SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-Q

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

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998

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

             FOR THE TRANSITION PERIOD FROM __________ TO __________

                          Commission File Number 0-7619

                          POWERSOFT TECHNOLOGIES, INC.
             (Exact name of Registrant as specified in its charter)

           Delaware                                              93-063633
(State or other jurisdiction of                               (I.R.S. Employer
  corporation or organization)                               Identification No.)

650 West Georgia Street, Suite 1088, Vancouver, British Columbia Canada V6B 4N8
(Address of principal executive offices)                      (Zip Code)


Registrant's telephone number, including area code (604) 685-8318

Heng Fai China Industries, Inc.
(Former name, former address and former fiscal year, if changed since last
report.)

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___ No _X_

15,559,542 shares of common stock, $.01 par value, were issued and outstanding
as of September 30, 1998.

<PAGE>

                          POWERSOFT TECHNOLOGIES, INC.

                                    FORM 10-Q

                                     FOR THE

                        QUARTER ENDED SEPTEMBER 30, 1998

                                      INDEX

PART I. FINANCIAL INFORMATION                                               PAGE

Item 1. Financial Statements.............................................      1

        Condensed Consolidated Balance Sheets as at
        September 30, 1998 and December 31, 1997.........................      2

        Condensed Consolidated Statements of Operations for the
        nine months and three months ended September 30, 1998 and 1997...      3

        Condensed Consolidated Statements of Cash Flows for the
        nine months ended September 30, 1998 and 1997....................      4

        Condensed Consolidated Statement of Shareholders' Equity for the
        nine months and three months ended September 30, 1998 and 1997...      5

        Notes to the Condensed Consolidated Financial Statements.........      6

Item 2. Management Discussion and Analysis of Financial
        Condition and Results of Operations..............................      9

PART II. OTHER INFORMATION

Item 1. Legal Proceedings................................................     15
Item 2. Changes in Securities ...........................................     15
Item 3. Defaults Upon Senior Securities .................................     15
Item 4. Submission of Matters to a Vote of Security Holders..............     15
Item 5. Other Information................................................     15
Item 6. Exhibits and Reports on Form 8-K.................................     15

Signature Page...........................................................     16


                                       I

<PAGE>

                         PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

      The following financial statements of Heng Fai China Industries, Inc. (the
      "Company") are provided herewith:

      (a)   Condensed Consolidated Balance Sheets as at September 30, 1998 and
            December 31, 1997;

      (b)   Condensed Consolidated Statements of Operations for the nine months
            and three months ended September 30, 1998 and 1997;

      (c)   Condensed Consolidated Statements of Cash Flows for the nine months
            ended September 30, 1998 and 1997;

      (d)   Condensed Consolidated Statement of Stockholders' Equity for the
            nine months ended September 30, 1998 and 1997; and

      (e)   Notes to the Condensed Consolidated Financial Statements.


                                      -1-
<PAGE>

                          Powersoft Technologies, Inc.
                    formerly Heng Fai China Industries, Inc.
                     Condensed Consolidated Balance Sheets
                                   (Unaudited)
                             (United States Dollars)

                                     ASSETS

                                                    September 30,   December 31,
                                                        1998            1997
                                                    -------------   ------------
Current assets:
    Cash and cash equivalents                       $    32,787    $    36,173
    Available-for-sale securities (Note 3)              432,165      1,507,345
    Accounts receivable, trade, less
      allowance for doubtful
      accounts of $nil                                   25,418          7,521
    Prepaid and other current assets                     23,179         32,153
    Amounts receivable from related parties              10,298         18,950
                                                    -----------    -----------
       Total current assets                             523,847      1,602,142
Property, plant and equipment, net                      753,974        785,920
                                                    -----------    -----------
       Total assets                                 $ 1,277,821    $ 2,388,062
                                                    ===========    ===========

                 LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
Current liabilities:
    Current portion of mortgage
       loans payable                                $   119,121    $   115,251
    Accounts payable and accrued expenses               111,555        148,948
    Margin loan payable (Note 3)                      3,160,138      3,058,295
    Interest payable                                     67,806         43,319
    Security deposits payable                            11,049         11,190
    Amounts payable to related parties                1,546,595        904,756
                                                    -----------    -----------
        Total current liabilities                     5,015,864      4,281,759
                                                    -----------    -----------
Long-term liabilities:
    Mortgage loans payable (Note 4)                     816,298        837,966
                                                    -----------    -----------
        Total long-term liabilities                     816,298        837,966
                                                    -----------    -----------

Commitments and contingencies

Shareholders' (deficit) equity:
    Preferred stock, $5 par value, 25,000,000
      shares authorized, unissued
    Common stock, $.01 par value, 30,000,000
      shares authorized; issued and
      outstanding 1998 and 1997:
      15,559,542 shares                                 155,595        155,595
    Contributed surplus                               5,385,296      5,385,296
    Unrealized loss on
      available-for-sale securities
      (Note 3)                                       (3,379,101)    (2,307,267)
    Cumulative exchange adjustments                      13,376          1,516
    Accumulated deficit                              (6,729,507)    (5,904,303)
                                                    -----------    -----------

                                                     (4,554,341)    (2,669,163)
     Common stock issued for consulting
       services to be received                                         (62,500)
                                                    -----------    -----------

        Total shareholders'(deficit) equity          (4,554,341)    (2,731,663)
                                                    -----------    -----------

        Total liabilities and shareholders'
          (deficit) equity                          $ 1,277,821    $ 2,388,062
                                                    ===========    ===========

       See the accompanying notes to the Condensed Financial Statements.


                                      -2-
<PAGE>

                          Powersoft Technologies, Inc.
                    formerly Heng Fai China Industries, Inc.
                 Condensed Consolidated Statement of Operations
                                   (Unaudited)
                             (United States Dollars)

<TABLE>
<CAPTION>
                                                Nine months ended September 30,  Three months ended June 30,
                                                -------------------------------  ---------------------------
                                                     1998            1997            1998            1997
                                                 ------------    ------------    ------------    -----------
<S>                                              <C>             <C>             <C>             <C>        
Revenues:
    Rental income                                $    252,180    $    259,989    $     79,429    $    88,313
    Investment income (loss)                          (15,741)        678,710         (18,620)       569,498
    Other income                                            0           5,659               0          1,607
                                                 ------------    ------------    ------------    -----------
       Total revenues                                 236,439         944,538          60,809        659,418
                                                 ------------    ------------    ------------    -----------

Expenses:
    Depreciation                                       31,941          26,114          10,647          8,704
    Legal and professional fees                         9,499          51,731           5,182          8,252
    Consulting fees                                    62,500         247,250               0         71,250
    Consulting fees paid to a
      related company                                 375,000         375,000         125,000        125,000
    Interest expense                                  375,410         141,598         160,905         18,330
    Foreign exchange (gain) loss                            0          48,427               0         10,833
    Land lease                                         56,132          60,241          17,959         20,080
    Rental real estate management fees                 17,214          24,521           5,068          5,694
    Salaries                                                0           4,528               0              0
    Other operating and
      administrative fees                             133,947         524,973          57,305        178,999
                                                 ------------    ------------    ------------    -----------
       Total expenses                               1,061,643       1,504,383         382,066        447,142
                                                 ------------    ------------    ------------    -----------

Net income (loss) from continuing
  operations                                         (825,204)       (560,025)       (321,257)       212,276
                                                 ------------    ------------    ------------    -----------

Discontinued operations
  Cangzhou cement                                                      96,637                         26,054
  Wuhan container                                                     276,470                         58,225
                                                                 ------------                    -----------
  Net income (loss) from discontinued operations                      373,107                         84,279
                                                                 ------------                    -----------
Net income (loss) before minority
  interest                                           (825,204)       (933,132)       (321,257)       127,997

Minority interest from
  discontinued operations                                             100,030                         66,898
                                                                 ------------                    -----------

Net income (loss)                                $   (825,204)   $   (833,102)   $   (321,257)   $   194,895
                                                 ============    ============    ============    ===========

Earnings (loss) per share (basic):
  From continuing operations                     $     (0.053)   $     (0.039)   $     (0.021)   $     0.013
  Effect of discontinued operations                     0.000          (0.065)          0.000          0.008
                                                 ------------    ------------    ------------    -----------
  Net loss per share                             $     (0.053)   $     (0.104)   $     (0.021)   $     0.021
                                                 ============    ============    ============    ===========

Weighted average number
  of shares of common stock
  outstanding                                      15,559,542      14,402,740      15,559,542     16,234,592
                                                 ============    ============    ============    ===========
                                      
</TABLE>

       See the accompanying notes to the Condensed Financial Statements.


                                      -3-
<PAGE>

                          Powersoft Technologies, Inc.
                    formerly Heng Fai China Industries, Inc.
                 Condensed Consolidated Statement of Cash Flows
                                   (Unaudited)
                             (United States Dollars)

                                                 Nine months ended September 30,
                                                 -------------------------------
                                                        1998          1997
                                                   ------------   ------------

Cash flows from operating activities
  Net loss                                         $  (825,204)   $  (833,102)
  Adjustments to reconcile net loss
    to net cash used in operating activities:
    Minority interest                                     --         (100,030)
    Depreciation and amortization                       31,941        198,008
    Consulting fee paid in common stock                 62,500        247,250
  Changes in working capital components:
    Accounts receivable                                (17,897)    (3,017,393)
    Inventories                                           --        2,291,750
    Prepaid and other current assets                     8,974     (1,176,251)
    Amounts receivable from related parties              8,652     (1,688,627)
    Value added  taxes recoverable                                    427,369
    Prepaid rental                                                     21,687
    Accounts payable and accrued expenses              (37,793)       822,466
    Bills payable                                                    (562,651)
    Accrued interest                                    24,487          1,068
    Security deposits payable                             (141)        (1,021)
    Amounts due to related parties                     641,839       (389,526)
    Exchange difference                                 15,211           --
                                                   -----------    ----------- 

    Net cash used in operating activities              (87,431)    (3,759,003)
                                                   -----------    ----------- 

Cash flows from investing activities:
  Purchase of available-for-sale securities                        (4,367,238)
  Proceeds from sale of available-for-sale                         
    securities                                                      2,587,924
  Purchases of property, plant and                                 
    equipment                                                         (59,438)
                                                                  ----------- 

    Net cash used in investing activities                          (1,838,752)
                                                                  ----------- 

Cash flow from financing activities:
  Common stock issued for cash                                      1,620,000
  Increase in short-term borrowings                                 3,138,275
  Increase in margin loan payable                      101,843        849,655
  Mortgage loan repaid                                 (17,798)       (15,069)
                                                   -----------    ----------- 

    Net cash provided by financing
      activities                                        84,045      5,592,861
                                                   -----------    ----------- 

Net decrease in cash and
  cash equivalents                                      (3,386)        (4,894)
Cash and cash equivalents, beginning of
  the period                                            36,173        170,259
                                                   -----------    ----------- 

  Cash and cash equivalents, end of the period     $    32,787    $   165,365
                                                   ===========    ===========

Analysis of the balance of cash and
  cash equivalents
  Bank balances and cash                           $    32,787    $   165,365
                                                   ===========    ===========

None-cash financing activities
  Issuance of common stock for
    consulting services                                None       $   100,000
                                                   ===========    ===========

       See the accompanying notes to the Condensed Financial Statements.


                                      -4-
<PAGE>
                          Powersoft Technologies, Inc.
                    formerly Heng Fai China Industries, Inc.
                 Condensed Consolidated Statement of Cash Flows
                                   (Unaudited)
                             (United States Dollars)

<TABLE>
<CAPTION>
                                            Nine months ended September 30,     Three months ended September 30,
                                            -------------------------------     --------------------------------
                                                  1998           1997                 1998           1997
                                              -----------    -----------          -----------    -----------
<S>                                           <C>            <C>                  <C>            <C>         
Balance, beginning                            $(2,731,663)   $     3,370          $(3,648,691)   $ 2,798,202 
                                              -----------    -----------          -----------    -----------
Comprehensive income (loss):                                                      
                                                                                  
  Net income (loss)                              (825,204)      (833,102)            (321,257)       153,563
                                                                                  
  Reversal of expense for common 
    stock issued for services                      62,500        247,250                    0         71,250
                                                                                  
  Change in cummulative exchange
    adjustment                                     11,860              0               42,270              0
                                                                                  
  Change in net unrealized gain (loss)         (1,071,834)       300,473             (626,663)    (1,685,024)
                                              -----------    -----------          -----------    -----------
                                                                                  
    Comprehensive income (loss)                (1,822,678)      (285,379)            (905,650)    (1,460,211)
                                              -----------    -----------          -----------    -----------

Proceeds from private placement                                1,620,000          
                                              -----------    -----------          -----------    -----------
                                                                                  
Balance, September 30, 1998                   $(4,554,341)   $ 1,337,991          $(4,554,341)   $ 1,337,991
                                              ===========    ===========          ===========    ===========
</TABLE>


                                      -5-
<PAGE>

                          Powersoft Technologies, Inc.
                    formerly Heng Fai China Industries, Inc.
              Notes to Condensed Consolidated Financial Statements
                               September 30, 1998
                                   (Unaudited)

1.  BASIS OF PRESENTATION

The  condensed  consolidated  financial  statements  include the accounts of the
Company and its wholly owned subsidiaries.  The condensed consolidated financial
statements  included  herein have been prepared by the Company,  without  audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain  information  and footnote  disclosures  normally  included in financial
statements prepared in accordance with generally accepted accounting  principles
have been condensed or omitted pursuant to such rules and regulations,  although
the Company  believes that the  disclosures are adequate to make the information
presented not misleading.  The condensed  consolidated  financial statements and
the notes thereto should be read in conjunction with the consolidated  financial
statements  included in the  Company's  Annual  Report on Form 10-K for the year
ended  December 31, 1997. In the opinion of the  management of the Company,  the
accompanying  condensed  consolidated financial statements contain all necessary
adjustments to present fairly the financial position,  the results of operations
and cash flows for the periods reported.  All adjustments are a normal recurring
nature.

The results of  operations  for the nine months  periods and three month periods
ended September 30, 1998 and September 30, 1997, are not necessarily  indicative
of the results to be expected for the full year.

The  condensed  statements  of  operations  for the  nine-month  period  and the
three-month  period ended September 30, 1997, have been  reclassified to conform
to the 1998 presentation.

2. CONTINUING OPERATIONS

These  condensed  consolidated  financial  statements  have been prepared on the
going  concern  basis of  accounting  which assumes the Company will realize its
assets and  discharge  its  liabilities  in the normal  course of business.  The
Company is currently operating at a loss and has minimal in net tangible assets.
Should the Company be unable to  continue as a going  concern it may be required
to  realize  its assets and  settle  its  liabilities  at amounts  substantially
different from the current carrying values.


                                       -6-
<PAGE>

                          Powersoft Technologies, Inc.
                    formerly Heng Fai China Industries, Inc.
              Notes to Condensed Consolidated Financial Statements
                               September 30, 1998
                                   (Unaudited)

2.  CONTINUING OPERATIONS (continued)

The  Company's  ability to continue as a going concern is dependent on continued
financial support from its principal shareholder,  Fai H. Chan, who has signed a
letter of financial support to the Company.

3. AVAILABLE-FOR-SALE SECURITIES

The cost and approximate market value of investment securities were as follows:

                                                September 30,       December 31,
                                                    1998                1997
                                                -------------       ------------
Corporate equity securities (a):
    Cost                                         $ 3,786,859        $ 3,814,612
    Less gross unrealized losses                  (3,354,694)        (2,307,267)
                                                 -----------        -----------
    Estimated fair value                         $   432,165        $ 1,507,345
                                                 ===========        ===========
    Carrying value (c)                           $   432,165        $ 1,507,345
                                                 ===========        ===========
Margin loan payable (b)                          $ 3,160,138        $ 3,058,295
                                                 ===========        ===========

      (a) Included in the above  securities are  48,535,276  shares at September
      30,  1998,  and  December  31,  1997,  representing  3.9  percent  of  the
      outstanding  common stock of Heng Fung  Holdings  Company  Limited  ("Heng
      Fung"). These securities were acquired in 1997 at a cost of $3,786,859 and
      had a carrying  value of $432,165 at September 30, 1998, and $1,507,345 at
      December 31, 1997.  Fai H. Chan and Robert Trapp,  directors of Heng Fung,
      are also officers, directors and/or shareholders of the Company.

      The  investment  securities  held by the  Company  are not  subject to any
      contractual  or  statutory  resale  restrictions  and any portion of these
      securities can be reasonably expected to qualify for sale within one year.

      (b) All  investments  are  pledged to secure  the  Company's  margin  loan
      payable.  The loan is payable on demand  and bears  interest  at Hong Kong
      best lending rate (10% at September 30, 1998) plus 3.5% per annum.

      (c) At  October  31,  1998,  the  market  value  of the  available-or-sale
      securities  held by the  Company at the  balance  sheet date  amounted  to
      approximately $450,000.


                                       -7-
<PAGE>

                          Powersoft Technologies, Inc.
                    formerly Heng Fai China Industries, Inc.
              Notes to Condensed Consolidated Financial Statements
                               September 30, 1998
                                  (Unaudited)

4. MORTGAGE LOAN PAYABLE

The mortgage  loan which  matured and became  payable  June 15,  1998,  has been
extended for an additional five year period.


                                       -8-
<PAGE>

                          Powersoft Technologies, Inc.

                    formerly Heng Fai China Industries, inc.

                               September 30, 1998

Item 2. Management's  Discussion and Analysis of Financial Condition and Results
of Operations

The  following  discussion  should  be read in  conjunction  with the  Condensed
Consolidated  Financial Statements of the Company and the related notes thereto,
and  other  financial   information   that  is  included   elsewhere  herein  or
incorporated by reference.

Introduction

The Company  was  originally  incorporated  in 1958 and until June 1994 had been
engaged in business other than those it presently operates.

The Company owns an apartment building in North Vancouver, British Columbia, and
until June 1995 the Company's  operations were comprised of that single segment.
In 1995 and 1996, the Company,  through various  subsidiaries,  acquired certain
interests  in the People's  republic of China  ("PRC"),  including  (i) Min You,
which has an option to lease a  production  line in Cangzhou  Factory for cement
manufacturing; (ii) a 70% interest in Wuhan, a PRC container manufacturer; (iii)
an interest in the duck contract  pursuant to which the Company  operated a duck
farm in PRC; and (iv) an option to form Heng Li in order to develop a commercial
building in Zhangjiagang PRC.

During  the  fourth  quarter  of  1997,  the  Company  determined  that it would
discontinue substantially all of its operations in PRC. The divestiture included
(i) the transfer of 81% of the Company's  interest in Min You; (ii) effecting an
agreement  to reverse the  acquisition  of a 70%  interest  in Wuhan;  (iii) the
termination of the duck contract; and (iv) the termination of the option to form
Heng Li and cancel the respective joint venture agreement.

Presently the Company  retains a 19% interest in Min You, with a full  provision
for the permanent  dimunition in value, its sole PRC operation,  and 100% of the
outstanding stock of Vancouver Hong Kong.


                                       -9-
<PAGE>

Results of Continuing Operations

The  nine-months  ended  September 30, 1998 as compared to the nine months ended
September 30, 1997

There were no significant  changes in the revenues and expenses  attributable to
the operation of Vancouver Hong Kong's real estate between the nine-months ended
September 30, 1998 and nine-months ended September 30, 1997.

Investment  income decreased from income of $678,710 through  September 30, 1997
to a loss of $15,741 through  September 30, 1998. The Company has not engaged in
investment activity during the quarter ended September 30, 1998. This is because
of the uncertainty  related to the  international  securities  markets.  The net
investment  loss in 1998 consists of the loss due to the expiration of warrants,
amounting to $18,820,  and interest  income.  During the quarter ended September
30, 1997, the Company earned investment income of $569,498.

Consulting  expense  decreased from an aggregate of $612,250 for the nine months
ended  September  30, 1997 to $437,500 for the nine months ended  September  30,
1998. This is due to the Company's reduced use of consulting services.  Interest
expense  increased from $141,598 for the nine-months ended September 30, 1997 to
$375,410  for the same  period in 1998.  This is due to the  increase  in margin
loans  payable.  The  outstanding  balance of margin loans  payable  amounted to
$3,160,138  and  $1,338,848  at September  30,  1998,  and  September  30, 1997,
respectively.  Other  expenses  decreased  from  $524,973 in 1997 to $133,947 in
1998. The decrease is due to reduced professional fees and financial, travel and
miscellaneous expenses. The Company experienced no foreign exchange loss for the
nine months ended September 30, 1998, as compared to a foreign  exchange loss of
$48,427 nine months ended September 30, 1997.

The  Company's  net loss from  continuing  operations  was $825,204 for the nine
months ended  September  30, 1998, as compared to a net loss of $560,025 for the
nine months ended  September 30, 1997.  This trend is also  reflected in the net
loss from  continuing  operations for the three months ended September 30, 1998,
amounting  to  $321,257,  compared to net income of $212,276 for the three month
period ended  September 30, 1997.  The reasons for this trend are the reductions
in  other  operating  and  administrative  expenses  and  consulting  fees,  the
offsetting decrease in increase in interest expense and the investment income of
$569,498 that occurred in the quarter ended September 30, 1997

The nine months  ended  September  30, 1997 as compared to the nine months ended
September 30, 1996

There were no significant  changes in the revenues and expenses  attributable to
the operation of Vancouver Hong Kong's real estate between the first nine months
of fiscal 1997 and the nine months of fiscal 1996.

Investment  income increased to $678,710 for the nine-months ended September 30,
1997 as compared to $30,942 for the nine months ended September 30, 1996.

The  consulting  arrangements  that caused an expense of  $1,290,395 in the nine
months ended September 30, 1996 did not recur in 1997.  Consulting fees declined
from $1,290,395 to $622,250 in 1997. Other operating and administrative expenses
increased in the nine months ended  September 30, 1997 to $524,973 from $275,677
in the  same  period  of  1996.  The  


                                      -10-
<PAGE>

increase is due primarily to increased professional fees.

Interest  expense  amounted to $141,598  and  $141,365 for the nine months ended
September 30, 1997 and 1996, respectfully.

The Company's net loss from  continuing  operations  for the  nine-month  period
ended  September 30, 1997 was $560,025,  a change of $910,712  compared to a net
loss of $1,570,737 for the corresponding period in 1996. The decrease in the net
loss  was the  net  result  of (I) an  increase  in  investment  income;  (ii) a
reduction  in  expenses  for  overhead  and  consultants;   (iii)  increases  in
professional  fees  that are  included  in other  operating  and  administrative
expenses; (iv) an increase in interest expense.

Results of Discontinued Operations

Inflation

The general inflation rate in China was approximately 15%, 8% and 3%per annum in
1995, 1996 and 1997, respectively. In recent years, the PRC Government has taken
steps to control inflation by means of credit restrictions, increase in interest
rates and open  market  operations,  which in turn,  lead to a  slowdown  of the
Chinese economy.  The austerity measures  implemented by the PRC Government have
continued  to affect the  operations  of Min You and Wuhan  Container.  Although
there was a sign of easing in such austerity measures,  both turnover and profit
margin of Min You and Wuhan Container were still severely affected.

The nine months  ended  September  30, 1998 as compared to the nine months ended
September 30, 1997

There has been no activity in the discontinued operations in 1998.

The nine months  ended  September  30, 1997 as compared to the nine months ended
September 30, 1996

The cement  operation of Min You Cement Company Limited  commenced in the second
half of 1995.  Cement sales decreased from $346,930 in 1996 to $262,257 in 1997.
At the same time the cost of cement  sales  decreased  from  $321,737 in 1996 to
$288,437 in 1997.

Wuhan container  experienced sales of $2,934,871 and cost of sales of $2,647,720
for the nine months  ended  September  30,  1997.  There was no activity for the
corresponding period in 1996.

Both  operations  operated at less than full capacity  because of the impacts of
the austerity measures that took place in the People's Republic of China.

Liquidity and Capital Resources

The net cash  used in  operating  activities  for the  nine-month  period  ended
September 30, 1998  amounted to $87,431.  This is primarily due to the operating
losses  experienced.  The Company met its working capital  requirements from the
proceeds of margin  loans,  described  below and the  collection of amounts from
related parties.


                                      -11-
<PAGE>

During the nine  months  ended  September  30,  1998,  the  Company did not make
additional cash investments in securities or facilities.

The net cash provided by financing  activities  amounted to $84,045 for the nine
months ended  September  30,  1998.  This is due  primarily to the  increases in
margin loans.

The net cash used in operating  activities  for the nine months ended  September
30, 1997, amounted to $3,759,003. This was primarily due to the operating losses
experienced, increases in receivables from the container segment and the payment
of amounts  that were  payable to related  parties.  The Company met its working
capital  requirements  from the proceeds of bank  borrowings and the issuance of
common shares.

The net cash used in investing  activities  amounted to $1,838,752  for the nine
months ended September 30, 1998. This is primarily due to the use of cash to pay
for the purchase of investments.

The net cash provided by financing  activities  amounted to  $5,592,861  for the
nine months ended September 30, 1997. This is due to the increases in short term
borrowings and margin loans and the issuance of common shares.

As discussed in Note 2 of the Notes to the  Consolidated  Financial  Statements,
the Company's  recurring  losses from operations and minimal net tangible assets
raise  substantial  doubts as to its  ability to  continue  as a going  concern.
However, the principal shareholder has committed to continue providing financial
support.


                                      -12-
<PAGE>

Exchange Rate Risk

At present,  the Company's revenues and expenses are denominated in U.S. dollars
and Hong Kong  dollars.  In view of the exchange  rate pegged  between Hong Kong
dollars and U.S. dollars, the Company is not subject to any direct exposure from
the fluctuation of U.S. dollars.  Also, the Company's disposal of its operations
in PRC in 1997 nearly eliminates its exposure to exchange rate risk with the PRC
Renminbi.  The  Renminbi is the  currency of the PRC.  The Company is exposed to
exchange rate risk in its real estate  operations in Canada.  The Company's real
estate activity  transactions,  including long-term debt are payable in Canadian
dollars.  The Canadian dollar has declined in its relation to the U.S. dollar to
$1.53 from approximately $1.36 in 1996.

The Company is not involved in any hedging activities in foreign currencies.

New accounting standards not yet adopted

In February 1998,  the FASB issued SFAS No. 132,  Employers'  Disclosures  about
Pensions  and  Other  Postretirement   Benefits,  which  amends  the  disclosure
requirements  for pensions and other  postretirement  benefits.  Adoption of the
standard  will  not  significantly  change  the  Company's  financial  statement
disclosures.

During April 1998, the AICPA  Accounting  Standards  Executive  Committee issued
Statement of Position  98-5,  "Reporting  on the Costs of Start-up  Activities".
Generally the Statement requires that the costs of start-up  activities shall be
expensed as incurred,  and that upon initial  adoption an  adjustment to reflect
the  cumulative  effect of a change in accounting  principle  shall be recorded.
This statement will be effective for periods  beginning after December 15, 1998,
with earlier application permitted.

In June 1998,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial Accounting  Standards 133, "Accounting for Derivative  Instruments and
Hedging  Activities."  This  statement  establishes   accounting  and  reporting
standards  for  derivative  instruments.  It requires an entity to recognize all
derivatives  as either  assets or  liabilities  in the  statement  of  financial
position  and  measure  those  instruments  at fair  value.  This  statement  is
effective  for fiscal  years  beginning  after  June 15,  1999,  although  early
adoption is permitted.

The Company  believes that the effects of adopting  these  standards will not be
material to the Company's financial position or results of operations.


                                      -13-
<PAGE>

Regional economic developments

Several countries in Asia have recently experienced significant adverse economic
developments including substantial exchange rate fluctuations, inflation, social
unrest,  increased  interest rates,  reduced  economic  growth rates,  corporate
bankruptcies,  declines in the market value of shares listed on stock exchanges,
emergency   loan   agreements   with  the   International   Monetary   Fund  and
government-imposed  austerity  measures.  To date, neither the PRC nor Hong Kong
has experienced these  developments to the same extent as many other major Asian
countries.  However,  there can be no assurance that these economic developments
in other  countries  will not  adversely  affect the  economy of the PRC or Hong
Kong, or that similar adverse economic developments will not occur in the PRC or
Hong  Kong in the  future,  which  could  have a  material  adverse  effect on a
Company's financial condition or results of operations.

The year 2000

The Year 2000 Issue is the result of computer  programs  being written using two
digits rather than four digits to define the applicable year.  Computer programs
that have  sensitive  software may  recognize a date using "00" as the year 1900
rather  than  the  year  2000.   This  could  result  in  a  system  failure  or
miscalculations  causing  disruptions  of  operations,  including,  among  other
things, a temporary inability to process  transactions,  send invoices or engage
in similar normal business  activities.  Based on a recent internal  assessment,
the Company does not anticipate that the cost of any needed  modifications  will
have a material effect on results of operations.

There can be no  assurance,  however,  that should the Year 2000 Issue  become a
problem, that such problem will be resolved successfully and in a timely fashion
or that any failure or delay by the Company or any third parties which  interact
with the  Company in  achieving  year 2000  compliance  will not have an adverse
effect on its operations.


                                      -14-
<PAGE>

                         (c) PART II. OTHER INFORMATION

Item 1. Legal Proceedings

      None

Item 2. Changes in Securities

      None

Item 3. Defaults in Senior Securities

      None

Item 4. Submission of Matters to a Vote of Security Holders

      None

Item 5. Other Information

      None

Item 6. Exhibits and Reports on Form 8-K

      None


                                      -15-
<PAGE>

                                   SIGNATURES

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

                                                 HENG FAI CHINA INDUSTRIES, INC.

Dated: December 19, 1998                         By: /s/ Robert H. Trapp
                                                 -------------------------------
                                                     Robert H. Trapp
                                                     Secretary and Treasurer


                                      -16-