         incorporated herein by reference.)

3.7      Amended and Restated By-laws of the Registrant, as amended on December
         30, 1996 (Filed with Annual Report on Form 10-K/A for the fiscal year
         ended December 31, 1996, and incorporated herein by reference.)

4.1      Certificate of Designation of Series B Convertible Preferred Stock,
         filed on December 13, 1995 (Filed with Current Report on Form 8-K dated
         March 8, 1996, and incorporated herein by reference.)

4.2      Certificate of Amendment of Certificate of Designation of Series B
         Convertible Preferred Stock, effective December 31, 1997 (Filed with
         Annual Report on Form 10-K/A for the fiscal year ended December 31,
         1996, and incorporated herein by reference.)

10.1     Assignment Agreement dated January 21, 1994, by and between Hong Wah
         (Holdings) Limited and Billion Luck Company Ltd. (Filed with Annual
         Report on Form 10-K/A for the fiscal year ended December 31, 1994, and
         incorporated herein by reference.)

10.2     Contract on Investment for the Setting up of Hainan Agricultural
         Resources Company Ltd. dated January 31, 1994, by and among Hainan
         Province Agricultural Reclamation General Company (the Farming Bureau),
         Hainan Province Guilinyang State Farm, and Billion Luck Company Ltd.
         (Original Chinese version with English translation filed with Annual
         Report on Form 10-K/A for the fiscal year ended December 31, 1994, and
         incorporated herein by reference.)

                                      -89-
<PAGE>

10.3     Loan Agreement dated May 10, 1994, by and among Everbright Finance &
         Investment Co. Limited, Worlder International Company Limited, Hong Wah
         Investment Holdings Limited, Silverich Limited, Brender Services
         Limited, and Billion Luck Company Ltd. (Filed with Annual Report on
         Form 10-K/A for the fiscal year ended December 31, 1994, and
         incorporated herein by reference.)

10.4     Credit Agreement dated June 1, 1994, by and among Everbright Finance &
         Investment Co. Limited, Worlder International Company Limited, Hong Wah
         Investment Holdings Limited and Billion Luck Company Ltd. (Filed with
         Annual Report on Form 10-K/A for the fiscal year ended December 31,
         1994, and incorporated herein by reference.)

10.5     Contract on the Transfer of Share Ownership of Hainan Zhongya Aluminum
         Co., Ltd. dated July 11, 1994, by and between Hainan Province
         Guilinyang State Farm and Hainan Agricultural Resources Co., Ltd.
         (Filed with Annual Report on Form 10-K/A for the fiscal year ended
         December 31, 1994, and incorporated herein by reference.)

10.6     Letter Agreement dated August 8, 1994, by and among Everbright Finance
         & Investment Co. Limited, Worlder International Company Limited, Hong
         Wah Investment Holdings Limited and Billion Luck Company Ltd.,
         supplementing Credit Agreement dated June 1, 1994 (Filed with Annual
         Report on Form 10-K/A for the fiscal year ended December 31, 1994, and
         incorporated herein by reference.)

10.7     Letter Agreement dated October 24, 1994, by and among Everbright
         Finance & Investment Co. Limited, Worlder International Company
         Limited, and Billion Luck Company Ltd. (Filed with Annual Report on
         Form 10-K/A for the fiscal year ended December 31, 1994, and
         incorporated herein by reference.)

10.8     Acquisition Agreement, by and among the Registrant and the shareholders
         of Billion Luck Company Ltd. (Filed with Annual Report on Form 10-K/A
         for the fiscal year ended December 31, 1994, and incorporated herein by
         reference.)

10.9     Agreement on Service and Cooperation dated November 5, 1994, by and
         between Hainan Province Agricultural Reclamation General Company (the
         Farming Bureau) and Hainan Agricultural Resources Company Ltd.
         (Original Chinese version with English translation filed with Annual
         Report on Form 10-K/A for the fiscal year ended December 31, 1994, and
         incorporated herein by reference.)

10.10    Land Use Agreement dated November 5, 1994, by and between Hainan
         Province Agricultural Reclamation No. 1 Materials Supply & Sales
         Company (First Supply) and Hainan Province Agricultural Reclamation Jin
         Long Materials General Company (Original Chinese version with certified
         English translation filed with Annual Report on Form 10-K/A for the
         fiscal year ended December 31, 1994, and incorporated herein by
         reference.)

10.11    Land Use Agreement dated November 5, 1994, by and between Hainan
         Province Agricultural Reclamation No. 2 Materials Supply & Sales
         Company (Second Supply) and Hainan Province Agricultural Reclamation
         Jin Huan Materials General Company (Original Chinese version with
         certified English translation filed with Annual Report on Form 10-K/A
         for the fiscal year ended December 31, 1994, and incorporated herein by
         reference.)

                                      -90-
<PAGE>

10.12    Long-Term Sale and Purchase Agreement dated November 5, 1994, by and
         among Hainan Province Agricultural Reclamation General Company (the
         Farming Bureau), Hainan Agricultural Resources Company Ltd., Hainan
         Province Agricultural Reclamation No. 1 Materials Supply & Marketing
         Company (First Supply), and Hainan Province Agricultural Reclamation
         No. 2 Materials Supply & Marketing Company (Second Supply) (Original
         Chinese version with English translation filed with Annual Report on
         Form 10-K/A for the fiscal year ended December 31, 1994, and
         incorporated herein by reference.)

10.13    Agreement on Assignment of Accounts Receivable dated November 5, 1994,
         by and among Hainan Province Agricultural Reclamation General Company
         (the Farming Bureau), Billion Luck Company Ltd., Hainan Province
         Guilinyang State Farm, Hainan Agricultural Resources Company Ltd.,
         Hainan Province Agricultural Reclamation No. 1 Materials Supply &
         Marketing Company (First Supply), and Hainan Province Agricultural
         Reclamation No. 2 Materials Supply & Marketing Company (Second Supply)
         (Original Chinese version with English translation filed with Annual
         Report on Form 10-K/A for the fiscal year ended December 31, 1994, and
         incorporated herein by reference.)

10.14    Rental Agreement, by and between General Bureau of Hainan State Farms
         (the Farming Bureau) and Hainan Agricultural Resources Company Limited
         (Original Chinese version with English Translation filed with Annual
         Report on Form 10-K/A for the fiscal year ended December 31, 1994, and
         incorporated herein by reference.)

10.15    Guaranty Agreement, by and among Hainan Province Agricultural
         Reclamation General Company (the Farming Bureau), Hainan Agricultural
         Reclamation No. 1 Materials Supply & Sales Company (First Supply) and
         Hainan Agricultural Reclamation No. 2 Materials Supply & Sales Company
         (Second Supply) (Original Chinese version with certified English
         Translation filed with Annual Report on Form 10-K/A for the fiscal year
         ended December 31, 1994, and incorporated herein by reference.)

10.16    Financial Consulting Agreement dated February 1, 1994, by and between
         Brender Services Limited and Billion Luck Company Ltd., and Extension
         Agreement dated November 1, 1994, by and between Brender Services
         Limited and Billion Luck Company Ltd. (Filed with Annual Report on Form
         10-K/A for the fiscal year ended December 31, 1994, and incorporated
         herein by reference.)

10.17    Exchange Agreement, by and among the Registrant, Hong Wah Investment
         Holdings Limited, Everbright Finance & Investment Co. Ltd., Worlder
         International Company Limited and Silverich Limited, executed as of
         March 31, 1995 (Filed with Quarterly Report on Form 10-Q/A for the
         fiscal quarter ended March 31, 1995, and incorporated herein by
         reference.)

10.18    China Resources Development, Inc., 1995 Stock Option Plan, adopted as
         of March 31, 1995 (Filed with Quarterly Report on Form 10-Q/A for the
         fiscal quarter ended March 31, 1995, and the Current Report on Form 8-K
         dated June 19, 1995, and incorporated herein by reference.)

10.19    Consulting Agreement between the Registrant and Brender Services
         Limited, dated April 30, 1995 (Filed with Quarterly Report on Form 10-Q
         for the fiscal quarter ended June 30, 1995, and incorporated herein by
         reference.)

10.20    Letter dated June 1, 1995, extending the repayment date to December 31,
         1995, for loans extended to Billion Luck by Everbright Finance &
         Investment Co. Limited, Worlder International Company Limited and Hong
         Wah Investment Holdings Limited, pursuant to Credit Agreement dated
         June 1, 1994 (Filed with Quarterly Report on Form 10-Q for the fiscal
         quarter ended September 30, 1995, and incorporated herein by
         reference.)

10.21    Agreement on Administrative Expenses Apportionment between First Supply
         and Jin Ling Corporation, dated March 15, 1995 (Original Chinese
         version with English translation filed with Annual Report on Form 10-K
         for the fiscal year ended December 31, 1995, and incorporated herein by
         reference.)

10.22    Agreement on Administrative Expenses Apportionment between Second
         Supply and Jin Huan Corporation, dated March 15, 1995 (Original Chinese
         version with English translation filed with Annual Report on Form 10-K
         for the fiscal year ended December 31, 1995, and incorporated herein by
         reference.)

10.23    Agreement on Rubber Purchase Deposits among HARC, First Supply, Second
         Supply and the Farming Bureau, dated March 30, 1995 (Original Chinese
         version with English translation filed with Annual Report on Form 10-K
         for the fiscal year ended December 31, 1995, and incorporated herein by
         reference.)

10.24    Employment Agreement between Billion Luck and Han Jian Zhun, dated
         August 1, 1995 (Filed with Annual Report on Form 10-K for the fiscal
         year ended December 31, 1995, and incorporated herein by reference.)

10.25    Employment Agreement between Billion Luck and Li Fei Lie, dated August
         1, 1995 (Filed with Annual Report on Form 10-K for the fiscal year
         ended December 31, 1995, and incorporated herein by reference.)

10.26    Contract on Investment in the Xilian Timber Mill between HARC and the
         State-Run Xilian Farm of Hainan Province dated July 7, 1994, and
         Supplementary Agreement dated December 24, 1994 (Original Chinese
         version with English translation filed with Annual Report on Form 10-K
         for the fiscal year ended December 31, 1995, and incorporated herein by
         reference.)

10.27    Exchange Agreement, by and between the Registrant and Everbright
         Finance & Investment Co. Limited, dated July 22, 1996 (Filed with
         Quarterly Report on Form 10-Q for the fiscal quarter ended September
         30, 1996, and incorporated herein by reference.)

10.28    Loan Agreement between HARC and the Farming Bureau, dated March 25,
         1996, and the supplementary agreement dated December 31, 1996
         (Certified English translation of original Chinese version filed with
         Annual Report on Form 10-K/A for the fiscal year ended December 31,
         1996,and incorporated herein by reference.)

10.29    Loan Agreement between HARC and the Registrant, dated March 25, 1996
         (Certified English translation of original Chinese version filed with
         Annual Report on Form 10-K/A for the fiscal year ended December 31,
         1996, and incorporated herein by reference.)

10.30    Rental Agreement between HARC and the Hainan Farming Bureau Testing
         Center, dated August 9, 1996 (Certified English translation of original
         Chinese version filed with Annual Report on Form 10-K/A for the fiscal
         year ended December 31, 1996, and incorporated herein by reference.)

10.31    Shareholders' Agreement on Business Restructuring among the Farming
         Bureau, Guilinyang Farm and Billion Luck, dated as of October 1, 1996
         (Certified English translation of original Chinese version filed with
         Annual Report on Form 10-K/A for the fiscal year ended December 31,
         1996, and incorporated herein by reference.)

10.32    Assets and Staff Transfer Agreement among the Farming Bureau, HARC,
         First Supply and Second Supply, dated as of October 1, 1996 (Certified
         English translation of original Chinese version filed with Annual
         Report on Form 10-K/A for the fiscal year ended December 31, 1996, and
         incorporated herein by reference.)

10.33    Exchange Agreement, by and between the Registrant and Everbright
         Finance & Investment Co. Limited, dated December 31, 1996 (Filed with
         Annual Report on Form 10-K/A for the fiscal year ended December 31,
         1996, and incorporated herein by reference.)

10.34    China Resources Development, Inc., Amended and Restated 1995 Stock
         Option Plan, as amended on December 30, 1996 (Filed with Annual Report
         on Form 10-K/A for the fiscal year ended December 31, 1996, and
         incorporated herein by reference herewith.)

10.35    Agency Agreement on Natural Rubber Distribution between Hainan General
         Bureau Jin Huan Materials Supply General Company and HARC, dated
         January 2, 1997 (Certified English translation of original Chinese
         version filed with Quarterly Report on Form 10-Q for the fiscal quarter
         ended March 31, 1997, and incorporated herein by reference.)

10.36    Advertising and Media Agreement by and between the Registrant and
         Marketing Direct Concepts, Inc., dated April 1, 1997 (Filed with
         Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
         1997, and incorporated herein by reference.)

10.37    Financial Consulting Agreement by and between the Registrant and
         Integrated Capital Development Group, Inc., dated May 1, 1997 (Filed
         with Quarterly Report on Form 10-Q for the fiscal quarter ended June
         30, 1997, and incorporated herein by reference.)

10.38    Consulting Agreement between the Registrant and Brender Services
         Limited, dated April 30, 1997 (Filed herewith.)

10.39    Stock Purchase Agreement, by and between HARC and Guilinyang Farm,
         dated December 29, 1997. (Certified English translation of original
         Chinese version filed herewith.)

10.40    Agreement for the Sale and Purchase of Share in Hainan Zhongya Aluminum
         Company Ltd., dated December 29, 1997, by and between First Supply and
         Guilinyang Farm. (Certified English translation of original Chinese
         version filed herewith.)

11.3     Computation of Earnings Per Share for Fiscal Year ended December 31,
         1997 ( Contained in Financial Statements filed herewith.)

21       Subsidiaries of the Registrant (Contained in Financial Statements filed
         herewith.)

27.4     Financial Data Schedule (Filed herewith. For SEC use only.)

99.2     Notice of Annual Meeting, Proxy Statement and Proxy distributed to
         shareholders in advance of annual meeting held on December 30, 1997
         (Filed with Schedule 14A dated December 20, 1997, and incorporated
         herein by reference.)