UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 20-F

 [ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                                       OR

  [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                                   ACT OF 1934
                  For the fiscal year ended : December 31, 2002

                                       OR

    [ ] 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:  000-50184

                      YANTAI DAHUA HOLDINGS COMPANY LIMITED
              ----------------------------------------------------
             (Exact name of Registrant as specified in its charter)

                                     Belize
                  0000-----------------------------------------
                 (Jurisdiction of incorporation or organization)

          East of Muping, Yantai, Shandong, People's Republic of China
                     --------------------------------------
                    (Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

                                      None

Securities registered or to be registered pursuant to Section 12(g) of the Act.

                         Common Shares, $.001 par value

Securities for which there is a reporting  obligation  pursuant to Section 15(d)
of the Act.

                                      None

The number of outstanding shares of common stock as December 31, 2002

                        5,149,000 shares of Common Shares
            (33,447,000 shares of Common Shares as of 23 April 2003)
                                       and
       10,000,000 shares of authorized but not yet issued Preferred Shares



                                       1
<PAGE>


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.

[ X ] YES        [    ] NO

Indicate by check mark which financial statement item the registrant has elected
to follow.

[   ] Item 17    [ X ] Item 18







                                       2
<PAGE>




                                TABLE OF CONTENTS


                                                                     Page No
Forward-looking Statements                                                 4

PART I

Item 1   Identity of Directors, Senior Management and Advisers             4

Item 2.  Offer Statistics and Expected Timetable                           4

Item 3   Key Information                                                   4

Item 4   Information on the Company                                       13

Item 5   Operating and Financial Review                                   18

Item 6   Directors, Senior Management and Employees                       21

Item 7   Major Shareholders and Related Party Transactions                23

Item 8   Financial Information                                            25

Item 9   The Offering and Listing                                         25

Item 10  Additional Information                                           25

Item 11  Quantitative and Qualitative Disclosures about Market Risk       27

Item 12  Description of Securities Other than Equity Securities           27

PART II

Item 13  Defaults, Dividend Arrearages and Delinquencies                  27

Item 14  Material Modifications to the Rights of Security Holders
              and Use of Proceeds                                         27

Item 15  Controls and Procedures                                          28

Item 16  Reserved for Future Use                                          28

PART III

Item 17  Financial Statements                                             28

Item 18  Financial Statements                                             28

Item 19  Exhibits                                                         69

Signature                                                                 87

Certification                                                             88


                                       3
<PAGE>

(A)      Pursuant to General  Instructions E(b) of Form 20-F, this annual report
         includes the information specified in Parts I, II, III

(B)      Pursuant to General  Instruction  E(c) of Form 20-F, the registrant has
         elected to provide the  financial  statements  and related  information
         specified in Item 18

FORWARD LOOKING STATEMENTS

The statements in this annual report and the documents incorporated by reference
contain certain forward-looking statements concerning recent and future economic
performance  and the plans and objectives of management  for future  operations.
These  forward-looking  statements can be identified by the use of such words as
"project,"  "expect" and  "anticipate,"  and  variations  of such words.  Actual
results  might  differ  materially  from  such  projections,   expectations  and
anticipations,  due to general economic conditions, supply and demand for paper,
labor conditions,  the availability of requisite financing and other factors. We
intend  those  forward  looking  statements  to be  covered  by the safe  harbor
provisions for  forward-looking  statements  contained in the Private Securities
Litigation  Reform Act of 1995 and are including this statement for the purposes
of complying with the safe harbor provisions.

You  are  cautioned  not  to  place  undue  reliance  on  these  forward-looking
statements.  These  forward-looking  statements  are made as of the date of this
annual  report on Form 20-F and are not  intended  to give any  assurance  as to
future results.

PART I

ITEM 1   IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

         See Item 6 for information about directors and senior management.

Mr. David Levenson of 7800 Town Gate Place, Bethesda,  Maryland 20817, USA has a
continuing  relationship  with  the  Company  as its  special  securities  legal
adviser.

Malone & Bailey was the accountant for the Company's  predecessor Equity Finance
Holding Corporation for fiscal year 2002.

ITEM 2   OFFER STATISTICS AND EXPECTED TIMETABLE
         Not applicable

ITEM 3   KEY INFORMATION

A.   SELECTED FINANCIAL DATA

We prepare the  consolidated  financial  statements  in  accordance  with United
States Generally Accepted Accounting Principles ("US GAAP").

The Company's selected financial data includes the data from (1) its predecessor
Equity Finance  Holding  Corporation  and (2) its subsidiary  Yantai Dahua Paper
Industry Company Limited,  which was acquired after the acquisition of Australia
China  Investments   Limited  (see  Item  4A  for  more  information  about  the
acquisition).

The selected  financial  data of Equity  included in this report is an unaudited
2002  management  account.  Once the audit is  completed,  an  amendment to this
report shall be made to include Equity's audited account.


                                       4
<PAGE>

The Yantai Dahua Paper's  summary  statements  of operations  data for the years
ended  December  31,  2000,  December  31,  2001,  December  31,  2002  and  the
consolidated  balance  sheet data as of December  31,  2000,  December 31, 2001,
December 31, 2002 were derived from our audited  financial  statements  included
elsewhere in this report and should be read in  conjunction  with such financial
statements.

                       EQUITY FINANCE HOLDINGS CORPORATION
                                  PROFIT & LOSS
                          JANUARY THROUGH DECEMBER 2002

                                                                  JAN - DEC '02
                                                                 --------------
                       ORDINARY INCOME/EXPENSE
                           INCOME
                               OTHER REGULAR INCOME                  42,750.00
                               INTEREST                                  25.72
                                                                 --------------
                           TOTAL INCOME                              42,775.72

                           EXPENSE
                               MAILING/SHIPPING                          63.48
                               MOODY LISTING                          2,400.00
                               MARKETING
                                   BUSINESS WIRE                        435.00
                                   SHAREHOLDER WEB PAGE                 214.40
                                                                 --------------
                               TOTAL - MARKETING                        649.40

                               SEC FILING FEES
                                   EDGAR FILING                       1,492.80
                                                                 --------------
                               TOTAL - SEC FILING FEES                1,492.80

                               BANK SERVICE CHARGES                   1,554.87
                               DUES AND SUBSCRIPTIONS                   199.95
                               INTEREST EXPENSE
                                   FINANCE CHARGE                       634.06
                                                                 --------------
                               TOTAL - INTEREST EXPENSE                 634.06

                               MISCELLANEOUS                             69.50
                               POSTAGE AND DELIVERY                      37.00
                               PROFESSIONAL FEES
                                   AUDIT                              6,000.00
                                   TRANSFER AGENT                     3,783.86
                                   LEGAL FEES                       -11,200.00
                                   ACCOUNTING                         2,268.00
                                                                 --------------
                               TOTAL   PROFESSIONAL FEES                851.86

                               RENT
                                   MAIL BOX RENTAL                      612.00
                                                                 --------------
                               TOTAL - RENT                             612.00

                               TELEPHONE                              1,121.10
                               OFFICE SUPPLIES
                                   SOFTWARE                             109.85

                                       5
<PAGE>


                                   GENERAL OFFICE SUPPLIES               83.09
                                                                 --------------
                               TOTAL   OFFICE SUPPLIES                  192.94

                               OUTSIDE SERVICES                          83.37
                               PAYROLL EXPENSES
                                   OFFICER SALARY                         0.00
                                                                 --------------
                               TOTAL - PAYROLL EXPENSES                   0.00

                               DELAWARE INCORPORATIONS                  239.70
                                                                 --------------
                           TOTAL EXPENSE                             10,202.03
                                                                 --------------
                       NET ORDINARY INCOME                           32,573.69
                       OTHER INCOME/EXPENSE
                           OTHER EXPENSE
                               OTHER EXPENSES                             0.00
                                                                 --------------
                           TOTAL OTHER EXPENSE                            0.00
                                                                 --------------
                       NET OTHER INCOME                                   0.00
                                                                 --------------
                   NET INCOME                                        32,573.69
                                                                 ==============




                       EQUITY FINANCE HOLDINGS CORPORATION
                                  BALANCE SHEET
                             AS OF DECEMBER 31, 2002

                                                                  DEC 31, '02
                                                                  -----------
              ASSETS
                  CURRENT ASSETS
                      CHECKING/SAVINGS
                           BANK OF MONTREAL                         1,186.05
                                                                  -----------
                      TOTAL CHECKING/SAVINGS                        1,186.05
                                                                  -----------
                  TOTAL CURRENT ASSETS                              1,186.05
                                                                  -----------
              TOTAL ASSETS                                          1,186.05
                                                                  ===========
              LIABILITIES & EQUITY
                  LIABILITIES
                      CURRENT LIABILITIES
                          ACCOUNTS PAYABLE
                              ACCOUNTS PAYABLE                    192,043.45
                                                                  -----------
                          TOTAL ACCOUNTS PAYABLE                  192,043.45
                          CREDIT CARDS
                             FIRST USA BANK, NA                     4,686.30
                              M - BUSINESS CARD -WELLS FARGO        5,342.49
                              B-MASTERCARD WELLS FARGO              1,364.49
                                                                  -----------
                          TOTAL CREDIT CARDS                       11,393.28


                                 6
<PAGE>

                          OTHER CURRENT LIABILITIES
                             DEFERRED REVENUE                      38,000.00
                             SHORT TERM LOANS
                                 LOAN -JAMES BISHOP                32,200.00
                                                                  -----------
                             TOTAL - SHORT TERM LOANS              32,200.00
                                                                  -----------
                          TOTAL OTHER CURRENT LIABILITIES          70,200.00
                                                                  -----------
                      TOTAL CURRENT LIABILITIES                   273,636.73
                      LONG TERM LIABILITIES
                          LONG TERM LOANS PAYABLE
                             RELATED PARTY NOTE PAYABLE           116,438.61
                                                                  -----------
                          TOTAL - LONG TERM LOANS PAYABLE         116,438.61
                                                                  -----------
                      TOTAL LONG TERM LIABILITIES                 116,438.61
                                                                  -----------
                  TOTAL LIABILITIES                               390,075.34
                  EQUITY
                      RETAINED EARNINGS                           243,273.93
                      ADDITIONAL PAID IN CAPITAL                  816,661.95
                      COMMON STOCK                                  5,149.00
                      NET INCOME                                   32,573.69
                                                                  -----------
                  TOTAL EQUITY                                    388,889.29
                                                                  -----------
              TOTAL LIABILITIES & EQUITY                            1,186.05
                                                                  ===========




                                       7
<PAGE>




After the  acquisition  on February  18,  2003,  the  Company's  structure is as
follow:

                                                         --------------------
                                                         The Company
                                                         --------------------
                                                                   |    100%
                                                                   |
                  ---------------------                  --------------------
                  Yantai Longda                          Australia China
                  ---------------------                  --------------------
                  15%     |                                        |     85%
                           --- -------- ------- -------- ------- --
                                               |
                                               |
                                        ----------------
                                        Yantai Dahua
                                        Paper
                                        ----------------

The selected  financial  data of Yantai Dahua Paper for years ended December 31,
2000, 2001 and 2002:

STATEMENTS OF OPERATIONS FOR YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002

<TABLE>
<CAPTION>
--------------------------------------------- --------------  ---------------  ---------------  ---------------
                                                       2000             2001             2002             2002
--------------------------------------------- --------------  ---------------  ---------------  ---------------
                                                        RMB              RMB              RMB              US$
--------------------------------------------- --------------  ---------------  ---------------  ---------------
<S>                                            <C>              <C>              <C>               <C>
OPERATING REVENUE
--------------------------------------------- --------------  ---------------  ---------------  ---------------
Sale of goods                                    96,585,857       93,616,071      102,149,716       12,356,030
--------------------------------------------- --------------  ---------------  ---------------  ---------------

--------------------------------------------- --------------  ---------------  ---------------  ---------------
COSTS OF SALES                                 (75,050,872)     (71,455,136)     (72,207,917)      (8,734,270)
--------------------------------------------- --------------  ---------------  ---------------  ---------------

--------------------------------------------- --------------  ---------------  ---------------  ---------------
GROSS PROFIT                                     21,534,985       22,160,935       29,941,799        3,621,760
--------------------------------------------- --------------  ---------------  ---------------  ---------------

--------------------------------------------- --------------  ---------------  ---------------  ---------------
OPERATING EXPENSES
--------------------------------------------- --------------  ---------------  ---------------  ---------------
Depreciation                                      (328,313)        (376,070)        (401,642)         (48,583)
--------------------------------------------- --------------  ---------------  ---------------  ---------------
Handling and shipping costs                     (6,084,348)      (5,900,783)      (4,752,591)        (574,873)
--------------------------------------------- --------------  ---------------  ---------------  ---------------
Selling, general and administrative expenses   (15,797,505)     (14,524,343)     (14,321,978)      (1,732,386)
                                               ------------     ------------     ------------      -----------
--------------------------------------------- --------------  ---------------  ---------------  ---------------

--------------------------------------------- --------------  ---------------  ---------------  ---------------
(LOSS) INCOME FORM OPERATIONS                     (675,181)        1,359,739       10,465,588        1,265,918
--------------------------------------------- --------------  ---------------  ---------------  ---------------

--------------------------------------------- --------------  ---------------  ---------------  ---------------
NON-OPERATING INCOME
--------------------------------------------- --------------  ---------------  ---------------  ---------------
Sundry income                                       709,030          260,178          520,695           62,983
                                                  ---------        ---------      -----------        ---------
--------------------------------------------- --------------  ---------------  ---------------  ---------------

--------------------------------------------- --------------  ---------------  ---------------  ---------------
INCOME BEFORE INCOME TAXES                           33,849        1,619,917       10,986,283        1,328,901
--------------------------------------------- --------------  ---------------  ---------------  ---------------

--------------------------------------------- --------------  ---------------  ---------------  ---------------
Provision for income taxes                        (409,790)        (131,149)      (2,834,106)        (342,813)
                                                  ---------        ---------      -----------        ---------
--------------------------------------------- --------------  ---------------  ---------------  ---------------

--------------------------------------------- --------------  ---------------  ---------------  ---------------
NET (LOSS) INCOME                                 (375,941)        1,488,768        8,152,177          986,088
                                                  =========        =========        =========          =======
</TABLE>




                                       8
<PAGE>



BALANCE SHEETS FOR YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002

<TABLE>
<CAPTION>
                                                                   AS OF DECEMBER 31,
                                        ----------------    -----------------   -----------------   --------------
                                                  2000               2001                2002                 2002
                                                   RMB                RMB                 RMB                  US$
<S>                                      <C>                  <C>                 <C>              <C>
ASSETS

CURRENT ASSETS
Cash and bank balances                       7,817,564          7,596,125           5,667,121              685,495
Accounts receivable, trade                 50,039,379          47,125,357          56,421,029            6,824,688
Prepayments and other receivables           7,672,862           7,678,627           9,786,474            1,183,771
Inventories                                13,431,722          14,762,938          13,740,686            1,662,073
Income tax recoverable                         94,161                   -                   -                    -
Due from related parties                    5,252,782           6,064,545           1,889,523              228,557
                                        ----------------    -----------------   -----------------   --------------

TOTAL CURRENT ASSETS                       84,308,470          83,227,592          87,504,833           10,584,584
Property and equipment, net                67,248,351          74,134,902          81,137,911            9,814,442
Construction in progress                    3,416,927           1,599,673           1,174,844              142,109
                                        ----------------    -----------------   -----------------   --------------

TOTAL ASSETS                              154,973,748         158,962,167         169,817,588           20,541,135
                                        ----------------    -----------------   -----------------   --------------

<CAPTION>

     LIABILITIES AND OWNERS' EQUITY

<S>                                         <C>                  <C>                 <C>               <C>
     CURRENT LIABILITIES
Short-term loans                              2,745,000            7,395,000          29,870,000        3,613,075
Accounts payable, trade                      13,434,005           16,215,222          15,190,144        1,837,401
Accrued charges and other payables           19,635,865           15,769,353          17,647,605        2,134,655
Due to related parties                       27,218,806           26,449,009          21,261,928        2,571,843
Income tax payable                                    -               36,988             205,399           24,845
Deferred tax                                          -                    -           1,897,935          229,574
                                        ----------------    -----------------   -----------------   --------------

Total current liabilities                    63,033,676           65,865,572          86,073,011       10,411,393
                                        ----------------    -----------------   -----------------   --------------

Non-current liabilities
Long-term loans                              18,230,000           18,230,000                   -                -
Deferred tax                                          -                    -             725,805           87,793
                                        ----------------    -----------------   -----------------   --------------

                                             18,230,000           18,230,000             725,805           87,793
                                        ----------------    -----------------   -----------------   --------------

Owners' equity
Registered capital                           33,590,000           33,590,000          33,590,000        4,063,046
Retained earnings                            36,575,466           37,648,928          45,667,872        5,523,985
Statutory reserves                            3,544,606            3,627,667           3,760,900          454,918
                                        ----------------    -----------------   -----------------   --------------

Total owners' equity                         73,710,072           74,866,595          83,018,772       10,041,949
                                        ----------------    -----------------   -----------------   --------------

Total liabilities and owners'
equity                                      154,973,748          158,962,167         169,817,588       20,541,135
                                        ================    =================   =================   ==============
</TABLE>


B.   CAPITALIZATION AND INDEBTEDNESS

     Not Applicable

C.   SELECTED FINANCIAL INFORMATION

     Not Applicable


                                       9
<PAGE>


D.   RISKS FACTORS

COMPETITION.

The Company is engaged in, through its subsidiaries, the manufacturing and sales
of paper principally for printing and writing in China.  Yantai Dahua Paper is a
leading paper  manufacturer  in Shandong,  China.  There are  competitors in the
industry that provide similar  products and services to those which are provided
by Yantai Dahua Paper.  Yantai Dahua  Paper's  future  success will depend to an
extent upon its ability to remain competitive in the areas of service,  quality,
price, marketing, product development, service delivery, distribution and client
processing.  There can be no  assurance  that Yantai Dahua Paper will be able to
compete successfully.  Prices for the Yantai Dahua Paper's products and services
are  typically  determined  by market  conditions.  To remain  competitive,  the
Company reviews and adjusts its pricing  structure from time to time in response
to such  industry-wide  price  changes.  To the extent  that the  Company may be
obligated to adjust Yantai Dahua Paper's pricing  policies to meet  competition,
the Company's  financial  performance may be adversely affected by its inability
to reduce its costs in  response to  industry-wide  price  reductions  or by its
inability  to  increase  its prices in response  to  increases  in its costs and
expenses.

LACK OF LIQUIDITY OR DIFFICULTY IN BUYING AND SELLING

The  Securities  Enforcement  and  Penny  Stock  Reform  Act  of  1990  requires
additional disclosure in connection with trades in any stock defined as a "penny
stock."  The SEC's  regulations  generally  define a penny stock to be an equity
security  that has a price of less than  $5.00 per  share,  subject  to  certain
exceptions No exceptions are  applicable to the Company.  Unless an exception is
available,  the  regulations  require  the  delivery,  prior to any  transaction
involving a penny stock,  of a disclosure  schedule  explaining  the penny stock
market and the risks  associated  therewith.  In addition,  unless and until the
securities of the Company are listed for trading on NASDAQ or the Company has $2
million in net tangible  assets,  trading in the  Company's  securities  will be
subject to Rule 15c2-6 promulgated under the Securities Exchange Act of 1934 for
non-NASDAQ  and  nonexchange  listed  securities.  Under the penny stock  rules,
broker-dealers who recommend such securities to persons other than institutional
accredited   investors   (generally   institutions  with  assets  in  excess  of
$5,000,000)  must  make a  special  written  suitability  determination  for the
purchaser, receive the purchaser's written agreement to the transaction prior to
sale and provide the purchaser with risk disclosure  documents which  identifies
certain risks  associated  with  investing in penny stock and which describe the
market as well as the purchaser's  legal remedies.  Further,  the  broker-dealer
must  also  obtain  a  signed  and  dated   acknowledgment  from  the  purchaser
demonstrating  that the  purchaser  has  actually  received  the  required  risk
disclosure document before a transaction in a penny stock can be consummated.

These requirements may have the effect of reducing the level of trading activity
in the secondary  market for  securities  that become subject to the penny stock
rules.  With the  Company's  securities  being subject to the penny stock rules,
investors may find it more difficult to sell such  securities,  which could have
an adverse effect on the market price thereof. Because our common stock would be
characterized as penny stock, the market liquidity for the Company's  securities
could be adversely  affected.  In such an event,  the penny  stocks  regulations
could limit the ability of broker-dealers  to sell the Company's  securities and
the ability of stockholders to sell their securities in the secondary market.

THE COMPANY'S DEPENDENCE ON KEY PERSONNEL.

The Company's  ability to compete is largely  dependent on the personal  efforts
and abilities of its senior  management.  The Company  believes that the loss of
the services of any of these  executives could have a material adverse effect on
the Company. In addition,  the Company believes that its success is dependent on
its  ability  to attract  and retain  additional  qualified  employees,  and the
failure to recruit  additional skilled personnel could have a materially adverse
effect on the  Company's  financial  condition  and results of  operations.  The
Company  currently  does  not  maintain  key  employee  insurance  on any of its
employees.


                                       10
<PAGE>

DIVIDEND POLICY.

The Company  anticipates that all of its earnings in the foreseeable future will
be retained for the  development  and expansion of its business and,  therefore,
has no current plans to pay cash dividends. The Company's future dividend policy
will  depend  on  the  Company's  earnings,   capital  requirements,   financial
condition, bank facilities and other factors considered relevant by the Board of
Directors.  However, at present, the Company does not have any plans to pay cash
dividends in the future.

THE COMPANY'S OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY.

The Company's  quarterly and annual operating  results may be affected by a wide
variety  of  factors  that  could  materially   adversely  affect  revenues  and
profitability, including: competitive pressures on selling prices; the timing of
customer orders and the deferral or cancellation of orders previously  received;
changes in product mix;  the  Company's  ability to  introduce  new products and
technologies on a timely basis; the introduction of products and technologies by
the Company's competitors;  market acceptance of the Company's and the Company's
competitors' products;  fulfilling backlog on a timely basis. As a result of the
foregoing  and  other  factors,   from  time  to  time  we  experience  material
fluctuations  in future  operating  results on a quarterly or annual basis which
could  materially  and  adversely  affect  the  Company's  business,   financial
condition and operating results.

EFFECT OF CHANGES IN BELIZE LAWS COULD NEGATIVELY IMPACT SHAREHOLDERS.

Because  the  Company  is  incorporated  in Belize,  it is subject to  potential
changes in Belize  law.  The effects of any change in Belize laws on the Company
are  unknown  at this time,  but such  effects  may be adverse to the  Company's
shareholders'  best interests.  These  potential  changes include changes in tax
law,  corporate law,  political  instability,  economic  collapse,  and currency
fluctuations.

INDEMNIFICATION  OF OFFICERS AND  DIRECTORS  FOR  SECURITIES  LIABILITIES  COULD
CREATE LOSS OF RETURN ON INVESTMENT FOR SHAREHOLDERS.

The laws of Belize provide that the Company may indemnify any Director, Officer,
agent and/or employee as to those  liabilities and on those terms and conditions
as provided for by law. Further, the Company may purchase and maintain insurance
(but  has  not  done  so) on  behalf  of any  such  persons  whether  or not the
corporation  would have the power to indemnify such person against the liability
insured against.  The foregoing could result in substantial  expenditures by the
Company and prevent  any  recovery  from such  Officers,  Directors,  agents and
employees  for losses  incurred  by the  Company  as a result of their  actions.
Further,  the Company has been advised that in the opinion of the Securities and
Exchange Commission, indemnification is against public policy and is, therefore,
unenforceable.

At the moment,  pursuant to the International Business Companies Act (the "Act")
Articles of Association  of Equity,  in addition to section 57 of the Act, every
Director or other officer of the Company shall be entitled to be indemnified out
of the assets of the  Company  against  all losses or  liabilities  which he may
sustain  or incur in or about  the  execution  of the  duties  of his  office or
otherwise in relation thereto,  and no Director or other officer shall be liable
for any loss,  damage or  misfortune  which may happen to or be  incurred by the
Company in the execution of the duties of his office or in relation thereto. But
this Article shall only have effect in so far as its  provisions are not avoided
by the Securities Act of 1933 as amended.

SHAREHOLDER  LOSS MIGHT RESULT  BECAUSE A U.S.  CITIZEN WHO PURCHASES  SHARES OF
COMMON STOCK MAY HAVE DIFFICULTY IN ENFORCING HIS RIGHTS AGAINST THE COMPANY.

The Company is  incorporated  in Belize and engages in business in the PRC;  its
directors and officers and certain of its advisers are citizens and/or residents
of the PRC. The Company'engages in, through its subsidiaries,  the manufacturing
and sales of paper  principally  for  printing  and writing in the PRC. The main



                                       11
<PAGE>

assets of its subsidiaries  are located outside the United States.  As a result,
it may be difficult  for  shareholders  to initiate a lawsuit  within the United
States against the Company or its subsidiaries or these non-resident persons, or
to  enforce   judgments  in  the  United  States  against  the  Company  or  its
subsidiaries or these persons that are obtained in a non-United States court. It
also may be difficult for  shareholders to enforce a judgment of a United States
court or to  succeed  in a  lawsuit  in  Belize  or China on the  assets  of the
Company's subsidiaries based only on the United States securities laws.

SHAREHOLDER  RIGHTS MAY BE AT RISK AS A RESULT OF THE  COMPANY'S  ORGANIZING  IN
BELIZE.

In Belize,  there is no established body of corporate law on which  shareholders
can rely for  clarifying  and  protecting  their  rights.  These  rights  differ
materially from typical rights of investors in U.S. companies.  For example, (1)
Shareholders do no have the right to approve mergers and sales of  substantially
all  of  the  Company  assets  by a  vote  of  the  majority  of  common  shares
outstanding, and (2) Appraisal rights do not exist by law.

All of Company's  directors  and officers are citizens and resident of countries
outside the United States.  Therefore, it may be difficult to serve process upon
them in the United  States or to collect upon a judgment  obtained in the United
States  against  them  There is doubt as to the  enforceability  of  liabilities
predicated on U.S.  federal  securities laws  determined in original  actions in
Belize or the PRC and  judgments of U.S.  courts  obtained in actions based upon
the  civil  liability  provisions  of U.S.  federal  securities  laws may not be
enforceable in Belize or the PRC. Moreover,  no treaty exists between the United
States and Belize or the PRC for the  reciprocal  enforcement  of foreign  court
judgments.  Consequently,  the Company's  U.S.  shareholders  may be effectively
prevented from pursuing remedies under U.S. federal  securities laws against the
Company, its officers and directors.

POLITICAL AND ECONOMIC  INSTABILITY IN THE PRC MAY RESULT IN LOSS TO THE COMPANY
SHAREHOLDERS.

The Company is organized under the laws of Belize but engages in business in the
People's  Republic of China  ("PRC").  Since 1979,  the PRC adopted an open-door
policy  and  the  country  is   gradually   shifting   itself   towards  a  more
market-oriented  economy.  Such reforms have  resulted in  significant  economic
growth  and  social  progress.   Many  of  the  reforms  are   unprecedented  or
experimental and will be refined and improved upon. The reforms over the past 20
years  have  significantly  opened  up the  country's  investment  and  business
environment  compared with the past, but as the economy is now at a transitional
stage, a number of reforms are subject to further refinements and readjustments.
We are operating on the assumption  that, in the long term, such refinements and
readjustments  should in most cases improve the overall  investment and business
environment  that would be advantageous  to us.  However,  there is no assurance
that such reforms will benefit us immediately,  and it is difficult to determine
whether  such  reforms  may have  direct or  indirect  negative  impacts  on our
business and operations in the future.

THE LEGAL  AND  REGULATORY  FRAMEWORK  OF THE PRC COULD  CREATE  LOSSES  FOR THE
COMPANY SHAREHOLDERS.

The National People's Congress,  or its Standing  Committee,  is responsible for
the  passing of new laws of the PRC and any  amendments  thereto.  The PRC legal
system is based on written  statutes.  Court judgments are therefore not legally
binding - although judges in subsequent  cases will often make reference to them
in forming their judgment.  The interpretation of the PRC laws may be subject to
policy changes reflecting the domestic, political and social developments at the
time.  Since 1979, to facilitate  foreign  investments  and to meet the needs of
Investors,  the PRC  government  has been  developing and modifying its economic
systems by promulgating a series of economic  related laws and  regulations.  As
the legal system of the PRC keeps evolving, the promulgation of new legislation,
the changes to existing laws and regulations and the precedence of national laws
over local regulations may have negative impacts on foreign investors.  Although
throughout  the past 24 years,  the legal  system of the PRC in general has been
evolving in favor of foreign  investors,  there is no guarantee that the changes
and  modifications  of laws and  regulations in future will be  advantageous  to
foreign investors as in the past. Therefore  uncertainty exists as to changes to


                                       12
<PAGE>

and/or  development  of any PRC laws and  regulations  and of the  legal  system
itself.  There is no assurance that any change in and  interpretation of the PRC
laws and  regulations in future will not have any adverse effect on our business
and prospects.

THE CURRENCY OF OUR OPERATING SUBSIDIARY IS NOT FREELY CONVERTIBLE

The State  Administration for Exchange Control ("SAEC"),  under the authority of
the People's  Bank of China (the  "PBOC"),  controls the  conversion of Renminbi
into  foreign  currency.  The value of the  Renminbi  is  subject  to changes in
central  government  policies  and  to  international   economic  and  political
developments  affecting  supply and demand in the China Foreign Exchange Trading
System market.

Since  substantially  all of our raw materials  are provided by local  suppliers
using  Renminbi and the majority of our  expenses are  denominated  in Renminbi,
restrictions  on currency  conversions  did not and likely  will not  materially
affect our operations.  Also, since we do not expect to require any raw material
that are not permitted or are limited to purchase using foreign currencies,  our
management  believes  that  such  restriction  will not  materially  affect  our
operations in the future.

However,  our ability to pay dividends and meet other  obligations  depends upon
the receipt of dividends or other payments from our operating  subsidiaries  and
our other holdings and investments,  and our operating  subsidiaries  located in
China may be subject to  restrictions  on the  conversion  of  Renminbi  to U.S.
dollars and, as a result, may be restricted to make distributions to us.

WE DEPEND ON OUR SUBSIDIARIES' FACTORIES

We have no direct business  operations,  other than through our ownership of our
subsidiaries for the  manufacturing  and sales of paper principally for printing
and writing in the PRC. Our results of operations  and  financial  condition are
currently  solely  dependent  on our  subsidiaries'  factories  in the  PRC.  We
currently  maintain fire,  casualty and theft insurance  covering various of our
stock in trade,  goods and  merchandise,  furniture and  equipment,  and factory
buildings in the PRC. The proceeds of this insurance may not sufficiently  cover
material  damage to, or the loss of, any of our  factories  due to fire,  severe
weather,  flooding or other cause, and such damage or loss would have a material
adverse effect on our financial condition,  business and prospects.  However, we
have not suffered from such material damage or loss to date.

ITEM 4   INFORMATION ON THE COMPANY

A.   HISTORY AND DEVELOPMENT OF THE COMPANY

Equity, a Belize corporation,  the predecessor of the Company,  was a management
consulting  corporation  and marketer of  management  and  financial  consulting
services offered principally to small businesses with annual sales of $2,000,000
to $20,000,000. The Company provided resources to a variety of business clients,
assisting them in developing their  capitalization  to achieve corporate growth.
Additionally, the Company provided counsel and expertise to this market segment,
which will allow the closely-held client corporations to be held more broadly.

On February 18, 2003 Equity  announced  the closing of an Agreement  and Plan of
Share  Exchange  dated January 10, 2003 pursuant to which it acquired  Australia
China Investments Limited ("Australia  China"), a British Virgin Islands limited
corporation   incorporated  on  February  1,  2002,   engaged,  by  and  through
subsidiary,  in the  production  and sale  principally  of printing  and writing
papers in China.  At closing,  Equity  issued an aggregate  of 6,000,000  Equity
shares and certain Equity stockholders  transferred 3,000,000 of their 4,634,100
Equity shares to Tang Yuxiang and Qu Shuzhi,  the Australia China  stockholders,
in exchange for all of the issued and outstanding Australia China shares.

In  connection  with the  exchange,  Equity  changed  its name to  Yantai  Dahua



                                       13
<PAGE>

Holdings Company Limited (OTC BB: YDHCF),  all directors and executive  officers
of Equity resigned.  Mr. Tang Yuxiang and Mr. Qu Shuzhi were appointed directors
of the Company  along with Mr. Yu Shou Ping,  Mr. Yu Zhou and Mr. Xiong Shi Gui,
Mr. Tang Yuxiang was appointed  Chief  Executive  Officer and Mr. Leung Wai Chiu
Albert was appointed Chief Financial Officer.

Australia China holds 85% of the shares of a sino-foreign joint venture,  Yantai
Dahua  Paper  Industry  Company  Limited a  sino-foreign  equity  joint  venture
established in the on April 14, 1994.

Yantai Longda Paper Industry Company Limited, a company incorporated in the PRC,
formerly  known  as  "Muping  Paper  Manufacturer",  an  originally  state-owned
enterprise  but is  now a  private  company  jointly  owned  by  management  and
employees, is the PRC partner holding 15% of Yantai Dahua Paper.

Yantai  Dahua  Paper was an equity  joint  venture  with an  initial  registered
capital of  Rmb38,177,000  and  planned to operate  for a term of 15 years until
April 14, 2009. The initial registered capital was contributed by Yantai Longda,
and Australia China Investment Pty Limited, a company  incorporated in Australia
in the ratio of 77% and 23% respectively.

On May 28,  1996,  Yantai Dahua  Paper's  application  for capital  reduction to
Rmb33,590,000 was approved by Muping Foreign Economic Trade Committee. After the
reduction,  the ratio of the  contribution  between  Yantai Longda and Australia
China was changed to 74% and 26% respectively.

Yantai Dahua Paper is principally  engaged in manufacturing  and selling various
paper products, including printing paper, writing paper and computer paper, etc.

On June 28, 2002, Australia China Investment,  Yantai Longda and Australia China
entered into an agreement in which Australia China Investment agreed to transfer
its entire  interest and Yantai Longda agreed to transfer its interest in Yantai
Dahua Paper to Australia China (the "Transfer").  The aggregate consideration of
the Transfer is US$8,242,836  which represented 85% of net asset value of Yantai
Dahua Paper as of September 30, 2002.

Upon  completion of the  transaction,  Australia China and Yantai Longda own 85%
and 15%  interest in Yantai  Dahua Paper,  respectively.  On July 30, 2002,  the
Yantai Foreign Investment Bureau approved the above transfers of interest.

At a  meeting  of the Board of  Directors  held on April 3,  2003,  the Board of
Directors  resolved to issue two additional  shares for each common stock issued
and outstanding, as a stock split, for no consideration,  to its shareholders of
record on April 13, 2003, to be effected on April 23, 2003.

The  additional  shares would be of the same class of common stock  outstanding,
with the same right and privileges and without change in the par value. Prior to
the split,  the Company has a total of 11,149,000  shares of common stock issued
and  outstanding.  The stock split  increased  the total issued and  outstanding
shares to 33,447,000.

B.   BUSINESS OVERVIEW

The Company is engaged in, through its subsidiaries, the manufacturing and sales
of paper  principally for printing and writing in the PRC. Yantai Dahua Paper is
a leading  paper  manufacturer  in Shandong,  China and employs a total of 1,180
staff.

The Company's  marketing teams distribute its products through six sales offices
in  different  parts  of the  PRC  to  cater  for  its  clientele  of  over  210
well-established  publishing  houses,  printing  companies and other state-owned
material supplies companies.

Under the  leadership  of its  experienced  management,  the Company  expects to


                                       14
<PAGE>

expand its production  capacity to meet the  anticipated  increase in the demand
for paper and that such increased demand is projected to result in growth in the
Company's revenues and net income.

The Company's production facilities are based at Yantai Dahua Paper, situated at
Muping, Yantai City, Shandong Province.  Yantai Dahua Paper's current production
capacity is about 20,000 tons of paper per year.

The major types of paper products manufactured by Yantai Dahua Paper comprise of
Printing  Paper,  Writing  Paper,  Computer  Paper,  and small quantity of other
papers, including news print.

For 2000, 2001 and 2002 a break down of the Company's sales of paper products is
summarized as follows:

<TABLE>
<CAPTION>
           ---------------------- ----------------------------------- -----------------------------------
           PRODUCT TYPES          IN `000 TONS                        PERCENTAGE
           ---------------------- ----------------------------------- -----------------------------------
                                  2000         2001      2002         2000        2001        2002
           ---------------------- ------------ --------- ------------ ----------- ----------- -----------
<S>                               <C>          <C>       <C>          <C>         <C>         <C>
           Printing Paper         11,890       12,850    15,999       63.1%       65.5%       83.2%
           ---------------------- ------------ --------- ------------ ----------- ----------- -----------
           Writing Paper           2,087        2,685     2,060       11.1%       13.7%       10.7%
           ---------------------- ------------ --------- ------------ ----------- ----------- -----------
           Computer Paper          4,703        4,093     1,175       25.0%       20.8%       6.1%
           ---------------------- ------------ --------- ------------ ----------- ----------- -----------
           Others                   156           0         0         0.8%        0%          0%
           ---------------------- ------------ --------- ------------ ----------- ----------- -----------
           Total                  18,836       19,628    19,234       100%        100%        100%
           ---------------------- ------------ --------- ------------ ----------- ----------- -----------
</TABLE>

The  percentage of each product  remains quite stable during 2000 to 2001 and in
year 2002, the sales for printing paper increased with a corresponding  decrease
in computer paper.

Sales of the  Company's  paper  products are  conducted by Yantai Dahua  Paper's
sales  teams  based at the head  office in Muping and 6  representative  offices
located at Beijing,  Shijiazhuang  (capital city of Hebei  Province),  Guangzhou
(capital city of Guangdong province),  Lanzhou (capital city of Gansu), Shanghai
and Hangzhou.

The  Beijing  and  Shijiazhuang  offices  account  for roughly 69% of the sales,
Guangzhou  3%,   Shanghai  and  Hangzhou  20%,  and  Lanzhou  8%.  Each  of  the
representative  offices is manned by a Sales Manager and several full-time sales
representatives.

With  representative  offices  covering  the  capital  city and major  cities in
northern,  eastern,  western and southern  China,  the Company has established a
sales and  distribution  network  serving an established  customer base all over
China.

Today,  the Company has a list of more than 210 customers  through out China. Of
these,  nine major customers  accounts for about 50% of the yearly sales.  These
major customers include major publishers,  printers, and state-owned enterprises
and they are material to the Company's business and profitability.

The Company's  sales in the second half of the year is usually higher than those
in the first half of the year.

To produce its three major paper  products for the Chinese  market,  the Company
requires regular  supplies of its raw materials from local suppliers.  The major
raw materials comprise:

          -    Wheat stalks for conversion into pulp,
          -    Wood pulp,
          -    Chemicals, including sodium hydroxide and liquid chlorine.

Local suppliers supply most of the above raw materials,  and Company also brings
in some wood pulp itself, because of its status as a sino-foreign joint venture.


                                       15
<PAGE>


The manufacturing of paper products also requires  substantial  amount of water,
heat and electricity. At present, the Company supplies its own heat with its new
35 metric tons boiler,  which commenced operation in April 2001. The Company has
built a new 3000 kilo watt electricity generator within its site at Muping. With
this new  facility,  the  Company  is no longer  dependent  on the local grid to
supply its electricity, and the Company expects to save on its electricity bill.

Today, there are more than 500 paper manufacturers in China. Of these, about 200
have an annual  production  capacity of over 20,000 tons.  In Shandong  province
alone,  there  are 78  paper  manufacturers.  Most of  these  manufacturers  are
state-owned  enterprises.  The  principal  competitive  factors  are brand  name
recognition,  distribution  capability,  product  quality and capability of mass
production.

The paper  manufacturing  industry,  because  of the  process  of  cleaning  and
bleaching of the pulp, does produce  effluents which contaminate the environment
and  consumes  a great  deal of water.  In a country  where  water is a valuable
resource,  the Chinese government is implementing  stringent measures to protect
the  environment.  A  number  of  these  paper  plants  that  fail to  meet  the
environmental  standards  have been and will be closed.  Only those that  comply
with the environmental standards can continue to produce.

The Company's plan for the future is based on the following two measures.
          -    Cost saving, and
          -    New products that meet the market's demand.

Costs Saving

To save  manufacturing  cost, the Company completed its own 3000 kilo watt power
generation  plant at the end of March,  2002. Upon completion of the plant,  the
Company  began to generate its own  electricity  for the operation of the plant.
Previously,  the Company had to purchase about  16,200,000  units of electricity
each year from the local grid at the cost of about Rmb0.65 per unit,  meaning it
was spending about Rmb10.5 million each year on electricity supply. With its own
electricity generator,  the cost reduced to Rmb0.30 per unit, saving its cost of
electricity by about Rmb5.7 million, or approximately US$ 700,000, per year.

The Company is already  generating  its own heat supply with its 35 tons boiler,
which  commenced  operation in April 2001. Each year, it needs about 85,000 tons
of heat.  Comparing  with the cost of heat from external  supplier of Rmb 94 per
ton,  the cost of its heat supply  will be reduced to Rmb 69 per ton.  This will
reduce the  manufacturing  cost by about Rmb 2.1 million,  or approximately  US$
250,000, per year.

The above two measures  will improve the  Company's  bottom line by about Rmb6.2
million,  or  US$750,000,   after  deducting  depreciation  of  the  boiler  and
generator.

New Products

The Company sees an  opportunity  to develop a new product that meets the demand
of the PRC market.  Because of the increasing affluence,  and hence the increase
in the general standard of living,  of the Chinese people,  an increasing demand
on both the quantity and quality of a great variety of  commodities is observed.
Books and magazines are among those in demand.  Therefore,  it is not surprising
that consumption of copper printing paper,  used mostly in the printing of books
and  magazines  for the upper end market,  has been  increasing at about 18% per
annum for the last ten years.

Domestic supply of copper printing,  increasing from 850,000 tons in 2000 to 1.5
million  tons to 2002,  still cannot  match  demand,  and the deficit have to be
imported  from  outside.  In fact,  copper  printing  paper  is among  the top 5
imported paper products into China in 2002.

Yantai Dahua Paper has made an in-depth  analysis on the copper  printing  paper
market and concluded  that the  investment of a new  production  line to produce


                                       16
<PAGE>

such product would bring favorable return to the Company and the shareholders.

The Company plans to construct a new  production  plant that would  increase its
capacity  by an  additional  30,000  tons of  copper  printing  paper,  which is
projected to or are expected to generate an extra revenue of up to US$25 million
per year.

The  proposed  facilities,  when  installed,  will enable the Company to have an
additional capacity to produce 30,000 tons of copper printing paper each year.

A 40,000 sq. meter piece of land next to the Company's  existing  plant has been
acquired for the building of the new production plant.

The major equipment for the new production line is a 2640  papermaking  machine,
which is  capable  of  producing  paper  sheet of up to 2,640 mm in  width.  The
machine has a maximum output speed of 500 m/min and can be purchased from within
China.

Other  equipment  include  refiner,  headbox,  coating  machine,  supercalender,
hyropulper, control systems, etc. Part of these would be imported from overseas.

The major raw material  required for the production is chemically  bleached wood
pulp,  which can be sourced in the  international  market  (countries  like USA,
Canada, Finland and Sweden, etc.) with ease.

The Company has also secured the supply of water,  which is required in abundant
amount for the paper  making  process.  The 20 wells  owned by the  Company  can
produce 20,000 cubic meter of underground water per day.

The Company is installing an additional power plant that can generate 6,000 kilo
watts of electricity, thereby guaranteeing the power required for the production
process.

Two more  boilers  of 35 ton each will  also be  installed  to  supply  the heat
required for the new plant.

Construction work for the factory electricity plant and boiler plant has already
commenced and is scheduled to be completed by as early as August 2003.  Assuming
the availability of funds, and a lead time of 9 to12 months for the ordering and
installation of equipment,  the trial production can commence in the second half
of 2004.

As the Company's  customers are really well established  publishers and printing
houses,  the  management  believes  that the  additional  30,000  tons of copper
printing paper can be easily absorbed by these customers.

Another  new  product the Company  sees an  opportunity  in is  anti-counterfeit
paper.  As  there  is  growing  concern  for  the  importance  of  security  and
authenticity,  anti-counterfeit paper could be another paper product with a huge
demand.

Currently,  anti-counterfeit  paper in  China  is  mainly  using  watermark  and
hologram and the Company  sees the  opportunity  to get into more  sophisticated
product.  It is conducting  feasibility  studies with regard to the co-operation
with a Shenzhen company to see if this would be the next new product in line.



                                       17
<PAGE>




C.   ORGANIZATIONAL STRUCTURE

                                                         --------------------
                                                         The Company
                                                         --------------------
                                                                  |
                                                                  |     100%
                                                                  |
                  ---------------------                  --------------------
                  Yantai Longda                          Australia China
                  ---------------------                  --------------------
                  15%      |                                      |      85%
                           |                                      |
                               -------- ------- -------- -------
                                               |
                                               |
                                        ----------------
                                        Yantai  Dahua
                                        Paper
                                        ----------------


D.   PROPERTY, PLANTS AND EQUIPMENT

Yantai  Dahua  Paper  is  situated  at  Muping  East  at a  site  close  to  the
Yantai-Weihai  Highway.  The area of the site is about 110,000 square metres. On
the site, the total  built-up area is about 22,000 square  metres.  The built-up
area includes pulp making facilities,  5 paper making plants, storage warehouse,
administration  block,  boiler plant,  electricity  generation  plant,  effluent
treatment plant, and other amenities.

The pulp making facilities can produce up to 20,000 tons of straw pulp per year.

There are 4 paper making plants in Yantai Dahua Paper,  with a total  production
capacity of 28,000 tons of paper per year. In each of these plants, there is one
paper making machine. Three of the plants produce up to a maximum of 22,000 tons
of paper with a width of 1.76 metres and one  produces up to 6,000 tons of paper
with a width of 1.575 metres.

Yantai  Dahua Paper also has one dinking  line for making pulp from waste paper.
This line of  operation  is  currently  not in use  because  of the high cost of
electricity, making it not profitable to produce pulp from waste paper. With the
new electricity generator, which commenced operation in April 2002, Yantai Dahua
Paper can have the option  open  whether to utilize  this pulp  making  facility
because the reduction in the cost of electricity will make it viable but has not
done so. This plant has the capacity of producing  6,000 tons of better  quality
pulp per year.

ITEM 5   OPERATING AND FINANCIAL REVIEW AND PROSPECTS

A.   OPERATING RESULTS

GENERAL

All  statements  contained  herein  that  are  not  historical  facts,  such  as
statements  regarding  the  Company's  current  business  strategy and plans for


                                       18
<PAGE>

future  operations,  are based upon current  expectations.  These statements are
forward-looking in nature and involve a number of risks and uncertainties.  Such
risks and uncertainties  include, but are not limited to, those described herein
including, among other things:

        (1) significant increases in competitive pressure in the paper industry;

        (2) general global economic conditions;

        (3) changes in the regulatory environment; and

        (4) changes in the securities markets.

Therefore,  the information set forth in such forward-looking  statements should
be carefully considered when evaluating the business prospects of the Company.

FINANCIAL RESULTS

Yandai Dahua Paper had a net loss of Rmb 375,741,  equivalent  to US$45,450  for
the year ended  December 31, 2000 and then ran into net income of Rmb 1,488,768,
equivalent  to  US$180,081  for year ended  December 31 2001,  net income of Rmb
8,152,177,  equivalent  to  US$986,088  for year  ended  December  31 2002.  The
increase in the net income relates primarily to the increase in gross margin.

Short-term loans increased from Rmb 2,745,000,  equivalent to US$332,035 for the
year ended December 31 2000 to Rmb  7,395,000,  equivalent to US$894,499 for the
year ended December 31 2001 and to Rmb 29,870,000,  equivalent to  US$10,411,393
for the year ended  December  2002,  whilst  long-term  loans of Rmb  18,230,000
equivalent to  US$2,205,101  for year ended December 31 2001 fell due within one
year from December 31 2002 and were  classified as short-term  loans at December
31, 2002.

INFORMATION REGARDING SIGNIFICANT FINANCIAL FACTORS

Inflation generally affects companies by the cost of labor,  equipment,  and raw
materials.  The Company does not believe that  inflation  has had, or will have,
any material effect on the Company's business

B.   LIQUIDITY AND CAPITAL RESOURCES

Cash Flow

Australia China, the Company's wholly owned subsidiary, has an audited operating
revenue of  US$3,469,026  with net income after tax and minority of  US$288,750,
being 85% net income of the 4th  quarter of 2002 of Yantai  Dahua  Paper for the
period from February 2002 (date of incorporation) to December 31, 2002.

The  Company's  primary  sources  of  funding  are (i) cash flow from  operating
activities and (ii) borrowings from credit agreements with various banks.

There are no material unused sources of liquidity. The Company is in the opinion
that the working capital is sufficient for the Company's present requirement.

There is no legal or economic  restrictions  on the abilities of subsidiaries to
transfer funds to the Company in the form of cash  dividends,  loans or advances
are.

Information  relating to Equity's  cash flow and  borrowings  as at December 31,
2002 can be reflected in the audited  accounts to be disclosed  once the same is
available.


                                       19
<PAGE>

C.   RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES
     The Company has not invested into research and development.

D.   TREND INFORMATION

     Sales
     Because of the increasing affluence,  and hence the increase in the general
     standard of living, of the Chinese people, an increasing demand on both the
     quantity and quality of a great variety of commodities  is observed.  Books
     and magazines are among those in demand.  Therefore,  it is not  surprising
     that  consumption of copper printing paper,  used mostly in the printing of
     books and magazines for the upper end market,  has been increasing at about
     18% per annum for the last ten years.

     Production
     Upon the  completion  of the Company's  plan to construct a new  production
     plant,  production will be increased by an additional 30,000 tons of copper
     printing paper,  which is projected to or are expected to generate an extra
     revenue of up to US$ 25 million per year.

     Price
     Due to the keen competition in the paper market,  the Company's unlikely to
     increase the price of its products.

     Inventory
     Yantai Dahua Paper is likely to maintain  the value of our  inventory as of
     December 31, 2002 at approximately US$1,662,073.

E.   OFF-BALANCE SHEET ARRANGEMENTS
     The Company has not made any off-balance sheet arrangement.

F.   TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

     Yantai Dahua Paper has the following contractual obligations as at December
     31, 2002:

<TABLE>
<CAPTION>
--------------------------------------------------- ----------------------------------------------------------------------
                                                                          Payments due by period of
--------------------------------------------------- ----------------------------------------------------------------------
Contractual Obligations                             Total             Less than 1 year  1-3 years   3-5 years  More than
                                                                                                               5 years
--------------------------------------------------- ----------------- ----------------- ----------- ---------- -----------
<S>                                                 <C>               <C>               <C>         <C>        <C>
Long-term Debt Obligations                          Rmb29,870,000     Rmb29,870,000     0           0          0
--------------------------------------------------- ----------------- ----------------- ----------- ---------- -----------
Capital (Finance) Lease Obligations                 0                 0                 0           0          0
--------------------------------------------------- ----------------- ----------------- ----------- ---------- -----------
Operating Lease Obligations                         0                 0                 0           0          0
--------------------------------------------------- ----------------- ----------------- ----------- ---------- -----------
Purchase Obligations                                0                 0                 0           0          0
--------------------------------------------------- ----------------- ----------------- ----------- ---------- -----------
Other   Long-term   Liability   reflected  on  the  0                 0                 0           0          0
Company's  Balance  Sheet  under  the  GAAP of the
primary financial statements
--------------------------------------------------- ----------------- ----------------- ----------- ---------- -----------
Total                                               Rmb29,870,000     Rmb29,870,000     0           0          0
--------------------------------------------------- ----------------- ----------------- ----------- ---------- -----------
</TABLE>


G.   SAFE HARBOR
     The safe harbor  provided in Section 27A of the  Securities Act and Section
     21E  of  the  Exchange  Act  ("statutory  safe  harbors")  shall  apply  to
     forward-looking information provided pursuant to Item 5F, provided that the
     disclosure is made by: an issuer;  a person acting on behalf of the issuer;
     an outside reviewer  retained by the issuer making a statement on behalf of
     the issuer' to an underwriter,  with respect to information provided by the
     issuer or information derived from information provided by the issuer.

                                       20
<PAGE>


ITEM 6   DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.   DIRECTORS AND SENIOR MANAGEMENT

Australia China's Key Management Team consists of the following persons:

Mr. TANG  Yuxiang,  age 55, is Chairman & Chief  Executive  Officer of Australia
China.  He has been  working  in the  paper  industry  since  1984,  when he was
appointed as Party Secretary and then Plant Manager of Yantai Longda.  Since the
inception of Yantai Paper in 1994,  he has been General  Manager and Chairman of
the  Board of the joint  venture.  His  previous  experience  includes  18 years
experience in an  agricultural  machinery  plant in Yantai Longda,  where he was
promoted to Deputy Plant Manager,  a position he held from 1979 to 1982. He is a
graduate  of  Shandong  Agricultural   Machinery  Institute  and  is  a  Chinese
government endorsed Senior Economist.

Mr. YU Shou Ping,  age 56, is Director & Chief  Operating  Officer.  He has been
Deputy  General  Manager  and  Director  of  Yantai  Paper  since  1994.  He  is
responsible for its manufacturing  operations.  He has been working in the paper
industry  since August  1984.  He is a graduate of Shandong  Muping  Electricity
University.

Mr. QIAO  Xuezhou,  age 41, is Deputy  General  Manager,  Sales & Purchasing  of
Yantai Paper. He manages its sales and purchasing operations,  including the six
offices in the PRC. He joined  Yantai  Longda in 1980 and was promoted to Deputy
Plant Manger in 1989. He was appointed to his present  position in 1994. He is a
graduate of Yantai University.

Ms.  JIANG  Min,  age 41,  is Chief  Engineer  of  Yantai  Dahua  Paper.  She is
responsible for its engineering,  technical and quality  operations.  She joined
Yantai Longda in 1982 and was appointed to her present  position in 1994. She is
a graduate of Shandong Technical College of Light Industry, majoring in pulp and
paper manufacturing.

Mr. QU Shuzhi,  age 43, is Deputy General  Manager & Chief  accountant of Yantai
Paper.  He is  responsible  for its accounting  and general  administration.  He
joined  Yantai  Longda  in 1979 as an  accountant,  and was  promoted  to  Chief
Accountant in 1988. He was appointed  Deputy General Manager & Chief  Accountant
in 2001.  He is a graduate of in Finance  Management  at the China  Agricultural
University.

Mr. QU Dongqing, age 39, has been Assistant to Mr. TANG Yuxiang since June 2000.
He is  responsible  for Human  Resources and General  Administration.  He joined
Yantai  Longda in 1980 as an officer of the trade union  within  Yantai  Longda.
From 1986 to 1996,  he  served  as  Manager,  General  Administration  of Yantai
Longda.  From  1996  to  2000,  he  served  as  Plant  Manager  of an  iron  lid
manufacturer branch of Yantai Longda.

The Company's Key Management Team consists of the following persons:

Mr.  TANG  Yuxiang,  Chief  Executive  Officer  and a  Director.  Please see his
biographical sketch above.

Mr. QU Shuzhi, Director. Please see his biographical sketch above.

Mr. YU Shou Ping, Director. Please see his biographical sketch above.

Mr. YU Zhou,  Independent  Director,  aged 46. He is working for an  information
technology company since 1996.


                                       21
<PAGE>

Mr. XIONG Shi Gui, Independent  Director,  aged 69. He was a law graduate in PRC
in 1958.  Since  graduation,  Mr. Xiong has been working for the  Government  in
respect of education work. He is now working for Sincere College  Shanghai as an
Associate Dean.

Mr.  LEUNG  Wai Chiu  Albert,  Chief  Financial  Officer,  age 46.  Before  this
appointment, he held senior accounting and finance positions in headquarters and
in operational units of leading  multi-national  companies in Europe and in Asia
Pacific.  He is a graduate of the Hong Kong  Polytechnic  and l'Ecole des Hautes
Etudes  Commerciales  in France.  He is a member of the Association of Chartered
Certified  Accountants of Great Britain and a member of the Hong Kong Society of
Accountants.

B.   COMPENSATION

COMPENSATION TO DIRECTORS

For the year  ended  December  31,  2002 there was no  compensation  paid by the
Company to its directors as a group.  In the year 2003, the Company has no plans
to pay the directors any  compensation.  There are no stock options,  retirement
plans,  nor  agreements  for  compensation  upon  separation  from the  Board of
Directors.

COMPENSATION TO OFFICERS

For Equity in fiscal  year 2002,  no  compensation  was paid to the Board or the
officers. In the resignation statements, the Board and the officers each and all
waived all rights to any back salary and or benefits.

For the Company,  the salaries  paid by the Company or its  subsidiaries  to the
officers are:

      ----------------------------- ---------------
      NAME                          ANNUAL
                                    SALARY
      ----------------------------- ---------------
      TANG Yuxiang                  US$12,000
      ----------------------------- ---------------
      YU Shou Ping                  US$8,000
      ----------------------------- ---------------
      QU Shuzhi                     US$8,000
      ----------------------------- ---------------
      QU Dongqing                   US$8,000
      ----------------------------- ---------------


C.   BOARD PRACTICES

The following persons serve as a member of the Company's Board of Directors:

NAME                              POSITION
Mr. TANG Yuxiang                  Chairman & Chief Executive Officer
Mr. QU Shuzhi                     Director
Mr. YU Shou Ping                  Director
Mr. YU Zhou                       Independent Director
Mr. XIONG Shi Gui                 Independent Director

There are no directors'  service  contracts  with us or any of our  subsidiaries
providing for benefits upon termination of employment.

D.   EMPLOYEES

The Company has 1,180  employees.  Management  considers the  relationship  with
employees to be excellent.

As stipulated by PRC regulations,  the Company participates in a retirement plan
for all employees.  Pursuant to the plan, all retired  employees of Yantai Dahua


                                       22
<PAGE>

Paper are entitled to certain retirement benefits. antai Dahua Paper is required
to make contributions to a state sponsored  retirement plan at approximately 20%
of the basic amount  which is within the range from RMB400 to RMB468  stipulated
by the PRC  government.  Yantai  Dahua  Paper  determines  the base  amount with
reference to the basic salary of its  employees  and has no further  obligations
for the actual  payments of any  post-retirement  benefits.  The state sponsored
retirement plan is responsible for the entire pension obligations payable to the
employees. [

Yantai Dahua Paper's pension expense for the years ended December 31, 2000, 2001
and  2002  was   RMB1,175,625,   RMB1,175,625  and  RMB1,370,584   (US$165,786),
respectively.

E.   SHARE OWNERSHIP

The following  table set forth the share ownership of the Company as at June 19,
2003

Name                                         Shares              Percentage
Magic Growth Investments Limited             18,000,000          53.82%
Success Channel Limited                      3,000,000           8.97%
Everwell Strategy Limited                    3,000,000           8.97%

Tang Yuxiang is a director and shareholder of Magic Growth Investmenrs  Limited.
Qu Shuzhi is a director and shareholder of Success Channel Limited.  Qu Dongqing
is a director and shareholder of Everwell Strategy Limited.

ITEM 7   MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.   MAJOR SHAREHOLDERS

Please  see Item 6E for share  ownership  information  regarding  our  principal
shareholders.

The following is provided regarding the Company's principal  shareholders;  that
is, the  beneficial  owners of 5% or more of the  Company's  common share voting
securities.  Provided are the names of the major shareholders, and the number of
shares and the  percentage of  outstanding  shares of the common shares owned by
each of them as of December 31, 2002.

Name                                         Shares              Percentage
Magic Growth Investments Limited             18,000,000          53.82%
Success Channel Limited                      3,000,000           8.97%
Everwell Strategy Limited                    3,000,000           8.97%
Golden Nugget Resources Limited              1,800,000           5.38%

The Company's major shareholders do not have different voting rights.

To the extent known to the Company,  it is not directly or  indirectly  owned or
controlled by another  corporation other than Magic Growth  Investments  Limited
and its director and shareholder Tang Yuxiang,  or by any foreign  government or
by any other natural or legal persons, severally or jointly.

To the Company's  knowledge there are no arrangements the operation of which may
at a subsequent date result in a change in control of the Company.

B.   RELATED PARTY TRANSACTIONS

From time to time, the Company may enter into transaction with parties that have
relationship  with our  officers  or  directors  or entities in which we have an
ownership interest. Such transactions are reviewed by the Board of Directors and
are subject to the approval of members of the Board of Directors who do not have


                                       23
<PAGE>

a personal  interest in the  applicable  transaction.  We disclose  all material
transactions  that, in our  judgment,  constitute  related  party  transactions;
related parties include our  subsidiaries,  investments  accounted for under the
equity method,  members of our management and owners of a significant percentage
of our  common  stock and their  family  members,  and any other  party  that we
significantly influence.

<TABLE>
<CAPTION>

<S>                                                                <C>
          (a) Name and relationship of related parties             Existing relationships with Yandai Dahua Paper

              Yantai Longda (YLPI)                                 PRC Joint venturer

              Australia China Investment Pty Limited (ACIP)        Foreign Joint venturer (ceased on October 1, 2002)

              Muping Iron Cover Manufacturing Factory (MIC)        Branch of PRC Joint venturer

              Muping Paper Product Manufacturing Factory (MPP)     Branch of PRC Joint venturer

              Muping Vegetable Processing Factory (MVP)            Branch of PRC Joint venturer

              Australia China (ACIL)                               Holding company (since October 1, 2002)

<CAPTION>

         (b)  Related party transactions
                                                             2000              2001              2002              2001
                                                              RMB               RMB               RMB               US$

<S>                                                    <C>               <C>               <C>                <C>
             (i) Due from related parties
                      ACIP                              3,224,265         3,224,265                 -                 -
                      MVP                                       -           297,349           111,780            13,521
                      MPP                                 489,085         1,017,784           358,716            43,390
                      MIC                               1,539,432         1,525,147         1,364,434           165,042
                      ACIL                                      -                 -            54,593             6,604
                                                     -------------     -------------    --------------     -------------

                                                        5,252,782         6,064,545         1,889,523           228,557
                                                     =============     =============    ==============     =============

             (ii) Due to related parties
                      YLPI (Note)                      26,784,256        26,449,009        21,261,928         2,571,843
                      MVP                                 434,550                 -                 -                 -
                                                     -------------     -------------    --------------     -------------

                                                       27,218,806        26,449,009        21,261,928         2,571,843
                                                     =============     =============    ==============     =============
</TABLE>
              Note:  Loans from YLPI amounting to  RMB25,680,000,  RMB22,880,000
                     and  RMB21,100,000  (US$2,552,256) as of December 31, 2000,
                     2001 and 2002,  respectively,  were  borrowed from banks on
                     behalf of Yantai Dahua Paper.

The amounts due are unsecured, interest-free and have no fixed repayment terms.

The terms of the related  party  transactions  are as  favorable to Yantai Dahua
Paper as could be obtained from an unaffiliated party.

C.   INTERESTS OF EXPERTS AND COUNSEL

     Not Applicable

ITEM 8   FINANCIAL INFORMATION

A.   CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

The unaudited  management  account of Equity,  audited  financial  statements of
Australia  China and Yantai Dahua Paper are filed in this annual  report as Item
18.


                                       24
<PAGE>


B.   SIGNIFICANT CHANGES

At a  meeting  of the Board of  Directors  held on April 3,  2003,  the Board of
Directors  resolved to issue two additional  shares for each common stock issued
and outstanding, as a stock split, for no consideration,  to its shareholders of
record on April 13, 2003, to be effected on April 23, 2003.

The  additional  shares would be of the same class of common stock  outstanding,
with the same right and privileges and without change in the par value. Prior to
the split,  the Company has a total of 11,149,000  shares of common stock issued
and  outstanding.  The stock split  increased  the total issued and  outstanding
shares to 33,447,000.

ITEM 9   THE OFFER AND LISTING

         Not Applicable

ITEM 10  ADDITIONAL INFORMATION

A.   SHARE CAPITAL

     Not Applicable

B.   MEMORANDUM AND ARTICLES OF ASSOCIATION

This information, contained in the by-laws of Equity Finance Holding Corporation
and the Memorandum of Association  and Articles of Association of Equity Finance
Holding Corporation, IBC No. 6825, incorporated, Belize, 6 March 1998, is hereby
incorporated by specific  reference in this annual report to Exhibits 1 and 2 to
the registration statement Form 8-A12G dated February 20, 2003.

C.   MATERIAL CONTRACTS

     Not applicable

D.   EXCHANGE CONTROLS

Belize has no system of exchange controls.  There are no Belize  restrictions on
the  repatriation  of  capital  or  earnings  of  a  Belize  public  company  to
non-resident  investors.  There are no laws in Belize or  exchange  restrictions
affecting the remittance of dividends,  profits,  interest,  royalties and other
payments to non-resident holders of the Company's securities.

The PRC has a system of exchange controls.  The Renminbi exchange rate system is
the base for stable operation of PRC's exchange control system.  The Regulations
on Exchange Control of the PRC promulgated with the State Council's  approval in
January 1996 point out that the exchange rate for Renminbi is a single,  managed
floating exchange rate based on market demand and supply.

Foreign exchange system reform began in 1994 with the establishment of the China
Region  Exchange  Trading  Center in Shanghai  which is linked to 34 cities by a
computer  network  and  extends to the nearby  regions.  After  segmentation  by
administration  areas was  discarded,  a nationwide  unified  interbank  trading
market was established. The Center has adopted a membership system with 384 unit
members - at present  comprising  the head offices of  Chinese-funded  banks and
their  authorized   branches,   foreign-funded  banks  and  authorized  non-bank
financial  institutions,  which  represent  the main trading body on the market.
Following foreign- funded  enterprises'  participation in the banking system for
the  settlement  and sales of foreign  exchange,  foreign-funded  banks are also
permitted to engage in such  business,  so that the interbank  trading market is
further stimulated.

                                       25
<PAGE>

At present, there are three foreign currencies tradable with the Remninbi at the
Center:  US dollars,  Japanese  yen and Hong Kong  dollars.  The daily  weighted
average is published  by the  People's  Bank of China as the middle rate for the
ensuing  business day; each bank may quote prices within the permitted  floating
limits of 0.15 per cent for US dollars and 1 per cent for  Japanese yen and Hong
Kong dollars.

For other  currencies,  cross rates are fixed on the basis of the  international
market level and a floating  margin as specified by the People's  Bank of China.
Thus the establishment and normal operation of the nationwide  interbank trading
market has geared the Renminbi rate to market supply and demand.

In  January  1994 the single  exchange  rate  system  was hailed as a  strategic
decision  by the  IMF,  and  has  created  favorable  conditions  for  China  to
participate  in  international  competition  with  others  on a fair  and  equal
footing.  In order to ensure the healthy development of the national economy and
maintain  basic  stability of the  Renminbi  rate,  the  People's  Bank of China
exercises  necessary control and intervenes in the light of state  macroeconomic
control targets.

Now Renminbi  payments for foreign trade and non-trade  transactions  as well as
transfers of capital gains within China may be converted into foreign currencies
for remittance or transfer abroad.

The following  table sets forth certain  information  concerning  exchange rates
(the  noon  buying  rate in New York for  cable  transfers  payable  in  foreign
currencies as certified for customs  purposes by the Federal Reserve Bank of New
York) between Renminbi and U.S. dollars for the periods indicated:


                 CALENDAR YEAR                           YEAR AVERAGE (1)
                                                          (RMB PER US$)

                     1997                                    8.3193
                     1998                                    8.2991
                     1999                                    8.2785
                     2000                                    8.2784
                     2001                                    8.2772

(1)  Determined  by averaging  the rates on the last  business day of each month
during the relevant period.

As of June 24, 2003, the exchange rate was US$1.00 = Rmb 8.2774.

E.   TAXATION

Yantai  Dahua  Paper is  subject  to income  taxes on an entity  basis on income
arising in or derived from the tax jurisdictions in which it operates.

Yantai  Dahua  Paper is  established  and is carrying on business in the PRC and
subject to the PRC enterprise income tax at a rate of 24%.

Deferred income tax has not been provided for in 2000, 2001. Deferred income tax
of RMB  2,623,740(US$317,367)  has been  provided to Yantai Dahua Paper for year
2002.

The Company is  incorporated in Belize and the Belize tax laws are summarized as
follows.  Unless exempt under an investment  incentive,  resident  companies are
liable for  corporate  income tax on all of their income,  whether  derived from
Belize or not,  although  foreign  earned income is taxed only on remittances to
Belize. A company is resident if it is incorporated in Belize or if it's central
management  and control are  exercised in Belize.  If a company does not operate
under a Fiscal Incentives  (Approved  Enterprise Order) the total tax payable is
35% of the chargeable income.


                                       26
<PAGE>

Corporate  income tax is charged on net profits,  as adjusted for tax  purposes.
Net profits  comprise the aggregate amount of net income derived from conducting
business in Belize.  Inventory valuation is not specifically addressed in income
tax law and, in any event, is inapplicable to the Company.  Methods that conform
to  generally  accepted  accounting  principles  may be used as long as they are
consistently applied. Dividends are taxable in the hands of recipients, the cash
amount of the dividends paid being grossed up by the amount of corporate  income
tax paid by the  distributing  company,  although  the latter is liable only for
corporate  income tax and does not actually  account to the tax  authorities for
any withholding.  Some dividends are not taxable on recipients,  including those
paid to exempt entities and those paid under specified tax incentives.

F.   DIVIDENDS AND PAYING AGENTS

     Not Applicable

G.   STATEMENT BY EXPERTS

     Not Applicable

H.   DOCUMENTS ON DISPLAY

     Not Applicable

I.   SUBSIDIARY INFORMATION

     Not Applicable

ITEM 11  QUANTITATIVE INFORMATION ABOUT MARKET RISK

The Company does not maintain  nor invest in market  sensitive or interest  rate
sensitive  holdings.  Therefore,  the Company has no quantitative or qualitative
exposure to market risk  associated  with  activities  in  derivative  financial
instruments, other financial instruments and derivative commodity instruments.

ITEM 12  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not Applicable

PART II

ITEM 13  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None

ITEM 14  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
     PROCEEDS

Not applicable

ITEM 15  CONTROLS AND PROCEDURES
Based on their  evaluation of the  Company's  internal  disclosure  controls and
procedures  completed on June 2003, Mr. Tang Yuxiang,  Chief Executive  Officer,
and Mr. Leung Wai Chiu Albert, Chief Financial Officer,  have concluded that the
Company's controls and procedures (as defined in Rule 13a -15 and Rule 15d-15(c)
of the  Securities  Exchange Act of 1934) are adequate and effective on ensuring
the accuracy and intensity of the information in this annual report.  There have


                                       27
<PAGE>

not been any  significant  changes made in the Company's  internal  controls and
procedure or any other factors that could significantly affect these controls.

ITEM 16. [Reserved]

PART III

ITEM 17. FINANCIAL STATEMENTS

Not Applicable

ITEM 18. FINANCIAL STATEMENTS

EQUITY
                                                                       PAGE NO.
                                                                       --------


PROFIT & LOSS  (January through December 2002)                            30

BALANCE SHEET as at December 2002                                         32



AUSTRALIA CHINA INVESTMENTS LIMITED
                                                                       PAGE NO.
                                                                       --------


INDEPENDENT AUDITORS' REPORT                                              34



CONSOLIDATED STATEMENT OF OPERATIONS                                      35



CONSOLIDATED BALANCE SHEET                                                36



CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY                            37



CONSOLIDATED STATEMENT OF CASH FLOWS                                      38



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                            39


YANTAI DAHUA PAPER

                                                                       PAGE NO.
                                                                       --------


INDEPENDENT AUDITORS' REPORT                                              50


                                       28
<PAGE>


STATEMENTS OF OPERATIONS                                                  51



BALANCE SHEETS                                                            52



STATEMENT OF OWNERS' EQUITY                                               53



STATEMENTS OF CASH FLOWS                                                  54



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                            55





                                       29
<PAGE>




                       EQUITY FINANCE HOLDINGS CORPORATION
                                  PROFIT & LOSS
                          JANUARY THROUGH DECEMBER 2002

                                                                JAN - DEC '02
                                                                ---------------
                     ORDINARY INCOME/EXPENSE
                         INCOME
                             OTHER REGULAR INCOME                    42,750.00
                             INTEREST                                    25.72
                                                                ---------------
                         TOTAL INCOME                                42,775.72

                         EXPENSE
                             MAILING/SHIPPING                            63.48
                             MOODY LISTING                            2,400.00
                             MARKETING
                                 BUSINESS WIRE                          435.00
                                 SHAREHOLDER WEB PAGE                   214.40
                                                                ---------------
                             TOTAL - MARKETING                          649.40

                             SEC FILING FEES
                                 EDGAR FILING                         1,492.80
                                                                ---------------
                             TOTAL - SEC FILING FEES                  1,492.80

                             BANK SERVICE CHARGES                     1,554.87
                             DUES AND SUBSCRIPTIONS                     199.95
                             INTEREST EXPENSE
                                 FINANCE CHARGE                         634.06
                                                                ---------------
                             TOTAL - INTEREST EXPENSE                   634.06

                             MISCELLANEOUS                               69.50
                             POSTAGE AND DELIVERY                        37.00
                             PROFESSIONAL FEES
                                 AUDIT                                6,000.00
                                 TRANSFER AGENT                       3,783.86
                                 LEGAL FEES                         -11,200.00
                                 ACCOUNTING                           2,268.00
                                                                ---------------
                             TOTAL   PROFESSIONAL FEES                  851.86
                             RENT
                                 MAIL BOX RENTAL                        612.00
                                                                ---------------
                             TOTAL - RENT                               612.00
                             TELEPHONE                                1,121.10
                             OFFICE SUPPLIES
                                 SOFTWARE                               109.85
                                 GENERAL OFFICE SUPPLIES                 83.09
                                                                ---------------
                             TOTAL   OFFICE SUPPLIES                    192.94
                             OUTSIDE SERVICES                            83.37
                             PAYROLL EXPENSES


                                       30
<PAGE>

                                 OFFICER SALARY                           0.00
                                                                ---------------
                             TOTAL - PAYROLL EXPENSES                     0.00
                             DELAWARE INCORPORATIONS                    239.70
                                                                ---------------
                         TOTAL EXPENSE                               10,202.03
                                                                ---------------
                     NET ORDINARY INCOME                             32,573.69
                     OTHER INCOME/EXPENSE
                         OTHER EXPENSE
                             OTHER EXPENSES                               0.00
                                                                ---------------
                         TOTAL OTHER EXPENSE                              0.00
                                                                ---------------
                     NET OTHER INCOME                                     0.00
                                                                ---------------
                 NET INCOME                                          32,573.69
                                                                ===============



                     EQUITY FINANCE HOLDINGS CORPORATION
                                BALANCE SHEET
                           AS OF DECEMBER 31, 2002

                                                                     DEC 31, '02
                                                                    ------------
               ASSETS
                   CURRENT ASSETS
                       CHECKING/SAVINGS
                            BANK OF MONTREAL                           1,186.05
                                                                    ------------
                       TOTAL CHECKING/SAVINGS                          1,186.05
                                                                    ------------
                   TOTAL CURRENT ASSETS                                1,186.05
                                                                    ------------
               TOTAL ASSETS                                            1,186.05
                                                                    ============
               LIABILITIES & EQUITY
                   LIABILITIES
                       CURRENT LIABILITIES
                           ACCOUNTS PAYABLE
                               ACCOUNTS PAYABLE                      192,043.45
                                                                    ------------
                           TOTAL ACCOUNTS PAYABLE                    192,043.45

                           CREDIT CARDS
                              FIRST USA BANK, NA                       4,686.30
                               M - BUSINESS CARD -WELLS FARGO          5,342.49
                               B-MASTERCARD WELLS FARGO                1,364.49
                                                                    ------------
                           TOTAL CREDIT CARDS                         11,393.28

                           OTHER CURRENT LIABILITIES
                              DEFERRED REVENUE                        38,000.00
                              SHORT TERM LOANS
                                  LOAN -JAMES BISHOP                  32,200.00
                                                                    ------------


                                       31
<PAGE>

                              TOTAL - SHORT TERM LOANS                32,200.00
                                                                    ------------
                           TOTAL OTHER CURRENT LIABILITIES            70,200.00
                                                                    ------------
                       TOTAL CURRENT LIABILITIES                     273,636.73

                       LONG TERM LIABILITIES
                           LONG TERM LOANS PAYABLE
                              RELATED PARTY NOTE PAYABLE             116,438.61
                                                                    ------------
                           TOTAL - LONG TERM LOANS PAYABLE           116,438.61
                                                                    ------------
                       TOTAL LONG TERM LIABILITIES                   116,438.61
                                                                    ------------
                   TOTAL LIABILITIES                                 390,075.34

                   EQUITY
                       RETAINED EARNINGS                            ,243,273.93
                       ADDITIONAL PAID IN CAPITAL                    816,661.95
                       COMMON STOCK                                    5,149.00
                       NET INCOME                                     32,573.69
                                                                    ------------
                   TOTAL EQUITY                                     -388,889.29
                                                                    ------------
               TOTAL LIABILITIES & EQUITY                              1,186.05
                                                                    ============





                                       32
<PAGE>


REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT


To the Board of Directors and Stockholders of
AUSTRALIA CHINA INVESTMENTS LIMITED
(A company incorporated in British Virgin Islands)




We have audited the accompanying  consolidated  balance sheet of Australia China
Investments Limited (the "Company") and its subsidiary (hereinafter collectively
referred to as the "Group") as of December 31, 2002 and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for the
period from February 1, 2002 (date of incorporation) to December 31, 2002. These
financial  statements  are the  responsibility  of the Group's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

We conducted our audit 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  audit  provides  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the consolidated  financial  position of the
Group as of December 31, 2002 and the results of their operations and their cash
flows  for the  period  then  ended in  conformity  with  accounting  principles
generally accepted in the United States of America.







Moores Rowland
Chartered Accountants
Certified Public Accountants
Hong Kong

Date: April 25, 2003



                                       33
<PAGE>



AUSTRALIA CHINA INVESTMENTS LIMITED

CONSOLIDATED STATEMENT OF OPERATIONS
Period from February 1, 2002 (date of incorporation) to December 31, 2002
--------------------------------------------------------------------------------


                                                     NOTE        US$

Operating revenue
Sales of goods                                                   3,469,026

Cost of sales                                                    (2,345,510)
                                                                 ---------------

Gross profit                                                     1,123,516

Operating expenses
Depreciation                                                     (11,248)
Handling and shipping costs                                      (85,956)
Selling, general and administrative expenses                     (560,177)
                                                                 ---------------

Income from operations                                           466,135

Non-operating income
SUNDRY INCOME                                                    21,475
                                                                 ---------------

Income before income taxes                                       487,610

PROVISION FOR INCOME TAXES                           6           (147,907)
                                                                 ---------------

Income after income taxes                                        339,703

Minority interest in income of subsidiary                        (50,953)
                                                                 ---------------

Net income                                                       288,750
                                                                 ===============


Earnings per share
Basic common stock outstanding                                   5,000,000
                                                                 ===============

Basic net income per common stock                                US 0.6 CENTS
                                                                 ===============



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


                                       34
<PAGE>



AUSTRALIA CHINA INVESTMENTS LIMITED
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
--------------------------------------------------------------------------------
As of December 31, 2002


<TABLE>
<CAPTION>
ASSETS                                                      NOTE                                   US$

<S>                                                         <C>                             <C>
CURRENT ASSETS
Cash and cash equivalents                                                                      692,099
Accounts receivable, trade                                                                   6,824,688
Prepayments and other receivables                                                            1,183,772
Inventories                                                 7                                1,662,073
Due from related parties                                    10                                 221,953
                                                                                       ----------------

TOTAL CURRENT ASSETS                                                                        10,584,585
Property and equipment, net                                 8                                9,814,442
Construction in progress                                                                       142,109
                                                                                       ----------------

TOTAL ASSETS                                                                                20,541,136
                                                                                       ================

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Short-term loans                                            9                                3,613,075
Accounts payable, trade                                                                      1,837,400
Accrued charges and other payables                                                           2,134,655
Due to a related party                                      10                               2,571,843
Due to stockholders                                         10                               8,196,910
Income tax payable                                                                              24,845
Deferred tax                                                                                   229,574
                                                                                       ----------------

TOTAL CURRENT LIABILITIES                                                                   18,608,302
                                                                                       ----------------

NON-CURRENT LIABILITIES
Deferred tax                                                                                    87,793
                                                                                       ----------------

MINORITY INTEREST IN SUBSIDIARY                                                              1,506,291
                                                                                       ----------------

STOCKHOLDERS' EQUITY
Common stock, par value US$0.01 each; 5,000,000 shares
authorized, issued and outstanding                          11                                  50,000
Retained earnings                                                                              275,052
Statutory reserves                                          12                                  13,698
                                                                                       ----------------

TOTAL STOCKHOLDERS' EQUITY                                                                     338,750
                                                                                       ----------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                  20,541,136
                                                                                       ================
</TABLE>




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



                                       35
<PAGE>



AUSTRALIA CHINA INVESTMENTS LIMITED

NOTES TO THE FINANCIAL STATEMENTS
Period from February 1, 2002 (date of incorporation) to December 31, 2002
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                            COMMON STOCK               RETAINED           STATUTORY         TOTAL
                                 -----------------------------------    EARNINGS           RESERVES
                                 No. of shares      Amount
                                                    US$                US$                US$               US$

<S>                              <C>                <C>                <C>                <C>               <C>
New stock issued on February 1,
   2002 (date of incorporation)  5,000,000          50,000             -                  -                 50,000

Net income for the period        -                  -                  288,750            -                 288,750

Transfer to statutory reserves   -                  -                  (13,698)           13,698            -
                                 ----------------   ----------------   ---------------    ---------------   ----------------

BALANCES AS OF DECEMBER 31, 2002 5,000,000          50,000             275,052            13,698            338,750
                                 ================   ================   ===============    ===============   ================
</TABLE>





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



                                       36
<PAGE>




AUSTRALIA CHINA INVESTMENTS LIMITED

NOTES TO THE FINANCIAL STATEMENTS
Period from February 1, 2002 (date of incorporation) to December 31, 2002
--------------------------------------------------------------------------------



<TABLE>
<CAPTION>
                                                                                                      US$

<S>                                                                                              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                                                        288,750

Adjustments to reconcile net profit to net cash used in operating activities:
                  Depreciation                                                                    129,548
         Exchange gain                                                                               (17)
         Minority interest                                                                         50,953
Changes in working capital:
                  Accounts receivable, trade                                                      287,026
                  Prepayments and other receivables                                             (443,238)
                  Inventories                                                                      61,619
                  Due to a related party                                                        (113,338)
                  Accounts payable, trade                                                       (305,329)
                  Accrued charges and other payables                                              (7,289)
                  Income tax                                                                      146,979
                                                                                          ----------------

NET CASH PROVIDED BY OPERATING ACTIVITIES                                                          95,664
                                                                                          ----------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Cash flows from acquisition of subsidiary                                                         846,047
Purchases of property and equipment                                                             (184,278)
Addition to construction in progress                                                            (115,334)
                                                                                          ----------------

NET CASH USED IN INVESTING ACTIVITIES                                                             546,435
                                                                                          ----------------

NET CASH FROM FINANCING ACTIVITIES:
Issue of stocks                                                                                    50,000
                                                                                          ----------------

NET INCREASE IN CASH AND CASH EQUIVALENTS                                                         692,099
                                                                                          ================


CASH AND CASH EQUIVALENTS AT END OF THE PERIOD                                                    692,099
                                                                                          ================
</TABLE>






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





                                       37
<PAGE>



AUSTRALIA CHINA INVESTMENTS LIMITED

NOTES TO THE FINANCIAL STATEMENTS
Period from February 1, 2002 (date of incorporation) to December 31, 2002
--------------------------------------------------------------------------------

1.       ORGANIZATION

         The Company was  incorporated  in the British Virgin Islands ("BVI") on
         February  1,  2002 as a  limited  liability  company  and is  known  as
         Australia  China  Investments  Limited.  As of December 31,  2002,  the
         Company  has  authorized  and  outstanding  common  stock of  5,000,000
         shares. All outstanding common stocks are issued to Mr Tang Yuxiang and
         Mr Qu  Shuzhi,  equally.  The  Company  had  no  operations  until  the
         investing transactions described below.


2.       BASIS OF CONSOLIDATION

         On June 28, 2002,  Australia  China  Investment  Pty Limited  ("ACIP"),
         Yantai Longda Paper Industry  Company Limited  ("YLPI") and the Company
         entered into an  agreement  (the  "Agreement")  in which ACIP agreed to
         transfer  its  entire  interest  and YLPI  agreed to  transfer  its 59%
         interest in Yantai Dahua Paper Industry Company Limited ("YDPI") to the
         Company (the "Transfer").  The aggregate  consideration of the Transfer
         is US$8,242,836  which represented 85% of net asset value of YDPI as of
         September 30, 2002. Upon completion of the transaction, the Company and
         YLPI own 85% and 15% interest in YDPI  respectively.  On July 30, 2002,
         the Yantai Foreign  Investment  Bureau  approved the above transfers of
         interest.

         The Company acts as an investment  holding company and is designated by
         its stockholders and directors,  Mr. Tang Yuxiang and Mr Qu Shuzhi,  to
         hold their interest in YDPI.

         The  consolidated  financial  statements  have been prepared  using the
         purchase  accounting  method  incorporating  the  results  of YDPI from
         October 1, 2002, the effective date of acquisition.


3.       INVESTMENT

         Details of the investment are as follows:

         YDPI was established in the People's Republic of China ("PRC") on April
         14, 1994 as a sino-foreign equity joint venture.

         YDPI was an equity  joint  venture  with an initial  equity  capital of
         Rmb38,177,000 and planned to operate for a term of 15 years until April
         14, 2009. The initial equity capital was  contributed by YLPI (formerly
         known as "Muping Paper Manufacturer", a company established in the PRC)
         and ACIP, a company  incorporated  in Australia in the ratio of 77% and
         23% respectively.

         On  May  28,  1996,   YDPI's   application  for  capital  reduction  to
         Rmb33,590,000  was  approved  by  the  Muping  Foreign  Economic  Trade
         Committee.  After the reduction,  the ratio of the contribution between
         YLPI and ACIP was changed to 74% and 26% respectively.

         YDPI is principally  engaged in manufacturing and selling various paper
         products,  including printing paper,  writing paper and computer paper,
         etc.




                                       38
<PAGE>


AUSTRALIA CHINA INVESTMENTS LIMITED

NOTES TO THE FINANCIAL STATEMENTS
Period from February 1, 2002 (date of incorporation) to December 31, 2002
--------------------------------------------------------------------------------



3.       INVESTMENT (CONTINUED)

         On July 30, 2002,  Yantai Foreign  Investment  Bureau  approved  YDPI's
         application for the extension of operating  period for an additional 15
         years to 2024.

         The amount  assigned to each major asset and liability  caption of YDPI
         at the acquisition date are as follows:
                                                           US$
         ASSETS ACQUIRED
            Cash and cash equivalent                       846,047
            Accounts receivable, trade                     7,111,714
            Prepayments and other receivables              740,533
            Inventories                                    1,723,693
            Due from related parties                       810,772
            Property and equipment, net                    9,424,375
            Construction in progress                       362,111
                                                           ------------------

                                                           21,019,245
                                                           ------------------

         LIABILITIES ASSUMED
            Short-term loans                               (3,613,075)
            Accounts payable, trade                        (2,142,729)
            Accrued charges and other payables             (2,146,033)
            Due to a related party                         (3,223,999)
            Income tax payables                            (10,643)
            Deferred tax                                   (184,591)
                                                           ------------------

                                                           (11,321,070)
                                                           ------------------

            Net assets acquired                            9,698,175
            Shared by minority interest                    (1,455,339)
                                                           ------------------

        Consideration (note 2)                             8,242,836
                                                           ==================


4.       BASIS OF PRESENTATION

         The financial  statements  have been presented in United States dollars
         (US$) and prepared in accordance with accounting  principles  generally
         accepted in the United States of America ("US GAAP").



                                       39
<PAGE>


AUSTRALIA CHINA INVESTMENTS LIMITED

NOTES TO THE FINANCIAL STATEMENTS
Period from February 1, 2002 (date of incorporation) to December 31, 2002
--------------------------------------------------------------------------------


5.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(A)      BASIS OF CONSOLIDATION
         The  financial  statements  include the accounts of the Company and its
         subsidiary  (see  note  2) in  which  the  Company  has  a  controlling
         financial  interest.  The  results  of  operations  of  the  subsidiary
         acquired  during  the period is  included  from the  effective  date of
         acquisition.  All significant  intercompany  accounts and  transactions
         have been eliminated.

         SUBSIDIARY
         A subsidiary  is an affiliate  controlled by the Company  directly,  or
         indirectly  through  one  or  more  intermediaries.  The  term  control
         (including  the  terms  controlling,  controlled  by and  under  common
         control with) means the possession, direct or indirect, of the power to
         direct or cause the  direction  of the  management  and  policies  of a
         person, whether through the ownership of voting stocks, by contract, or
         otherwise.

(B)      REVENUE RECOGNITION
         Net sales represent the invoiced value of goods, net of value-added tax
         ("VAT") and returns.  The Group  generally  recognizes  product revenue
         when  persuasive  evidence  of  an  arrangement  exists,  delivery  has
         occurred,  the fee is  fixed or  determinable,  and  collectibility  is
         probable.

         INCOME TAXES
         The Group did not carry on any business and did not maintain any branch
         office in the United States of America.

         Provision  for  income  and  other  related  taxes  has  been  made  in
         accordance with the tax rates and laws in effect in the PRC.

         Income tax expense is computed based on pre-tax income  included in the
         consolidated statements of operations.  The Group provides for deferred
         income taxes using the liability method, by which deferred income taxes
         are recognized for all significant  temporary  differences  between the
         carrying  amounts  and tax  bases  assets  and  liabilities  and  their
         reported  amounts.  The  tax  consequences  of  those  differences  are
         classified as current or non-current  based upon the  classification of
         the related assets or liabilities in the financial statements.

         PROPERTY AND EQUIPMENT AND DEPRECIATION
         Property   and   equipment   are   stated  at  cost  less   accumulated
         depreciation.  The cost of an asset  consists of its purchase price and
         any  directly  attributable  costs of bringing the asset to its present
         working  condition  and  location for its  intended  use.  Expenditures
         incurred after the assets have been put into operation, such as repairs
         and  maintenance,   are  charged  to  the  consolidated   statement  of
         operations in the year in which they are incurred.  In situations where
         it can be clearly  demonstrated that the expenditure has resulted in an
         increase in the future economic  benefits  expected to be obtained from
         the use of the assets, the expenditure is capitalized.

         When  assets  are  sold  or  retired,   their  costs  and   accumulated
         depreciation  are  removed  from  the  accounts  and  any  gain or loss
         resulting from their disposal is included in the consolidated statement
         of operations.



                                       40
<PAGE>

AUSTRALIA CHINA INVESTMENTS LIMITED

NOTES TO THE FINANCIAL STATEMENTS
Period from February 1, 2002 (date of incorporation) to December 31, 2002
--------------------------------------------------------------------------------


5.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

       PROPERTY AND EQUIPMENT AND DEPRECIATION (CONTINUED)
       When assets are  transferred  between  property and  equipment  and other
       classes of assets,  the cost of such an asset on transfer is deemed to be
       the   carrying   amount  of  the  asset  as  stated  under  its  original
       classification.

       Depreciation  is  calculated  to  write  off  the  cost of  property  and
       equipment  using  the  straight-line  method  at  rates  based  on  their
       estimated  useful  lives  from  the  date  on  which  they  become  fully
       operational  and after  taking  into  account  their  estimated  residual
       values.

       ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
       The  long-lived  assets  held  and used by the  Group  are  reviewed  for
       impairment whenever events or changes in circumstances  indicate that the
       carrying  amount of the assets may not be  recoverable.  It is reasonably
       possible  that  these  assets  could  become  impaired  as  a  result  of
       technology or other industry changes.  Determination of recoverability of
       assets  to be held and used is by  comparing  the  carrying  amount of an
       asset to the future net  undiscounted  cash flows to be  generated by the
       assets.  If such assets are considered to be impaired,  the impairment to
       be recognized  is measured by the amount by which the carrying  amount of
       the assets exceeds the fair value of the assets. Assets to be disposed of
       are reported at the lower of the carrying amount or fair value less costs
       to sell.

       INVENTORIES
       Inventories  are  stated  at the  lower  of cost or  market.  The cost of
       inventories  is  determined  using  the  weighted  average  cost  method.
       Potential  losses from obsolete and slow-moving  inventories are provided
       for when identified. Costs of work-in-progress and finished goods include
       direct   materials,   direct  labor  and  an   attributable   portion  of
       manufacturing overhead.

       STATEMENT OF CASH FLOWS
       Cash  equivalents  are defined as short-term,  highly liquid  investments
       that are  readily  convertible  to known  amounts  of cash and  which are
       subject  to an  insignificant  risk of changes  in value.  An  investment
       normally  qualifies as a cash  equivalent  only when it has a maturity of
       three months or less from its acquisition date.

       FOREIGN CURRENCY TRANSLATION
       The Company  maintains its accounting  books and records in US$.  Foreign
       currency  transactions  during  the  year  are  translated  to US$ at the
       approximate  rates of  exchange  on the dates of  transactions.  Monetary
       assets and liabilities  denominated in foreign  currencies at the balance
       sheet date are  translated at the  approximate  rates of exchange at that
       date.  Non-monetary assets and liabilities are translated at the rates of
       exchange  prevailing  at the time the asset or  liability  was  acquired.
       Exchange  gains or losses are recorded in the  consolidated  statement of
       operations.

       On  consolidation,  the  financial  statements  of the PRC  subsidiary is
       translated  into US$ using the closing  rate  method.  The balance  sheet
       items are translated  into US$ using the exchange rates at the respective
       balance sheet dates.  The capital and various  reserves are translated at
       historical  exchange  rates  prevailing  at the time of the  transactions
       while income and expenses  items are  translated at the average  exchange
       rate for the year. All exchange  differences arising on consolidation are
       recorded within equity.  The amount of such translation  adjustments were
       not  significant  for the  period,  no  other  comprehensive  income  was
       recognized.



                                       41
<PAGE>

AUSTRALIA CHINA INVESTMENTS LIMITED

NOTES TO THE FINANCIAL STATEMENTS
Period from February 1, 2002 (date of incorporation) to December 31, 2002
--------------------------------------------------------------------------------



5.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         EARNINGS PER SHARE
         The basic earnings per share are computed by dividing income  available
         to common  stockholders by the weighted average number of common stocks
         outstanding.  The computation of diluted  earnings per share is similar
         to the computation of basic earnings per share except that the weighted
         average  number of common  stocks  outstanding  is  adjusted to include
         estimates  of  additional  shares  that would be issued if  potentially
         dilutive common stocks had been issued.  In addition,  income available
         to common  stockholders is adjusted to include any changes in income or
         loss that would result from the assumed issuance of the dilutive common
         stocks.  There  were no  dilutive  securities  outstanding  during  the
         period.

         USES OF ESTIMATES
         The preparation of the Group's financial  statements in conformity with
         US GAAP requires the management to make estimates and assumptions  that
         affect  the  amounts   reported  in  the   financial   statements   and
         accompanying notes. Actual amounts could differ from those estimates.

         ALLOWANCE FOR DOUBTFUL ACCOUNTS
         The Group  provides an  allowance  for doubtful  accounts  equal to the
         estimated  uncollectable  amounts.  The  Group's  estimate  is based on
         historical  collection experience and a review of the current status of
         trade accounts  receivable.  It is reasonably possible that the Group's
         estimate of the allowance for doubtful  accounts will change.  Accounts
         receivable  are presented net of an allowance for doubtful  accounts of
         US$277,129 as of December 31, 2002.

         SEGMENT INFORMATION
         Operating  segments are defined as  components of a company about which
         separated   financial   information  is  available  that  is  evaluated
         regularly by the operating  decision  maker in deciding how to allocate
         resources and in assessing performance.  The Group operates in a single
         business segment of  manufacturing  and selling of paper products which
         are sold in the PRC. There are no reportable  business or  geographical
         segments   identified   and  no  segment   information   is   disclosed
         accordingly.

         RELATED PARTIES
         Parties  are  considered  to be related  if one party has the  ability,
         directly  or  indirectly,  to  control  the other  party,  or  exercise
         significant  influence  over the other  party in making  financial  and
         operating decisions.  Parties are also considered to be related if they
         are subject to common control or common significant influence.



                                       42
<PAGE>


AUSTRALIA CHINA INVESTMENTS LIMITED

NOTES TO THE FINANCIAL STATEMENTS
Period from February 1, 2002 (date of incorporation) to December 31, 2002
--------------------------------------------------------------------------------


5.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         RECENTLY ISSUED ACCOUNTING STANDARDS
         In June  2002,  the FASB  issued  SFAS No.  146  "Accounting  for Costs
         Associated  with Exit or Disposal  Activities".  SFAS No. 146  requires
         that a liability for a cost that is associated with an exit or disposal
         activity be recognized  when the  liability is incurred.  This standard
         nullifies the guidance of EITF Issue No. 94-3,  "Liability  Recognition
         for Certain  Employee  Termination  Benefits and Other Costs to Exit an
         Activity (including Certain Costs Incurred in a Restructuring)".  Under
         EITF Issue No. 94-3, an entity  recognized a liability for an exit cost
         on the date that the entity  committed  itself to an exit  plan.  Under
         SFAS No. 146, the FASB concludes that an entity's commitment to an exit
         plan does not, by itself,  create a present obligation to other parties
         that meets the definition of a liability. SFAS No. 146 also establishes
         that fair value is the  objective  for the initial  measurement  of the
         liability.  SFAS  No.  146  will be  effective  for  exit  or  disposal
         activities  that are initiated  after December 31, 2002. The Group does
         not  expect  that  this  standard  will have a  material  effect on its
         financial statements.

         In October 2002, the FASB issued SFAS No. 147, "Acquisitions of Certain
         Financial Institutions". SFAS No. 147 provides interpretive guidance on
         the application of all acquisitions of financial  institutions,  except
         transactions  between two or more mutual  enterprises.  Restatement  of
         previously  issued  financial   statements  will  be  required.   Those
         transition  provisions  are  effective as of October 1, 2002;  however,
         early  application  is  permitted.  The Group does not expect that this
         standard will have any effect on its financial statements.

         In  December  2002,  the FASB  issued  SFAS No.  148,  "Accounting  for
         Stock-Based Compensation-Transition and Disclosure-an amendment of FASB
         Statement No. 123". This Statement amends SFAS No. 123, "Accounting for
         Stock-Based Compensation", to provide alternative methods of transition
         for a voluntary change to the fair value based method of accounting for
         stock-based employee compensation.  In addition,  this Statement amends
         the  disclosure  requirements  of SFAS  No.  123 to  require  prominent
         disclosures in both annual and interim  financial  statements about the
         method of accounting  for  stock-based  employee  compensation  and the
         effect of the method used on reported results.

         This Statement requires that companies having a year-end after December
         15,  2002  follow the  prescribed  format and  provide  the  additional
         disclosures in their annual reports. In other words,  calendar year-end
         companies must comply when issuing their 2002 annual reports. Companies
         must also provide the disclosures in their quarterly reports containing
         condensed  financial  statements for interim  periods  beginning  after
         December 15, 2002 (first quarter 2003 for calendar year-end companies).
         The  adoption  of SFAS No.  148 did not have an impact  on the  Group's
         financial statements.



                                       43
<PAGE>

AUSTRALIA CHINA INVESTMENTS LIMITED

NOTES TO THE FINANCIAL STATEMENTS
Period from February 1, 2002 (date of incorporation) to December 31, 2002
--------------------------------------------------------------------------------




6.       PROVISION FOR INCOME TAXES

         The  Group is  subject  to income  taxes on an  entity  basis on income
         arising in or derived from the tax jurisdictions in which it operates.

         The subsidiary is  established  and is carrying on business in the PRC.
         The subsidiary is subject to the PRC enterprise income tax at a rate of
         24%.

         Income tax expense is comprised of the following:
                                                                     US$

         Current tax                                              25,446
         Deferred tax                                            122,461
                                                            -------------

         Income tax expenses                                     147,907
                                                            =============

The  reconciliation of the PRC statutory income tax rate to the effective income
tax rate based on income stated in the statement of operations is as follows:
                                                                       %

         Statutory rate                                               24
         Non-deductible activities                                     6
                                                            -------------

         Effective tax rate                                           30
                                                            =============

7.       INVENTORIES

Inventories comprise the following:

                                                                     US$

        Raw materials                                          1,148,035
        Finished goods                                           514,038
                                                           --------------

                                                               1,662,073
                                                           ==============




                                       44
<PAGE>

AUSTRALIA CHINA INVESTMENTS LIMITED

NOTES TO THE FINANCIAL STATEMENTS
Period from February 1, 2002 (date of incorporation) to December 31, 2002
--------------------------------------------------------------------------------


8.       PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
                                                                  Estimated useful
                                                                       lives
                                                                 -------------------
                                                                       Years                                         US$
<S>                                                                    <C>                                   <C>
         COST
                  Buildings and fixtures                               20-50                                   4,184,088
                  Plant and machinery                                  10-25                                   9,868,128
                  Motor vehicles                                         10                                      279,586
                                                                                                         ----------------

                                                                                                              14,331,802
         ACCUMULATED DEPRECIATION                                                                            (4,517,360)
                                                                                                         ----------------

         PROPERTY AND EQUIPMENT, NET                                                                           9,814,442
                                                                                                         ================
</TABLE>

9.       BANKING FACILITIES

         The Group had  various  lines of credit  under  banking  facilities  as
follows:

                                                                 US$
         FACILITIES GRANTED
         Committed credit lines                            4,552,935
                                                     ================

         UTILIZED FACILITIES
         Committed credit lines                            3,613,075
                                                     ================

         UNUTILIZED FACILITIES
         Committed credit lines                              939,859
                                                     ================

         There  are  no  significant   commitment  fees  or   requirements   for
         compensating balances associated with any lines of credit.

         As  of  December  31,  2002,  the  Group  had  the  following   banking
facilities:

        US$164,506      Collateralized by certain property and equipment of the
                          Group
        US$759,629      Collateralized by guarantee of a third party (note)
        US$3,628,800    Collateralized by certain property and equipment of the
                          Group and guarantee of a third party (note)

         Note:  These guarantees are given by Yantai Yinhe Knitting Company
         Limited.




                                       45
<PAGE>

AUSTRALIA CHINA INVESTMENTS LIMITED

NOTES TO THE FINANCIAL STATEMENTS
Period from February 1, 2002 (date of incorporation) to December 31, 2002
--------------------------------------------------------------------------------


10.      RELATED PARTY TRANSACTIONS

<TABLE>
<CAPTION>
       (a) Name and relationship of related parties           Existing relationships with the Company
<S>                                                           <C>
         YLPI                                                 Joint venturer of the subsidiary
         Muping Iron Cover Manufacturing Factory (MIC)        Branch of YLPI
         Muping Paper Product Manufacturing Factory (MPP)     Branch of YLPI
         Muping Vegetable Processing Factory (MVP)            Branch of YLPI
         Mr. Tang Yuxiang                                     Stockholder
         Mr. Qu Shuzhi                                        Stockholder
</TABLE>


         (b) Related party transactions

<TABLE>
<CAPTION>
                                                                                                     US$
<S>                                                                                            <C>
               (i) Due from related parties
                     MVP                                                                          13,521
                     MPP                                                                          43,390
                     MIC                                                                         165,042
                                                                                        -----------------

                                                                                                 221,953
                                                                                        =================

               (ii) Due to a related party
                     YLPI                (Note)                                                2,571,843
                                                                                        =================

               (iii) Due to stockholders
                     Mr. Tang Yuxiang                                                          4,098,455
                     Mr. Qu Shuzhi                                                             4,098,455
                                                                                        -----------------

                                                                                               8,196,910
                                                                                        =================
</TABLE>
          Note:Loans from YLPI amounting to US$2,552,256 as of December 31, 2002
               represented  loans  borrowed  from banks by YLPI on behalf of the
               subsidiary.


11.      EQUITY CAPITAL

As of December  31,  2002,  the  authorized  capital of the Company is US$50,000
consisting of 5,000,000 shares of common stock, par value US$0.01 each.

On February 1, 2002,  5,000,000  shares of common  stock par value  US$0.01 each
were allotted to Mr. Tang Yuxiang and Mr. Qu Shuzhi equally.

On January 15,  2003,  the  authorized  capital of the Company was  increased to
US$10,000,000  by the creation of 995,000,000  shares of common stock, par value
US$0.01 each. On January 28, 2003, 819,283,600 shares of common stock, par value
US$0.01 each, were allotted to Mr. Tang Yuxiang and Mr. Qu Shuzhi equally.



                                       46
<PAGE>

AUSTRALIA CHINA INVESTMENTS LIMITED

NOTES TO THE FINANCIAL STATEMENTS
Period from February 1, 2002 (date of incorporation) to December 31, 2002
--------------------------------------------------------------------------------


12.      STATUTORY RESERVES

         According to the Articles of Association of the  subsidiary,  income of
         the  subsidiary is  distributable  to its joint venture  partners after
         transfer to  statutory  reserves.  Being a  sino-foreign  equity  joint
         venture,  the  subsidiary  is required to maintain a reserve  fund,  an
         enterprise  development  fund and a staff  welfare  and bonus fund as a
         percentage of profit after tax.

         Statutory  reserves of the subsidiary  include the reserve fund and the
         staff welfare and bonus fund.  Pursuant to the Articles of  Association
         of the subsidiary,  the board of directors  determine the percentage of
         appropriations  to the  reserve  fund and the staff  welfare  and bonus
         fund.  The  reserve  fund can be used to make good  losses in  previous
         years.

         The staff  welfare and bonus fund,  which is to be used for the welfare
         of the staff and workers of the subsidiary, is of a capital nature. The
         nature of  enterprise  development  fund is set  aside  for the  future
         development of the subsidiary.


13.      RETIREMENT BENEFITS AND OTHER EMPLOYMENT BENEFITS

         As  stipulated  by  the  PRC  rules  and  regulations,  the  subsidiary
         participates  in a retirement  plan for all employees.  Pursuant to the
         plan,  all retired  employees of the subsidiary are entitled to certain
         retirement  benefits.  The subsidiary is required to make contributions
         to a state sponsored  retirement plan at approximately 20% of the basic
         amount which is within the range from US$57 to US$278 stipulated by the
         PRC  government.   The  subsidiary  determines  the  base  amount  with
         reference  to the basic  salary  of its  employees  and has no  further
         obligations  for the actual payments of any  post-retirement  benefits.
         The state  sponsored  retirement  plan is  responsible  for the  entire
         pension obligations payable to the employees.

         The  pension  expense  for the  period  ended  December  31,  2002  was
         US$40,620.


14.      CAPITAL COMMITMENT

         As of December 31, 2002, the Group had outstanding  capital commitments
         amounting to approximately US$702,778.



                                       47
<PAGE>

AUSTRALIA CHINA INVESTMENTS LIMITED

NOTES TO THE FINANCIAL STATEMENTS
Period from February 1, 2002 (date of incorporation) to December 31, 2002
--------------------------------------------------------------------------------




15.      OPERATING RISK

         (a)      Country risk
                  Currently, the Group's revenues are derived from sale of paper
                  products to customers  in the PRC. The Group's  results may be
                  adversely  affected  by  changes in the  political  and social
                  conditions in the PRC, and by changes in governmental policies
                  with  respect  to  laws  and  regulations,   anti-inflationary
                  measures, currency conversion and remittance abroad, and rates
                  and  methods of  taxation,  among  other  things.  The Group's
                  management  does not believe  these  risks to be  significant.
                  There can be no assurance, however, those changes in political
                  and other conditions will not result in any adverse impact.

         (b)      Credit risk
                  Financial  instruments  consist  principally of temporary cash
                  investments  and  accounts  receivable.The  Group  places  its
                  temporary cash investments with various financial institutions
                  in the PRC. The Group believes that no significant credit risk
                  exists  as  these  investments  are  placed  principally  with
                  government-owned financial institutions in the PRC.The Group's
                  business  activities and accounts  receivable are  principally
                  with  customers in PRC. The Group believes that no significant
                  credit risk exists as credit losses, when realized,  have been
                  within the range of management's expectations.

                  The fair  values of all of the Group's  financial  instruments
                  approximate their carrying values.
                           Audited Consolidated Financial Statements

                           AUSTRALIA CHINA INVESTMENTS LIMITED

                           Period from February 1, 2002 (date of incorporation)
                                   to December 31, 2002




                                       48
<PAGE>


REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


To the Board of Directors and Owners of
YANTAI DAHUA PAPER INDUSTRY COMPANY LIMITED
(A  Sino-foreign  Equity Joint Venture  established in the People's  Republic of
China)


We have audited the  accompanying  balance sheets of Yantai Dahua Paper Industry
Company  Limited (the  "Company")  (an equity joint venture  established  in the
People's  Republic of China ("PRC")) as of December 31, 2000,  2001 and 2002 and
the related  statements of operations,  changes in owners' equity and cash flows
for  each  of  the  years  then  ended.  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 financial position of the Company as of December 31,
2000,  2001 and 2002 and the  results of its  operations  and its cash flows for
each of the years then ended in conformity with accounting  principles generally
accepted in the United States of America.




MOORES ROWLAND
Chartered Accountants
Certified Public Accountants
Hong Kong
Date: April 25, 2003



                                       49
<PAGE>




YANTAI DAHUA PAPER INDUSTRY COMPANY LIMITED

STATEMENTS OF OPERATIONS
Years ended December 31, 2000, 2001 and 2002

<TABLE>
<CAPTION>
----------------------------------------------- -------------- --- --------------- --- --------------- --- ---------------
                                                         2000                2001                2002                2002
----------------------------------------------- -------------- --- --------------- --- --------------- --- ---------------
                                                          RMB                 RMB                 RMB                 US$
----------------------------------------------- -------------- --- --------------- --- --------------- --- ---------------
<S>                                              <C>                 <C>                 <C>                  <C>
OPERATING REVENUE
----------------------------------------------- -------------- --- --------------- --- --------------- --- ---------------
Sale of goods                                      96,585,857          93,616,071         102,149,716          12,356,030
----------------------------------------------- -------------- --- --------------- --- --------------- --- ---------------

----------------------------------------------- -------------- --- --------------- --- --------------- --- ---------------
COSTS OF SALES                                   (75,050,872)        (71,455,136)        (72,207,917)         (8,734,270)
----------------------------------------------- -------------- --- --------------- --- --------------- --- ---------------

----------------------------------------------- -------------- --- --------------- --- --------------- --- ---------------
GROSS PROFIT                                       21,534,985          22,160,935          29,941,799           3,621,760
----------------------------------------------- -------------- --- --------------- --- --------------- --- ---------------

----------------------------------------------- -------------- --- --------------- --- --------------- --- ---------------
OPERATING EXPENSES
----------------------------------------------- -------------- --- --------------- --- --------------- --- ---------------
Depreciation                                        (328,313)           (376,070)           (401,642)            (48,583)
----------------------------------------------- -------------- --- --------------- --- --------------- --- ---------------
Handling and shipping costs                       (6,084,348)         (5,900,783)         (4,752,591)           (574,873)
----------------------------------------------- -------------- --- --------------- --- --------------- --- ---------------
Selling, general and administrative expenses     (15,797,505)        (14,524,343)        (14,321,978)         (1,732,386)
                                                 ------------        ------------        ------------         -----------
----------------------------------------------- -------------- --- --------------- --- --------------- --- ---------------

----------------------------------------------- -------------- --- --------------- --- --------------- --- ---------------
(LOSS) INCOME FORM OPERATIONS                       (675,181)           1,359,739          10,465,588           1,265,918
----------------------------------------------- -------------- --- --------------- --- --------------- --- ---------------

----------------------------------------------- -------------- --- --------------- --- --------------- --- ---------------
NON-OPERATING INCOME
----------------------------------------------- -------------- --- --------------- --- --------------- --- ---------------
Sundry income                                         709,030             260,178             520,695              62,983
                                                      -------             -------             -------              ------
----------------------------------------------- -------------- --- --------------- --- --------------- --- ---------------

----------------------------------------------- -------------- --- --------------- --- --------------- --- ---------------
INCOME BEFORE INCOME TAXES                             33,849           1,619,917          10,986,283           1,328,901
----------------------------------------------- -------------- --- --------------- --- --------------- --- ---------------

----------------------------------------------- -------------- --- --------------- --- --------------- --- ---------------
Provision for income taxes                          (409,790)           (131,149)         (2,834,106)           (342,813)
                                                    ---------           ---------         -----------           ---------
----------------------------------------------- -------------- --- --------------- --- --------------- --- ---------------

----------------------------------------------- -------------- --- --------------- --- --------------- --- ---------------
NET (LOSS) INCOME                                   (375,941)           1,488,768           8,152,177             986,088
                                                    =========           =========           =========             =======
----------------------------------------------- -------------- --- --------------- --- --------------- --- ---------------
</TABLE>





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



                                       50
<PAGE>



YANTAI DAHUA PAPER INDUSTRY COMPANY LIMITED
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
BALANCE SHEETS
--------------------------------------------------------------------------------
As of December 31, 2000, 2001 and 2002

<TABLE>
<CAPTION>
                                                                           AS OF DECEMBER 31,
                                                --------------- -- ---------------- -- ---------------- -- --------------
                                                2000               2001                2002                2002
                                     NOTE       RMB                RMB                 RMB                 US$
ASSETS

<S>                                   <C>       <C>                <C>                 <C>                 <C>
CURRENT ASSETS
Cash and bank balances                          7,817,564          7,596,125           5,667,121           685,495
Accounts receivable, trade                      50,039,379         47,125,357          56,421,029          6,824,688
Prepayments and other receivables               7,672,862          7,678,627           9,786,474           1,183,771
Inventories                            5        13,431,722         14,762,938          13,740,686          1,662,073
Income tax recoverable                 8        94,161             -                   -                   -
Due from related parties               8        5,252,782          6,064,545           1,889,523           228,557
                                                ---------------    ----------------    ----------------    --------------

TOTAL CURRENT ASSETS                            84,308,470         83,227,592          87,504,833          10,584,584
Property and equipment, net            6        67,248,351         74,134,902          81,137,911          9,814,442
Construction in progress                        3,416,927          1,599,673           1,174,844           142,109
                                                ---------------    ----------------    ----------------    --------------

TOTAL ASSETS                                    154,973,748        158,962,167         169,817,588         20,541,135
                                                ---------------    ----------------    ----------------    --------------

<CAPTION>

     LIABILITIES AND OWNERS' EQUITY

     CURRENT LIABILITIES
<S>                                   <C>         <C>                 <C>                <C>                <C>
Short-term loans                       7             2,745,000           7,395,000          29,870,000         3,613,075
Accounts payable, trade                             13,434,005          16,215,222          15,190,144         1,837,401
Accrued charges and other payables                  19,635,865          15,769,353          17,647,605         2,134,655
Due to related parties                 8            27,218,806          26,449,009          21,261,928         2,571,843
Income tax payable                                           -              36,988             205,399            24,845
Deferred tax                                                 -                   -           1,897,935           229,574
                                                ---------------    ----------------    ----------------    --------------

Total current liabilities                           63,033,676          65,865,572          86,073,011        10,411,393
                                                ---------------    ----------------    ----------------    --------------

Non-current liabilities
Long-term loans                        9            18,230,000          18,230,000                   -                 -
Deferred tax                                                 -                   -             725,805            87,793
                                                ---------------    ----------------    ----------------    --------------

                                                    18,230,000          18,230,000             725,805            87,793
                                                ---------------    ----------------    ----------------    --------------

Owners' equity
Registered capital                     10           33,590,000          33,590,000          33,590,000         4,063,046
Retained earnings                                   36,575,466          37,648,928          45,667,872         5,523,985
Statutory reserves                     11            3,544,606           3,627,667           3,760,900           454,918
                                                ---------------    ----------------    ----------------    --------------

Total owners' equity                                73,710,072          74,866,595          83,018,772        10,041,949
                                                ---------------    ----------------    ----------------    --------------

Total liabilities and owners'
equity                                             154,973,748         158,962,167         169,817,588        20,541,135
                                                ===============    ================    ================    ==============
</TABLE>





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


                                       51
<PAGE>



YANTAI DAHUA PAPER COMPANY LIMITED
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
STATEMENTS OF OWNERS' EQUITY
--------------------------------------------------------------------------------
Years ended December 31, 2000, 2001 and 2002

<TABLE>
<CAPTION>
                                                         REGISTERED        RETAINED        STATUTORY      TOTAL
                                                         CAPITAL           EARNINGS        RESERVES
                                                         RMB               RMB             RMB            RMB

<S>                                                      <C>               <C>             <C>            <C>
Balances as of January 1, 2000                           33,590,000        37,281,737      3,478,540      74,350,277

Net loss for the year                                    -                 (375,941)       -              (375,941)

Dividends declared                                       -                 (264,264)       -              (264,264)

Transfer to statutory reserves                           -                 (66,066)        66,066         -
                                                         ---------------   --------------  ------------   --------------

BALANCES AS OF DECEMBER 31, 2000                         33,590,000        36,575,466      3,544,606      73,710,072

Net income for the year                                  -                 1,488,768       -              1,488,768

Dividends declared                                       -                 (332,245)       -              (332,245)

Transfer to statutory reserves                           -                 (83,061)        83,061         -
                                                         ---------------   --------------  ------------   --------------

BALANCES AS OF DECEMBER 31, 2001                         33,590,000        37,648,928      3,627,667      74,866,595

Net income for the year                                  -                 8,152,177       -              8,152,177

Transfer to statutory reserves                           -                 (133,233)       133,233        -
                                                         ---------------   --------------  ------------   --------------

BALANCES AS OF DECEMBER 31, 2002                         33,590,000        45,667,872      3,760,900      83,018,772
                                                         ===============   ==============  ============   ==============

BALANCES AS OF DECEMBER 31, 2002 (IN US$)                4,063,046         5,523,985       454,918        10,041,949
                                                         ===============   ==============  ============   ==============
</TABLE>






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


                                       52
<PAGE>



YANTAI DAHUA PAPER INDUSTRY COMPANY LIMITED
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS
--------------------------------------------------------------------------------
Years ended December 31, 2000 and 2001

<TABLE>
<CAPTION>
                                                            2000               2001               2002             2002
                                                             RMB                RMB                RMB              US$
<S>                                                 <C>                 <C>                <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income                                      (375,941)          1,488,768          8,152,177          986,088

Adjustments to reconcile net profit to net cash used
in operating activities:
         Depreciation                                  4,715,320          5,366,651          5,427,626          656,526
         Loss on disposal of property and
equipment                                                251,770            231,897            445,474           53,885
Changes in working capital:
         Accounts receivable, trade                    1,266,927          2,914,022        (9,295,672)      (1,124,404)
         Prepayments and other receivables             4,708,482            (5,765)        (2,107,847)        (254,965)
         Inventories                                   7,224,775        (1,331,216)          1,022,252          123,651
         Due from related parties                       (96,384)          (811,763)          1,005,350          121,607
         Due to related parties                         (23,574)          (434,550)                  -                -
         Accounts payable, trade                     (6,457,746)          2,781,217        (1,025,078)        (123,993)
         Accrued charges and other payables              686,095        (3,866,512)          1,878,252          227,193
         Income tax                                      309,790            131,149          2,792,151          337,739
                                                    -------------     --------------    ---------------    -------------

Net cash provided by operating activities             12,209,514          6,463,898          8,294,685        1,003,327
                                                    -------------     --------------    ---------------    -------------

Cash flows from investing activities:
PURCHASES OF PROPERTY AND EQUIPMENT                  (2,775,163)        (3,627,234)                  -                -
Additions of construction in progress               (11,437,199)        (7,040,611)       (12,451,280)      (1,506,108)
                                                    -------------     --------------    ---------------    -------------

Net cash used in investing activities               (14,212,362)       (10,667,845)       (12,451,280)      (1,506,108)
                                                    -------------     --------------    ---------------    -------------

Cash flows from financing activities:
Borrowings of short-term loans                         1,035,000          7,395,000         10,280,000        1,243,469
Borrowings of long-term loans                         18,230,000                  -                  -                -
Repayments of short-term loans                      (26,090,000)        (2,745,000)        (6,035,000)        (729,994)
Due from related parties                                       -                  -          3,169,672          383,404
Due to related parties                                11,502,520          (335,247)        (5,187,081)        (627,429)
Dividend paid                                          (264,264)          (332,245)                  -                -
                                                    -------------     --------------    ---------------    -------------

Net cash used in financing activities                  4,413,256          3,982,508          2,227,591          269,450
                                                    -------------     --------------    ---------------    -------------

Net increase (decrease) in cash and cash
equivalents                                            2,410,408          (221,439)        (1,929,004)        (233,331)
Cash and cash equivalents at beginning of year         5,407,156          7,817,564          7,596,125          918,826
                                                    -------------     --------------    ---------------    -------------

Cash and cash equivalents at end of year               7,817,564          7,596,125          5,667,121          685,495
                                                    =============     ==============    ===============    =============

ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS
Cash and bank balances                                 7,817,564          7,596,125          5,667,121          685,495
                                                    =============     ==============    ===============    =============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the fiscal period for:
    Interest paid                                      3,370,405          3,355,317          3,195,353          386,510
    Income tax                                           100,000                  -             41,955            5,075
                                                    =============     ==============    ===============    =============

NON-CASH INVESTING AND FINANCING ACTIVITIES
    Reclassification of long-terms loans to short
      terms loans                                              -                  -         18,230,000        2,204,007
                                                    =============     ==============    ===============    =============
</TABLE>





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


                                       53
<PAGE>





YANTAI DAHUA PAPER INDUSTRY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS
Years ended December 31, 2000, 2001 and 2002
--------------------------------------------------------------------------------


1.       ORGANIZATION AND PRINCIPAL ACTIVITIES

         Yantai  Dahua  Paper  Industry  Company  Limited  (the  "Company")  was
         established in the People's Republic of China ("PRC") on April 14, 1994
         as a sino-foreign equity joint venture.

         The  Company was an equity  joint  venture  with an initial  registered
         capital of Rmb38,177,000  and planned to operate for a term of 15 years
         until April 14, 2009. The initial registered capital was contributed by
         Yantai  Longda  Paper  Industry  Company  Limited  ("YLPI",  a  company
         incorporated   in  the   PRC)   (formerly   known  as   "Muping   Paper
         Manufacturer",  a company  established in the PRC)) and Australia China
         Investment Pty Limited ("ACIP", a company incorporated in Australia) in
         the ratio of 77% and 23% respectively.

         On May 28, 1996,  the Company's  application  for capital  reduction to
         Rmb33,590,000  was approved by Muping Foreign Economic Trade Committee.
         After the  reduction,  the ratio of the  contribution  between YLPI and
         ACIP was changed to 74% and 26% respectively.

         The Company is principally engaged in manufacturing and selling various
         paper products,  including  printing paper,  writing paper and computer
         paper, etc.

         On June 28, 2002,  ACIP,  YLPI and Australia China  Investment  Limited
         ("ACIL")  entered into an  agreement  (the  "Agreement")  in which ACIP
         agreed to transfer its entire  interest and YLPI agreed to transfer its
         59%  interest in the Company to ACIL (the  "Transfer").  The  aggregate
         consideration of the Transfer is US$8,242,836  which represented 85% of
         net asset  value of of the  Company  as of  September  30,  2002.  Upon
         completion of the  transaction,  ACIL and YLPI own 85% and 15% interest
         in the  Company  respectively.  On July 30,  2002,  the Yantai  Foreign
         Investment Bureau approved the above transfers of interest.


2.       BASIS OF PRESENTATION

         The  financial   statements  have  been  prepared  in  accordance  with
         accounting  principles  generally  accepted  in the  United  States  of
         America ("US GAAP").


3.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


         REVENUE RECOGNITION
         Net sales represent the invoiced value of goods, net of value-added tax
         ("VAT") and returns.  The Company generally  recognizes product revenue
         when  persuasive  evidence  of  an  arrangement  exists,  delivery  has
         occurred,  the fee is  fixed or  determinable,  and  collectibility  is
         probable.




                                       54
<PAGE>




YANTAI DAHUA PAPER INDUSTRY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS
Years ended December 31, 2000, 2001 and 2002
--------------------------------------------------------------------------------

3.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         INCOME TAXES
         Provision  for  income  and  other  related  taxes  has  been  made  in
         accordance with the tax rates and laws in effect in the PRC.

         Income tax expense is computed based on pre-tax income  included in the
         statements  of  operations.  The Company  provides for deferred  income
         taxes using the liability  method,  by which deferred  income taxes are
         recognized  for  all  significant  temporary  differences  between  the
         carrying  amounts  and tax  bases  assets  and  liabilities  and  their
         reported  amounts.  The  tax  consequences  of  those  differences  are
         classified as current or non-current  based upon the  classification of
         the related assets or liabilities in the financial statements.

         PROPERTY AND EQUIPMENT AND DEPRECIATION
         Property   and   equipment   are   stated  at  cost  less   accumulated
         depreciation.  The cost of an asset  consists of its purchase price and
         any  directly  attributable  costs of bringing the asset to its present
         working  condition  and  location for its  intended  use.  Expenditures
         incurred after the assets have been put into operation, such as repairs
         and maintenance, are charged to the statement of operations in the year
         in which  they are  incurred.  In  situations  where it can be  clearly
         demonstrated that expenditure has resulted in an increase in the future
         economic  benefits  expected to be obtained from the use of the assets,
         the expenditure is capitalized.

         When  assets  are  sold  or  retired,   their  costs  and   accumulated
         depreciation  are  removed  from  the  accounts  and  any  gain or loss
         resulting   from  their  disposal  is  included  in  the  statement  of
         operations.

         When assets are  transferred  between  property and equipment and other
         classes of assets,  the cost of such an asset on  transfer is deemed to
         be the  carrying  amount  of the asset as  stated  under  its  original
         classification.

         Depreciation  is  calculated  to  write  off the cost of  property  and
         equipment  using  the  straight-line  method  at  rates  based on their
         estimated  useful  lives  from  the  date on which  they  become  fully
         operational and after taking into account of their  estimated  residual
         values.

         ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
         The  long-lived  assets held and used by the Company are  reviewed  for
         impairment  whenever events or changes in  circumstances  indicate that
         the  carrying  amount  of the  assets  may  not be  recoverable.  It is
         reasonably possible that these assets could become impaired as a result
         of   technology   or   other   industry   changes.   Determination   of
         recoverability  of  assets  to be held  and  used is by  comparing  the
         carrying amount of an asset to the future net  undiscounted  cash flows
         to be  generated  by the assets.  If such assets are  considered  to be
         impaired,  the impairment to be recognized is measured by the amount by
         which the carrying  amount of the assets  exceeds the fair value of the
         assets.  Assets  to be  disposed  of are  reported  at the lower of the
         carrying amount or fair value less costs to sell.



                                       55
<PAGE>



YANTAI DAHUA PAPER INDUSTRY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS
Years ended December 31, 2000, 2001 and 2002
--------------------------------------------------------------------------------

3.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         INVENTORIES
         Inventories  are  stated  at the lower of cost or  market.  The cost of
         inventories  is  determined  using the  weighted  average  cost method.
         Potential losses from obsolete and slow-moving inventories are provided
         for when  identified.  Costs of  work-in-progress  and  finished  goods
         include direct materials,  direct labor and an attributable  portion of
         manufacturing overheads.

         STATEMENT OF CASH FLOWS
         Cash equivalents are defined as short-term,  highly liquid  investments
         that are  readily  convertible  to known  amounts of cash and which are
         subject to an  insignificant  risk of changes in value.  An  investment
         normally  qualifies as a cash equivalent only when it has a maturity of
         three months or less from its acquisition date.

         FOREIGN CURRENCY TRANSLATION
         The Company considers Renminbi (RMB), the official currency of the PRC,
         as its  functional  currency as a substantial  portion of the Company's
         business activities are based in RMB.

         Transactions  in currencies  other than the functional  currency during
         the year are translated into the functional  currency at the applicable
         rates of exchange prevailing at the time of the transactions.  Monetary
         assets  and  liabilities  denominated  in  currencies  other  than  the
         functional  currency are translated into the functional currency at the
         applicable  rates of  exchange  in effect at the  balance  sheet  date.
         Exchange   gains  and  losses  are  dealt  with  in  the  statement  of
         operations.

         For the  convenience  of the  readers  of these  financial  statements,
         translation  of amounts from RMB into United  States  dollars (US$) has
         been made at the exchange rate of RMB1 equals to US$0.12096 on December
         31, 2002.  No  representation  is made that the RMB amounts  could have
         been or could be converted into US$ at the rate on December 31, 2002 or
         at any other rates.

         USES OF ESTIMATES
         The  preparation  of the Company's  financial  statements in conformity
         with US GAAP requires the management to make estimates and  assumptions
         that  affect the  amounts  reported  in the  financial  statements  and
         accompanying notes. Actual amounts could differ from those estimates.

         ALLOWANCE FOR DOUBTFUL ACCOUNTS
         The Company  provides an allowance for doubtful  accounts  equal to the
         estimated  uncollectable  amounts.  The Company's  estimate is based on
         historical  collection experience and a review of the current status of
         trade accounts receivable. It is reasonably possible that the Company's
         estimate of the allowance for doubtful  accounts will change.  Accounts
         receivable  are presented net of an allowance for doubtful  accounts of
         RMB963,000,  RMB1,107,000 and RMB2,291,080  (US$277,129) as of December
         31, 2000, 2001 and 2002 respectively.

         RELATED PARTIES
         Parties  are  considered  to be related  if one party has the  ability,
         directly  or  indirectly,  to  control  the other  party,  or  exercise
         significant  influence  over the other  party in making  financial  and
         operating decisions.  Parties are also considered to be related if they
         are subject to common control or common significant influence.



                                       56
<PAGE>



YANTAI DAHUA PAPER INDUSTRY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS
Years ended December 31, 2000, 2001 and 2002
--------------------------------------------------------------------------------

3.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         NEW ACCOUNTING PRONOUNCEMENTS
         In June 2002, the Financial  Accounting Standards Board ("FASB") issued
         SFAS No. 146  "Accounting  for Costs  Associated  with Exit or Disposal
         Activities".  Statement of Financial  Accounting  Standard ("SFAS") No.
         146 requires  that a liability  for a cost that is  associated  with an
         exit or disposal activity be recognized when the liability is incurred.
         This standard nullifies the guidance of EITF Issue No. 94-3, "Liability
         Recognition for Certain Employee  Termination  Benefits and Other Costs
         to  Exit  an  Activity   (including   Certain   Costs   Incurred  in  a
         Restructuring)".  Under EITF Issue No.  94-3,  an entity  recognized  a
         liability for an exit cost on the date that the entity committed itself
         to an exit  plan.  Under  SFAS  No.  146,  the FASB  concludes  that an
         entity's  commitment  to an exit  plan does not,  by  itself,  create a
         present  obligation  to other  parties that meets the  definition  of a
         liability.  SFAS  No.  146  also  establishes  that  fair  value is the
         objective for the initial  measurement of the  liability.  SFAS No. 146
         will be effective  for exit or disposal  activities  that are initiated
         after  December 31, 2002.  The Group does not expect that this standard
         will have a material effect on its financial statements.

         In  December  2002,  the FASB  issued  SFAS No.  148,  "Accounting  for
         Stock-Based Compensation-Transition and Disclosure-an amendment of FASB
         Statement No. 123". This Statement amends SFAS No. 123, "Accounting for
         Stock-Based Compensation", to provide alternative methods of transition
         for a voluntary change to the fair value based method of accounting for
         stock-based employee compensation.  In addition,  this Statement amends
         the  disclosure  requirements  of SFAS  No.  123 to  require  prominent
         disclosures in both annual and interim  financial  statements about the
         method of accounting  for  stock-based  employee  compensation  and the
         effect of the method used on reported results.  This Statement requires
         that  companies  having a year-end  after  December 15, 2002 follow the
         prescribed  format and  provide  the  additional  disclosures  in their
         annual reports. In other words, calendar year-end companies must comply
         when issuing their 2002 annual reports. Companies must also provide the
         disclosures in their quarterly reports containing  condensed  financial
         statements for interim periods beginning after December 15, 2002 (first
         quarter 2003 for calendar year-end companies). The adoption of SFAS No.
         148 did not have an impact on the Group's financial statements.


4.       PROVISION FOR INCOME TAXES

         The  Company is subject  to income  taxes on an entity  basis on income
         arising in or derived from the tax  jurisdictions in which it operates.
         The Company is established  and is carrying on business in the PRC. The
         Company is subject to the PRC enterprise income tax at a rate of 24%.

         Deferred  income tax has not been  provided for in 2000 and 2001 as the
         effect of temporary  differences  is  insignificant  as of December 31,
         2000 and 2001.




                                       57
<PAGE>



YANTAI DAHUA PAPER INDUSTRY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS
Years ended December 31, 2000, 2001 and 2002
--------------------------------------------------------------------------------

4.       PROVISION FOR INCOME TAXES (CONTINUED)

         Income tax expense is comprised of the following:

<TABLE>
<CAPTION>
                                                                             AS OF DECEMBER 31,
                                                      ------------- --- ------------- -- ------------- --- -------------
                                                              2000              2001             2002              2002
                                                               RMB               RMB              RMB               US$

<S>                                                        <C>               <C>            <C>                 <C>
        Current tax
        - current year                                     370,258           131,149          210,366            25,446
        - underprovision for previous years                 39,532                 -                -                 -
        Deferred tax                                             -                 -        2,623,740           317,367
                                                      -------------     -------------    -------------     -------------

        Income tax expenses                                409,790           131,149        2,834,106           342,813
                                                      =============     =============    =============     =============
</TABLE>

The  reconciliation of the PRC statutory income tax rate to the effective income
tax rate based on income stated in the statements of operations is as follows:

<TABLE>
<CAPTION>
                                                                      For the year ended December 31,
                                                                      --------------------------------------------------
                                                                                2000             2001              2002
                                                                                   %                %                 %
<S>                                                                            <C>                <C>              <C>
         Statutory rate                                                           24               24                24

         Non-taxable activities                                                 (69)                -                 -
         Non-deductible activities                                               797               28                 2

         Provision for doubtful debts                                            322               12                 -
         Net effect on unprovided deferred tax                                    20             (56)                 -
         Underprovision for previous years                                       117                -                 -
                                                                      ---------------   --------------    --------------

         Effective tax rate                                                    1,211                8                26
                                                                      ===============   ==============    ==============
</TABLE>


5.       INVENTORIES

         Inventories comprise the following:

<TABLE>
<CAPTION>
                                                                           AS OF DECEMBER 31,
                                                  -------------- -- ---------------- -- -------------- --- -------------
                                                           2000                2001              2002              2002
                                                            RMB                 RMB               RMB               US$

<S>                                                  <C>                 <C>               <C>                <C>
        Raw materials                                 5,508,236           7,868,369         9,491,030         1,148,035
        Finished goods                                7,923,486           6,894,569         4,249,656           514,038
                                                  --------------    ----------------    --------------     -------------

                                                     13,431,722          14,762,938        13,740,686         1,662,073
                                                  ==============    ================    ==============     =============
</TABLE>




                                       58
<PAGE>



YANTAI DAHUA PAPER INDUSTRY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS
Years ended December 31, 2000, 2001 and 2002
--------------------------------------------------------------------------------

6.       PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
                                         Estimated                             AS OF DECEMBER 31,
                                          useful
                                           lives
                                        ------------    -------------- -- ------------- -- -------------- -- -------------
                                        Years                    2000             2001              2002             2002
                                                                  RMB              RMB               RMB              US$
<S>                                        <C>           <C>              <C>               <C>               <C>
        COST
                 Buildings and fixtures    20-50           29,803,411       29,853,204        34,590,678        4,184,088
                 Plant and machinery       10-25           62,140,136       74,023,890        81,581,744        9,868,128
                 Motor vehicles             10              2,630,208        2,827,542         2,311,391          279,586
                                                        --------------    -------------    --------------    -------------

                                                           94,573,755      106,704,636       118,483,813       14,331,802
        ACCUMULATED DEPRECIATION                         (27,325,404)     (32,569,734)      (37,345,902)      (4,517,360)
                                                        --------------    -------------    --------------    -------------

        PROPERTY AND EQUIPMENT, NET                        67,248,351       74,134,902        81,137,911        9,814,442
                                                        ==============    =============    ==============    =============
</TABLE>

7.       BANKING FACILITIES

         The Company had various  lines of credit under  banking  facilities  as
follows:

<TABLE>
<CAPTION>
                                                                            AS OF DECEMBER 31,
                                                   -------------- -- --------------- -- -------------- --- -------------
                                                            2000               2001              2002              2002
                                                             RMB                RMB               RMB               US$
<S>                                                   <C>                <C>               <C>                <C>
        Facilities granted
        Committed credit lines                        32,745,000         37,395,000        37,640,000         4,552,935
                                                   ==============    ===============    ==============     =============

        Utilized facilities
        Committed credit lines                        20,975,000         25,625,000        29,870,000         3,613,075
                                                   ==============    ===============    ==============     =============

        Unutilized facilities
        Committed credit lines                        11,770,000         11,770,000         7,770,000           939,859
                                                   ==============    ===============    ==============     =============
</TABLE>

       There are no significant commitment fees or requirements for compensating
       balances associated with any lines of credit.

<TABLE>
<CAPTION>
                                                                            As of December 31,
                                                   -------------- -- --------------- -- -------------- --- -------------
                                                            2000               2001              2002              2002
                                                             RMB                RMB               RMB               US$
<S>                                                   <C>                <C>               <C>                <C>
        Collateralized by certain property and
        equipment of the Company                       1,710,000          1,360,000         1,360,000           164,506
                                                   ==============    ===============    ==============     =============

        Collateralized by guarantee of a third
        party (note)                                   1,035,000          6,035,000         6,280,000           759,629
                                                   ==============    ===============    ==============     =============

        Collateralized by certain property and
        equipment of the Company and guarantee
        of a third party (note)                       30,000,000         30,000,000        30,000,000         3,628,800
                                                   ==============    ===============    ==============     =============
</TABLE>

      Note: These guarantees are given by Yantai Yinhe Knitting Company Limited.



                                       59
<PAGE>



YANTAI DAHUA PAPER INDUSTRY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS
Years ended December 31, 2000, 2001 and 2002
--------------------------------------------------------------------------------

8.       RELATED PARTY TRANSACTIONS

<TABLE>
<CAPTION>
         (a)  Name and relationship of related parties             Existing relationships with the Company
<S>                                                                <C>
              YLPI                                                 PRC Joint venturer

              ACIP                                                 Foreign Joint venturer (ceased on October 1, 2002)

              Muping Iron Cover Manufacturing Factory (MIC)        Branch of PRC Joint venturer

              Muping Paper Product Manufacturing Factory (MPP)     Branch of PRC Joint venturer

              Muping Vegetable Processing Factory (MVP)            Branch of PRC Joint venturer

              ACIL                                                 Holding company (since October 1, 2002)
</TABLE>

         (b) Related party transactions

<TABLE>
<CAPTION>
                                                             2000              2001              2002              2001
                                                              RMB               RMB               RMB               US$

<S>                                                    <C>               <C>               <C>                <C>
             (i) Due from related parties
                      ACIP                              3,224,265         3,224,265                 -                 -
                      MVP                                       -           297,349           111,780            13,521
                      MPP                                 489,085         1,017,784           358,716            43,390
                      MIC                               1,539,432         1,525,147         1,364,434           165,042
                      ACIL                                      -                 -            54,593             6,604
                                                     -------------     -------------    --------------     -------------

                                                        5,252,782         6,064,545         1,889,523           228,557
                                                     =============     =============    ==============     =============

             (ii) Due to related parties
                      YLPI (Note)                      26,784,256        26,449,009        21,261,928         2,571,843
                      MVP                                 434,550                 -                 -                 -
                                                     -------------     -------------    --------------     -------------

                                                       27,218,806        26,449,009        21,261,928         2,571,843
                                                     =============     =============    ==============     =============
</TABLE>

              Note:  Loans from YLPI amounting to  RMB25,680,000,  RMB22,880,000
                     and  RMB21,100,000  (US$2,552,256) as of December 31, 2000,
                     2001 and 2002  respectively  were  borrowed  from  banks on
                     behalf of the Company.

              The amounts  due are  unsecured,  interest-free  and have no fixed
              repayment terms.


9.       LONG-TERM LOANS

         Long-term loans,  summarized below,  consisted primarily of bank loans.
         Interest  rate and  maturity  set out in the table  below  were for the
         amounts outstanding as of December 31:

<TABLE>
<CAPTION>
                                   INTEREST RATES      MATURITIES        OUTSTANDING LOAN AMOUNTS
                                                %                          RMB              US$
        As of December 31,
<S>                                         <C>       <C>              <C>              <C>
            2000                            7.128     12/00 - 12/03    18,230,000       2,204,007
            2001                            7.128     12/00 - 12/03    18,230,000       2,204,007
            2002                                -           -          -                -
</TABLE>



                                       60
<PAGE>



YANTAI DAHUA PAPER INDUSTRY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS
Years ended December 31, 2000, 2001 and 2002
--------------------------------------------------------------------------------

10.      REGISTERED CAPITAL

         As of December 31, 2000 and 2001, the Company has registered capital of
         RMB33,590,000 which was contributed by YLPI (74%) and ACIP (26%). As of
         December 31, 2002, the Company's  registered  capital of  RMB33,590,000
         (US$4,061,031) was contributed by ACIL (85%) and YLPI (15%).


11.      STATUTORY RESERVES

         According  to the  Company's  articles  of  association,  income of the
         Company is  distributable  to its joint venture partners after transfer
         to statutory reserves.  Being a sino-foreign equity joint venture,  the
         Company  is  required  to  maintain  a  reserve   fund,  an  enterprise
         development  fund and a staff welfare and bonus fund as a percentage of
         profit after tax.

         Statutory  reserves  of the Company  include  the reserve  fund and the
         staff welfare and bonus fund.  Pursuant to the Articles of  Association
         of the Company,  the board of directors  determine  the  percentage  of
         appropriations  to the  reserve  fund and the staff  welfare  and bonus
         fund.  The  reserve  fund can be used to make good  losses in  previous
         years.

         The staff  welfare and bonus fund,  which is to be used for the welfare
         of the staff and workers of the Company,  is of a capital  nature.  The
         nature of  enterprise  development  fund is set  aside  for the  future
         development of the Company.

         Pursuant to the PRC rules and regulations  applicable to a sino-foreign
         joint venture  enterprise,  the Articles of  Association of the Company
         stipulate  that the  percentage  of  appropriations  to these funds are
         determined at the discretion of the board of directors.


12.      RETIREMENT BENEFITS AND OTHER EMPLOYMENT BENEFITS

         As  stipulated  by  PRC  regulations,  the  Company  participates  in a
         retirement  plan for all  employees.  Pursuant to the plan, all retired
         employees of the Company are entitled to certain  retirement  benefits.
         The  Company is  required to make  contributions  to a state  sponsored
         retirement  plan at  approximately  20% of the  basic  amount  which is
         within  the  range  from  RMB400  to  RMB468   stipulated  by  the  PRC
         government.  The Company  determines  the base amount with reference to
         the basic salary of its  employees and has no further  obligations  for
         the  actual  payments  of  any  post-retirement   benefits.  The  state
         sponsored  retirement  plan  is  responsible  for  the  entire  pension
         obligations payable to the employees.

         The pension  expense for the years ended  December 31,  2000,  2001 and
         2002  was  RMB1,175,625,  RMB1,175,625  and  RMB1,370,584  (US$165,786)
         respectively.




                                       61
<PAGE>




YANTAI DAHUA PAPER INDUSTRY COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS
Years ended December 31, 2000, 2001 and 2002
--------------------------------------------------------------------------------

13.      CAPITAL COMMITMENTS

         As of December 31,  2000,  2001 and 2002,  the Company has  outstanding
         capital   commitments   amounting   to   approximately    RMB1,187,155,
         RMB1,031,875 and RMB5,810,000 (US$702,778) respectively.


14.      OPERATING RISK

         (a)  Country risk
              Currently,  the Company's  revenues are derived from sale of paper
              products  to  customers  in  PRC.  The  Company's  results  may be
              adversely   affected  by  changes  in  the  political  and  social
              conditions  in the PRC,  and by changes in  governmental  policies
              with respect to laws and regulations,  anti-inflationary measures,
              currency  conversion and remittance  abroad, and rates and methods
              of taxation, among other things. The Company's management does not
              believe these risks to be significant.  There can be no assurance,
              however,  those changes in political and other conditions will not
              result in any adverse impact.

         (b)  Credit risk
              Financial   instruments  consist  principally  of  temporary  cash
              investments and accounts receivable.

              The Company  places its temporary  cash  investments  with various
              financial  institutions  in  PRC.  The  Company  believes  that no
              significant  credit  risk exists as these  investments  are placed
              principally with  government-owned  financial  institutions in the
              PRC.

              The Company's  business  activities  and accounts  receivable  are
              principally  with customers in the PRC. The Company  believes that
              no significant credit risk exists as credit losses, when realized,
              have been within the range of management's expectations.

              The fair  values  of all of the  Company's  financial  instruments
              approximate their carrying values.



                             Audited Financial Statements
                             YANTAI DAHUA PAPER INDUSTRY COMPANY LIMITED
                             Years ended December 31, 2000, 2001 and 2002





                                       62
<PAGE>





ITEM 19. EXHIBITS

(a)  The  following  financial  statement are being filed as part of this annual
     report on Form 20-F- incorporated by reference to Item 18 of this report:

     (i)  Equity
          unaudited 2002 management account

     (ii) Australia China

          Statements  of  Operations  for the period from February 2002 (date of
          incorporation) to December 31, 2002

          Consolidated Balance Sheets at December 31, 2002

          Consolidated  Statements of  Stakeholders'  Equity for the period from
          February 2002 (date of incorporation) to December 31, 2002

          Consolidated  Statements  of Cash Flows for the period  from  February
          2002 (date of incorporation) to December 31, 2002

     (iii) Yantai Dahua Paper

          Statements of Operations for the years ended  December 31, 2000,  2001
          and 2002

          Balance Sheets at December 31, 2000, 2001 and 2002

          Statements  of Owners'  Equity for the years ended  December 31, 2000,
          2001 and 2002

          Statements of Cash Flows for the years ended  December 31, 2000,  2001
          and 2002

(b)  The  following  exhibits  are being filed as part of this annual  report on
     Form 20-F:

Exhibit 1.1  Memorandum of  Association  and Articles of  Association  of Equity
Finance  Holding  Corporation - incorporated by reference to the Exhibits to our
Registration  Statement on Form 8-A12G, SEC File No. 00050184 effective on March
6, 1998.

Exhibit 1.2 The International  Business  Companies Act Memorandum of Association
of Equity  Finance  Holding  Corporation  -  incorporated  by  reference  to the
Exhibits to our  Registration  Statement on Form 8-A12G,  SEC File No.  00050184
effective on March 6, 1998.

Exhibit 1.3 The International  Business Companies Act Articles of Association of
Equity Finance Holding Corporation  (Interpretation) - incorporated by reference
to the  Exhibits to our  Registration  Statement  on Form  8-A12G,  SEC File No.
00050184 effective on March 6, 1998.

Exhibit 1.4 The Agreement and Plan of Share Exchange dated January 10, 2003.




                                       63