SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                                    Form 10-K

                      [ X ] ANNUAL REPORT UNDER SECTION 13
                 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996

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

                           Commission File No. 0-7619

                                   ----------

                         HENG FAI CHINA INDUSTRIES, INC.
                         (Name of issuer in its charter)

         DELAWARE                                            93-063633
(State Or Other Jurisdiction                               (IRS Employer
     Of Incorporation)                                   Identification No.)

         650 West Georgia Street, Suite 1600, P.O. Box 11586, Vancouver,
                        British Columbia, CANADA V6B 4N8
                                 (604) 685-8318
          (Address and telephone number of principal executive offices)

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

Securities registered pursuant to Section 12(b) of the Exchange Act: None

Securities  registered  pursuant to Section  12(g) of the Exchange  Act:  Common
Stock, $.01 par value per share.

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

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-K contained in this form, and no disclosure  will be contained,  to
the  best  of  Registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K [ ]

The Registrant's revenues for the fiscal year ended December 31, 1996 totalled
$2,051,366.00

As of April 7, 1997 the  aggregate  market  value of the  voting  stock  held by
non-affiliates of the Registrant  (assuming for this purpose that only directors
and officers of the Registrant are affiliates of the  Registrant),  based on the
average  of the  closing  bid and  asked  prices  of  $.765  on that  date,  was
approximately $5,898,434.

As of April 7, 1997 the Registrant had outstanding  13,686,814  shares of Common
Stock and 379,520 shares of Preferred Stock.

Documents  incorporated by reference:  Other than certain exhibits here to which
have been  specifically  incorporated by reference  herein in Item 14 under Part
IV hereof, no other documents are incorporated by reference.

Transitional Small Business Disclosure Format:     YES [ ]     NO [X]


<PAGE>

                               INDEX TO FORM 10-K
                                       OF
                         HENG FAI CHINA INDUSTRIES, INC.

                                                                            Page
                                                                            ----

                                     PART I

Item 1.  Business
         General - The Company ............................................    1
         The Business .....................................................    2
         The Container Industry ...........................................    2
         Container Customers ..............................................    3
         The Cement Industry ..............................................    3
         Cement Customers, ................................................    4
         Real Estate ......................................................    4
         Employees ........................................................    6
         Government Regulation ............................................    6

Item 2.  Description of Property ..........................................    7

Item 3.  Legal Proceedings ................................................    7

Item 4.  Submission of Matters to a Vote of Security Holders ..............    7

                                Part II

Item 5.  Market for Common Equity and Related Stockholder Matters .........    8

Item 6.  Selected Financial Data ..........................................    8

Item 7.  Management's Discussion and Analysis of Financial ................    9
         Condition and Results of Operations

Item 8.  Financial Statements .............................................   15

Item 9.  Changes in and Disagreements with Accountants on .................   16
         Accounting and Financial Disclosures

                               Part III

Item 10. Directors and Executive Officers of the Registrant
         Management Biographies ...........................................   17
         Indemnification of Directors and Officers ........................   18
         Committees of the Board of Directors .............................   18
         Compliance with Section 16(a) of the Exchange Act of 1934 ........   18



<PAGE>

                                                                            Page
                                                                            ----

Item 11. Executive Compensation
         Summary Compensation Table .......................................   19
         Stock Option Plans ...............................................   19
         Option/SAR Grants in Last Fiscal Year ............................   19
         Aggregate Option/SAR Exercises in Last Fiscal Year ...............   19
           And Fiscal Year-End Option/SAR Values
         Employment Agreements ............................................   19
         Remuneration of Directors ........................................   19

Item 12. Security Ownership of Certain Beneficial Owners and Management ...   20

Item 13. Certain Relationships and Related Transactions ...................   21

Item 14. Exhibits and Reports on Form 8-K .................................   21
         (a) Exhibits
         (b) Reports on Form 8-K


<PAGE>

                                     Part I

Item 1.  Business

General - The Company

Heng Fai China  Industries,  Inc. (the  "Company") was  originally  organized on
March 24, 1958 as Time Saver Markets,  Inc. pursuant to the laws of the State of
California.  On October 29, 1973, Alpine  International  Corporation,  a private
Oregon  corporation,  merged with and into Time Saver Markets,  Inc.  Subsequent
thereto,  Time Saver  Markets,  Inc.  changed  its name to Alpine  International
Corporation.  In August 1994, Alpine International  Corporation changed its name
to Alpine Merger Corporation  ("Alpine-California")  after having entered into a
merger  agreement  with  a  Delaware   corporation  named  Alpine  International
Corporation ("Alpine-Delaware") which was formed for the purpose of facilitating
the  reincorporation  of  Alpine-California  in the State of Delaware  through a
merger  with  and  into   Alpine-Delaware.   Subsequently,   in  November  1994,
Alpine-Delaware   changed   its  name  to  Heng  Fai  China   Industries,   Inc.
Alpine-California   and   Alpine-Delaware   may  be  collectively   referred  to
hereinafter as "Alpine".

Alpine conducted no significant  operations  between April 1992, when it emerged
from  reorganization  under Chapter 11 of Title II of the U.S.  Bankruptcy Code,
and  June  1994,  when  it  acquired  Vancouver  Hong  Kong  Properties  Limited
("Vancouver  Hong Kong")  which owns an apartment  building in North  Vancouver,
British Columbia. In connection  therewith,  Alpine obtained equity financing of
US$120,000 and issued  258,943  shares of its common stock (the "Common  Stock")
and 258,943  common stock  purchased  warrants,  which are  exercisable  through
September 2, 1999 at an exercise price of US$3.20 per share (the "Warrants"). In
addition,  concurrent therewith, the Company also issued 37,500 shares of Common
Stock and 37,500 Common Stock  Purchase  Warrants.  The foregoing  share and per
share numbers  reflect the effects of a one-for-four  and a one-for-ten  reverse
stock split undertaken by the Company subsequent to the acquisition of Vancouver
Hong  Kong.  See Note 1 of the Notes to the  Consolidated  Financial  Statements
included elsewhere herein.

In January 1995,  the Company  acquired its  wholly-owned  subsidiary,  Heng Fai
China & Asia Industries Limited ("Asia"),  a company  incorporated in Hong Kong,
along with Asia's  wholly-owned  subsidiary,  Heng Fai China Industries  Limited
("China").  China was  incorporated  in Hong  Kong and  obtained  the  rights to
acquire  direct or joint  venture  operating  lease  interests  for three cement
factories in the Hebei  province of the Peoples'  Republic of China (the "PRC"):
(i)  the  Hebei  Cangzhou  City  Chemical  Corporation  Factory  (the  "Cangzhou
Factory");  (ii) the Qingxian Cement Factory (the "Qingxian Factory"); and (iii)
the Hebei Cangzhou Area Construction Materials Factory ( the "Hebei Factory").

In April 1995, Min You Cement Company Limited was established (formerly Cangzhou
Citizen  Cement  Product Co. Ltd. and referred to  hereinafter as "Min You").and
exercised its option to lease a production  line at the Cangzhou  Factory.  From
April  through  June 1995,  Min You  suspended  its  operations  at the Cangzhou
Factory to facilitate the Company's  expansion and modernisation of such factory
as required pursuant to the provisions of the agreement  governing the Company's
exercise of its options.  Operations  at the factory  resumed at the end of June
1995 upon completion of the expansion and modernization of such factory. Neither
the Company nor its  subsidiaries  exercised the options to acquire the interest
in the Qingxian Factory or the Hebei Factory, which options expired unexercised.

On September 4, 1996, through a wholly-owned subsidiary,  the Company acquired a
70% interest in Wuhan Monkey King  Container  Co., Ltd.  ("Wuhan  Container") in
exchange for 727,272  shares of the Company's  restricted  Common  Stock.  Wuhan
Container is a PRC state company engaged in the design,  manufacture,  lease and
repair of standard  and  non-standard  containers  and related  steel  structure
products.  See Note 3 of the  Notes  to the  Consolidated  Financial  Statements
included elsewhere herein. 


                                       1
<PAGE>

The Business

The  Company's  business  consists  primarily  of  the  operation  of  container
manufacturing  by  Wuhan  Container,  of  cement  production  by Min  You and of
apartment  rental by  Vancouver  Hong Kong.  See  "Management's  Discussion  and
Analysis of Financial Condition and Results of Operations" in Item 7 below.

The Container Industry

The use of  containers  for sea freight play a important  role in  international
trade by  facilitating  the  movement of goods.  Sea freight is the main mode of
transporting  goods  because of its low cost  compared  with air  transport.  In
addition,  the size and weight of cargoes, which can be carried by aircraft, are
less than those of  cargoes  which can be carried  by ship.  Less  valuable  and
non-seasonal  merchandise,  bulky and heavy  cargoes,  and  goods,  which do not
require urgent delivery, are usually transported by sea using containers.

The use of containers  for shipping  became popular during the 1970's because of
their  reduced  costs,  damage and  pilferage  of goods.  Containerization  also
facilitates  the unloading and reloading of cargoes  between  different modes of
transport,  thereby  saving  valuable  time which  would  otherwise  be spent in
re-packing.

The freight  forwarding  industry is affected by world's economic growth and the
world's  volume  of  international   trade.  In  a  forecast  published  by  the
International  Monetary Fund in May 1995,  the world  economy was  forecasted to
expand by 3.8 percent in 1995 and 4.2 percent in 1996,  with the economic growth
of Asia (excluding  Japan)  forecasted to be 7.6 percent in 1995 and 7.3 percent
in 1996.  The forecast  also  predicted  that world trade volume would grow at a
rate of 8.0 percent in 1995 and of 6.8 percent in 1996.  With  continued  strong
growth of  external  trade,  the  demand for  freight  forwarding  services  are
expected to continue to be positive, this will without doubt increase the demand
for containers.

In the PRC, there are currently approximately 40 container manufacturers and the
annual  aggregate   production  capacity  for  1996  is  approximately   340,000
twenty-foot   equivalent  units  ("TEUs").   Most  of  the   manufacturers   are
small-to-medium  size  plants,  located in the coastal  regions of the PRC.  The
major manufactures of containers in the PRC are as follows:

(1)  China  International  Marine Containers  (Group) Limited, a PRC state-owned
     company whose production capacity is approximately 160,000 TEUs;

(2)  Yangzhou Tongyun  Container Company Limited,  a sino-foreign  joint venture
     whose production capacity is approximately 40,000 TEUs;

(3)  Hyundai  Container  Manufacturing  Company Limited,  a Korean  conglomerate
     whose  production  capacity is  approximately  40,000 TEUs.  Its production
     plants are  located  throughout  the PRC,  such as in  Shanghai,  Guangdong
     Province and Tsingtao; and

(4)  Jindo  Container  Company  Limited,   another  Korean   conglomerate  whose
     production  capacity  is  approximately   50,000  TEUs.  It  also  operates
     production plants in the coastal regions of the PRC.

The container-manufacturing industry in the PRC is very competitive,  especially
for the production of TEUs. The Company  estimates that there are currently over
40  manufacturers  in the PRC who  compete  directly  or  indirectly  with Wuhan
Container.  In the PRC there are no specific  barriers  which prevent entry into
the container manufacturing industry.

Since the  establishment  of Wuhan  Container,  a significant  amount of capital
investments have been made into the plant to modernize the mechanical processing
line, the wielding line and the painting  line, to double its annual  production
capacity to 20,000 TEUs.


                                       2
<PAGE>

Container Customers

The main products of Wuhan Container are International Standard Organization ICC
Type 20' x 8' x 8'6" dry  cargo  steel  container  and  non-standard  containers
according to each customers'  specifications.  The management at Wuhan Container
continues to broaden  their  customer  base and are  currently  soliciting  well
established  container customers for orders.  Customer orders signed in 1996 are
as follows:

     60 TEUs from B&C SAS International whose registered office is in Italy;
     100 TEUs from CKS Asia Management whose registered office is in Singapore;
     and 5,000 TEUs from China Railway Container Transportation Center.

In 1997, Wuhan Container signed another contract with CKS Asia Management for an
order of 122 TEUs and  currently  Wuhan  Container is  negotiating  with B&C SAS
International  for an additional  150 TEUs.  Potential  orders from customers in
Singapore,  Britain,  and other countries are currently being initiated by Wuhan
Container.

It is expected that the world demand for containers will continue to increase in
1997, as the world economy  continues to grow. The local  government of the City
of Wuhan City has been  promoting the city's  accessibility  to the world.  As a
result, it is believed that Wuhan Container shall continue to have opportunities
to develop in 1997 and the years ahead.

The Cement Industry

The cement  industry in the PRC consists of over 7,000  small,  medium and large
cement  plants.  Most of the cement plants in the PRC are small,  use relatively
old technology,  have an average  production  scale of less than 50,000 tons per
year and supply a customer market located within close proximity.  Historically,
the cement  industry in the PRC  developed  around the concept of cement  plants
utilizing  vertical kiln technology  imported from Eastern Europe and the former
Soviet  Union.  The  manufacturing  of cement  involves the  following:  (i) the
quarrying of raw  materials;  (ii) the crushing,  grinding and blending of these
raw materials into either a powder (the "dry process") or a mud-like  mixture of
slurry (the "wet  process");  (iii) the burning of raw  material mix in kilns to
produce  pellets  called  "clinker";  and (iv) the  grinding of the clicker with
gypsum and other products, such as slag from steel mills, to produce cement. The
"burning" phase is the key phase of production and is primarily  responsible for
the quality of the cement.  The "burning"  phase consumes most of the fuels used
in the  production  of cement,  while the  "grinding"  of the raw  materials and
production of "clinker"  consumes most of the electricity used in the production
of cement.  The type of  production  process,  "wet  process" or "dry  process",
determines the type and design  characteristics of the kiln. Vertical kiln is an
older  technology  that  utilizes the "dry process" of cement  production.  When
technology  transfers  from  Eastern  Europe  and the former  Soviet  Union were
restricted in the late 1980's, the PRC was forced to develop its own technology.
The PRC continued to utilise  vertical  kilns,  largely due to their:  (i) lower
investment  costs;  (ii)  simplicity of design,  shorter  construction  time and
production  goals;  and  (iii)  relatively  less   sophisticated   technological
requirements.  As the cement  industry  in the PRC matures and demand for higher
grade cement increases,  the Company believes that there will be a greater shift
to rotary kiln technology  because vertical kilns are not expected to be able to
satisfy significantly increased demand.

Rotary  kiln  technology  is able to use the "wet  process",  "dry  process"  or
combination  for the  production  of  cement.  Rotary  kilns can be built to any
desired  capacity  and are  capable to replace  multiple  vertical  kilns with a
single  production  line.  It is uncertain  how long it will be before  vertical
kilns are replaced by more  technologically  modern kilns, such as rotary kilns.
Factors which limit the shift to rotary kiln  technology  include the difficulty
in  obtaining  the  necessary  capital to acquire  rotary  kiln  technology  and
equipment,  and 


                                       3
<PAGE>

the poor  infrastructure in the PRC which inhibits the ability to distribute the
volume of  products  necessary  to justify  the higher  investment.  The Company
believes that vertical kilns will most likely continue to be used in the PRC for
the foreseeable future.

Cement in the PRC is  categorized  on the basis of its  compressive  strength so
that, for example,  #425 cement has a minimum strength of 425kg/cm2.  The common
grades of cement include #325, #425, #525 and #625. In the PRC, #325 is commonly
used for basic  construction  with long  fixation  periods  and  minimal  weight
requirements,  such as plastering;  #425 is commonly used for buildings of up to
20 to 30 stories (depending on each building's specifications); bridges and city
roads;  #525 is commonly  used for  infrastructure  projects,  such as airports,
railways and highways and for buildings requiring stronger cement that #425; and
#625 is commonly used for  specialized  purposes  such as providing  support for
certain structures such as power plants and where extremely quick fixation times
are necessary.  The term "higher grades of cement" generally refer to grades for
#425 cement of above.

Vertical kiln technology is employed by Min You and only cement #325 is produced
there.

Cement Customers

All  cement  production  by Min You at the  Cangzhou  Factory  is  #325  cement,
accounting for 100% of the cement sales in 1996.  Products are primarily sold to
over 5 distributors (approximately 59% of the cement sales in 1996). The balance
of  sales  are  made  directly  to  end-users,  such as  farmers  or  small-size
developers  located in the Hebei  Province,  PRC.  In 1996,  Zhongjie  Materials
Company, Limited was the largest customer of Min You, representing approximately
19% of the total cement sales. However, the amount of sales to each customer may
vary  from  quarter  to  quarter   depending  upon  the  customer's   particular
construction activities or, in case of distributors, those of its customers. Min
You  has  resisted  entering  into  fixed  price  sales  contracts  due  to  its
expectation  that cement  prices will continue to escalate for as long as demand
exceeds supply.

Real Estate

The  apartment  building  operated by the Company is located  within the Central
Lonsdale area of the City of North Vancouver, British Columbia.  Developments in
the immediate area consist primarily of low to medium density residential units,
with  commercial  development  focused along Lonsdale Avenue to the west and the
more  prominent  cross  streets such as 13th Street and 15th Street.  Lions Gate
Hospital,  a principal medical facility,  is located just north of the apartment
building at the intersection of East 13th Street and St. George Avenue.

The Central Lonsdale  corridor serves as the primary  commercial  centre for the
city and the surrounding  areas of North Vancouver.  Residential  development in
the  surrounding  areas  consist of variety of 3-story  rental and strata  tiled
apartments,  plus lower density townhouse developments.  The area also has signs
of higher density  development  spotted throughout the area. Thus, the apartment
building is located within a desirable and stable multiple  residential oriented
neighbourhood,  located in close  proximity to local  retail,  recreational  and
public amenities.

The  following   information   has  been   extracted  from  the  Canada  Housing
Corporation's ("CMHC") Vancouver CMA Rental Market Report.


                                       4
<PAGE>

                                  VACANCY RATES

Region                           10/95                  10/96
------                           -----                  -----

City of North                    0.2%                   0.1%
Vancouver

District of North                0.5%                   0.2%
Vancouver

Metro Vancouver                  0.8%                   1.1%


                             APARTMENT RENTAL RATES

City of North Vancouver          10/95                  10/96
-----------------------          -----                  -----

Bachelor                         CDN$552                CDN$553

One Bedroom                      CDN$650                CDN$677

Two Bedroom                      CDN$779                CDN$812

The apartment building  improvements in North Vancouver consist of a three-story
wood  frame  rental  apartment  building  constructed  in the late  1960's.  The
building has a below grade basement  containing the  mechanical  rooms,  various
storage rooms, workshops and recreational areas.

The  apartment  building  has a total of 60 suites  consisting  of one  bachelor
suite,  38 one  bedroom  suites and 21 two  bedrooms  suites.  Twelve of the two
bedrooms  suites,  located on the  corners of the  building  offer wood  burning
fireplaces.  The suites are generally larger than average and on the whole, have
been well  maintained.  General  finishing  details  include  hardwood floors or
wall-to-wall  carpeting  with vinyl  flooring  in the  kitchens  and  bathrooms,
adequate cabinet/counter space in the kitchens with two appliances, partly tiled
shower surrounds in the bathroom and covered balconies or patios.

Paved open  parking for 60  vehicles  is  provided at the rear of the  apartment
building.  Access/egress  is  available  by a paved  rear  service  lane off St.
Andrews Avenue.

Overall, the property provides well maintained rental accommodations, consistent
with the quality of other projects located within the general area. The roof was
replaced in 1992. Since then, there has been no major upgrading,  but day to day
maintenance as required.


                                       5
<PAGE>

Rental Rates On Apartment Building

The current monthly rents* are as follows:

SUITE TYPE                          MONTHLY RENT
----------                          ------------

Bachelor                            CDN$580
One Bedroom                         CDN$600 - $680
Two Bedroom                         CDN$745 - $800


----------
*    Rent includes heat, hot water, parking and cablevision

By way of comparison, average apartment rents in the City of North Vancouver and
surrounding  District of North  Vancouver were as follows,  based on CMHC Rental
Market Survey:

                            CMHC Rental Market Survey

October 1996                        Bachelor         1Bdrm           2Bdrm
------------                        --------         -----           -----

City of North Vancouver             CDN$553          CDN$677         CDN$812
District of North Vancouver         CDN$625          CDN707          CDN$915

The above survey  would tend to support the  conclusion  that the monthly  rents
within the subject are reasonably in line with market rents, taking into account
the size and condition of the units plus the inclusions in the month rent.

Employees

The  Company  currently  employs  approximately  500  persons,  4 of whom are in
management,  2 of whom  oversee  operation  of the  apartment  building in North
Vancouver,  British  Columbia and the other 2 monitor the operations in the PRC.
Out of 500 persons, 140 were employed full time at Min You (29 of such employees
are in  management)  and 350 were employed  full time at Wuhan  Container (58 of
such  employees  are in  technical  department).  Pursuant  to the  articles  of
association  governing  the  activities  of Min You  and  Wuhan  Container,  the
employees at such factories have established a trade union to protect the rights
of the employees.  The Company believes that its relationship with its employees
at Min You and  Wuhan  Container  are good and that  establishment  of the trade
union  facilitates  the  fulfilment  of the economic  goals of Min You and Wuhan
Container and provides  effective  assistance in resolution through mediation of
disputes  between those  employees in management of Min You and Wuhan  Container
and the other employees at the factories.

Government Regulation

The  Company is not aware of any  government  regulations  in the United  States
which  materially  adversely  affects its business or  operations  in the United
States. The Company's  participation in operation of Min You and Wuhan Container
are subject to  significant  governmental  regulation in the PRC and the Company
believes it is in compliance  with such  regulations  to the extent the same are
applicable to the Company.


                                       6
<PAGE>

Item 2.  Description of Property

The apartment building which the Company operates in Vancouver is composed of 60
individual  residential  units in a three story frame  building  situated at the
corner of East 12th Street and St.  Andrews Avenue in North  Vancouver,  British
Columbia, Canada. The apartment building consists of approximately 57,340 square
feet and is  situated  on  approximately  1,109  acres of  land.  The  apartment
building is owned by the  Company,  subject to first and second  mortgages.  The
land  underlying  the  apartment  building  is leased  pursuant to a lease which
terminates  on  May  31,  2032,  subject  to  earlier   termination  in  certain
circumstances.  The  annual  lease  cost for the  land is  fixed at  CDN$110,000
(US$80,321)  until the year 2010,  after which time it will be renegotiated  for
the  remaining  term.  See Note 18 of the  Notes to the  Consolidated  Financial
Statements included elsewhere herein.

Item 3.  Legal Proceedings

The Company is not a party to any pending or ongoing litigation.

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

During the quarter  ended  December 31, 1996,  no matters were placed before the
stockholders of the Company for consideration.


                                       7
<PAGE>

                                     PART II

Item 5.  Market for Common Equity and Related Stockholder Matters

The Company's  Common Stock is quoted on NASDAQ OTC  Electronic  Bulletin  Board
(the  Bulletin  Board").  The  following  table  sets  forth,  for  the  periods
indicated,  the  reported  high and low bid and asked price  quotations  for the
Common Stock for the periods such  securities have been reported on the Bulletin
Board. Such quotations  reflect  inter-dealer  prices, but do not include retail
mark-ups,  mark-downs or commissions  and may not necessarily  represent  actual
transactions.

                                                 Common Stock
                                                 ------------

                                        Bid($)                     Asked ($)
                                        ------                     ---------

         Period of Quotation       High       Low              High        Low
         -------------------       ----       ---              ----        ---

Fiscal 1995:   First Quarter       5          4                7           5
----------- 
               Second Quarter      8          4                8-3/4       5
               Third Quarter       9-1/4      8                10          8-3/4
               Fourth Quarter      9-1/2      5-1/4            10          5-7/8

Fiscal 1996:   First Quarter       6-1/4      5-1/4            7           5-1/2
----------- 
               Second Quarter      7-1/2      1-1/2            8           2
               Third Quarter       2-1/2      1                2-3/4       1-1/4
               Fourth Quarter      1-3/8      17/32            1-1/2       5/8

The Company's  Common Stock  commenced  quotation on the Bulletin Board in March
1994. Prior thereto,  the Common Stock was quoted in the so-called "Pink Sheets"
issued by the National Quotation Bureau.  Information relating to that period of
time that the Company's  Common Stock has been quoted on the Bulletin Board, was
received from NASDAQ Market Research.  Information  relating to the prior period
was provided by the National Quotation Bureau.

As of April 7, 1997,  there were  approximately  1,447  holders of record of the
Common Stock based upon information furnished by OTR/Oxford Transfer & Registrar
Securities Agent, the transfer agent for the Common Stock. The Company believes,
based  upon  security  positions  listings,  that  there  are  more  than  2,570
beneficial  owners of the Common Stock.  The closing bid and asked prices of the
Common Stock as reported on the NASDAQ OTC Electronic Bulletin Board on April 7,
1997 were:  US$.718 and US$.812 per share of Common Stock,  respectively.  As of
April 7, 1997,  there were  13,686,814  shares of Common Stock  outstanding  and
379,520 shares of non-trading Preferred Stock.

The Company has never paid and does not anticipate  paying any cash dividends on
its Common Stock in the  foreseeable  future.  The Company intends to retain all
earnings for use in the Company's  business  operations  and in the expansion of
its business.

Item 6.  Selected Financial Data

Financial  statements  of the Company for the two years ended  December 31, 1996
have all been audited by Deloitte  Touche  Tohmatsu  International,  independent
certified public accountants,  whose report is included in this document. As the
Company  acquired  the  container  manufacturing  business  in the  PRC  only in
September


                                       8
<PAGE>

1996,  no historic  comparative  financial  data was  selected  for  discussion.
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations are based on the operational results of each of the subsidiaries.

Item 7.  Management's Discussion and Analysis of Financial Condition and Results
         of Operation

Introduction

In June 1994, Company,  then known as Alpine  International  Corporation entered
into a business  combination with Vancouver Hong Kong Properties Limited,  which
owns and operates a  residential  rental  property in North  Vancouver,  British
Columbia.  The business  combination  resulted in the  shareholders of Vancouver
Hong Kong being issued 10,357,700 shares of Common Stock and 10,357,700 Warrants
of Alpine. As a part of the business  combination a company related to Vancouver
Hong Kong agreed to subscribe for 1,500,000 shares of Common Stock and 1,500,000
Warrants for an aggregate of US$120,000 in cash. The foregoing  share numbers do
not  reflect  the  Company's  subsequent  one-for-four  reverse  stock split and
one-for-ten reverse stock split. The business combination was accounted for as a
reverse  acquisition  whereby the purchase  method of  accounting  was used with
Vancouver  Hong Kong  being  the  accounting  parent.  Accordingly,  results  of
operations for periods prior to the reverse  acquisition  are those of Vancouver
Hong Kong,  and the results of Alpine's  operations  are included  only from the
date of such reverse  acquisition.  Subsequent to the business  combination  the
name of the legal parent Alpine was changed to Heng Fai China Industries Inc.

During 1996 and 1995 the Company made two  acquisitions.  The acquisitions  were
accounted  for as a purchase  and their  operating  results are  included in the
consolidated statements of income from their respective dates of acquisition.

On September 4, 1996, the Company through a wholly-owned  subsidiary  acquired a
70% interest in Wuhan  Container Co., Ltd. in exchange for 727,272 shares of the
Company's   restricted  common  stock.   Wuhan  Container  is  a  joint  venture
incorporated  in the PRC which was formed to engage in the design,  manufacture,
lease and repair of standard  and  non-standard  containers  and  related  steel
structure products.

The  acquisition  of Wuhan  Container  in the PRC was  accounted  for  under the
purchase  method  of  accounting.  Under  this  method,  the  purchase  price is
allocated  to the fair  value  of the net  assets  acquired  and any  excess  is
considered to be goodwill. No goodwill arose on this acquisition.

On January 9, 1995, the Company acquired from Fai H. Chan, an officer,  director
and  stockholder  of the  Company,  100% of the common stock of Heng Fai China &
Asia   Industries,   Limited   ("Heng  Fai  Asia")  in   exchange   for  nominal
consideration.  Heng Fai Asia through its wholly-owned  subsidiaries had various
options to acquire  interests in various  lease  interests  or  operating  joint
ventures in the PRC, but otherwise  had no material  assets and  liabilities  or
operations at the time of acquisition.

Heng Fai Asia,  through  its  wholly-owned  subsidiary  formed in  January  1995
exercised  its  option  to  enter  into a  lease,  for a  period  of five  years
commencing  January 1, 1995,  of a production  line at the Hebei  Cangzhou  City
Chemical  Corporation  Factory (the  "Cangzhou  Factory").  The  subsidiary  was
entitled  to lease  the  production  line for five  years for a rental of Rmb1.2
million  (US$144,288) payable through expenditures to renovate and modernize the
Cangzhou  Factory.  The expenditures were made in 1995 and the resulting prepaid
rental is being  amortized  over the five year term of the leases.  Amortization
was US$28,683 in 1996 and  US$28,750 in 1995. At the  initiation of the Cangzhou
Factory  lease,  the lessor  provided  certain raw materials and finished  goods
totaling US$91,415, payment of which is due, without interest, at the expiration
of the lease in December 1999. Heng Fai Asia's other options lapsed in 1995.


                                       9
<PAGE>

Results of Operations

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

With a commitment to total  manufacturing  excellence,  the Company  undertook a
series of  initiatives  during  the year,  designed  to  provide  long term cost
effective  productions to meet anticipated growth in customer demand in 1997 and
beyond.  These included the modernization of the production line of both Min You
and Wuhan  Container.  The directors  considered the costs  associated with this
upgrade to be fully  justified by providing a more  flexible  pricing  structure
giving rise to an increase in orders for the coming years.

Consolidated  sales  increased  substantially  by 223.8% in 1996 to US$2,051,366
from  US$633,574  in 1995,  reflecting  the  contribution  in sales  from  Wuhan
Container as well as the rise in the sales of cement by Min You.

General corporate  expenses  increased by US$68,452 from US$1,833,233 in 1995 to
US$1,901,685  in 1996, a rise of only 3.7%.  Despite the Company had carried out
acquisition during 1996, the general corporate exercises for the Company and its
subsidiaries have been closely kept under control.

Other operating and administrative  expenses,  included in the general corporate
expenses,  increased to US$297,245  in 1996,  up 70.3% from  US$174,527 in 1995;
however this represents an decrease as a percentage of turnover to 14.5% in 1996
compared to 27.6% in 1995. Net interest expenses increased to US$184,485 in 1996
from US$101,248 in 1995. The rise in interest expenses in 1996 was attributed to
the interest expenses bore by Wuhan Container.

Minority  interests  increased to  US$3,583,399  in 1996 and such an increase is
primarily due to the minority shareholders of Wuhan Container.

Provision for income taxes of the Company was nil for 1996 compared to US$16,947
for 1995 which is the provision for Canadian  taxes in 1995 only.  Under current
PRC  regulations,  one of the Company's  subsidiaries  in the PRC receive a full
exemption  from  enterprise  income tax for two years  starting from their first
profitable  year,  followed by 50%  reduction in income taxes for the next three
profitable  years.  In 1996,  the  subsidiaries  had not reported any  operating
profits.

The  Company's  net  loss  increased  by  16.0%  to  US$2,288,328  in 1996  from
US$1,972,726  in 1995,  making the net loss per share to be US$0.20 in 1996 from
US$0.19 in 1995.

Though the Company had  experienced the operating loss in 1996, its total assets
had soared up to slightly  over US$10  million as at December 31, 1996  (US$0.89
per share of common stock) while that was only US$1.7 million as at December 31,
1995 (US$0.16 per share of common stock).

Year Ended December 31, 1995 Compared to Year Ended 31, 1994

The Company's  operations  during 1994 was comprised  solely of the operation of
the North  Vanocuver,  British  Columbia,  property  while in the second half of
1995, the Company has acquired the cement operations.  Henceforth,  the revenues
for the year ended December 31, 1995 increased to US$633,574 from US$333,319 for
the year ended December 31, 1994, principally the result of the revenues derived
in the second half of 1995 from the Company's cement operation.

The  Company's  net loss for 1995 was  US$1,972,726,  a change  of  US$2,000,041
compared to net income of US$27,315  for 1994.  The increase in the net loss was
due to (i) the operating  loss for the cement  segment;


                                       10
<PAGE>

and (ii) higher general corporate expenses.

The  operating  profit  for the  Company's  North  Vancouver,  British  property
decreased by  US$14,511  due to increased  operating  costs while the  Company's
cement operations incurred an operating loss of US$75,107 in 1995.

During 1995 the Company  purchased shares of the common stock of three companies
traded on Hong Kong Stock Exchange. These securities are classified as available
for sale and,  accordingly,  the decline in their  market value has been charged
directly to stockholders' equity as a separate component thereof.

General corporate  expenses  increased in 1995 by US$1,814,594 as the results of
consulting  fees  of   US$1,620,433,   and  a  US$110,751   increase  in  legal,
professional  and audit fees.  The  consulting  fees relate to an agreement  the
Company entered into in June 1995 for investor  relations and financial advisory
services.  Legal and professional fees increased in 1995 for expenses related to
the Company's commencement of new business activities through investments in the
PRC.

Liquidity and Capital Resources

In 1996, net cash provided by financing activities was US$2,333,764 and net cash
used in operating  activities and investing  activities  were  US$1,845,079  and
US$373,427  respectively  and  resulted  in a net  increase  in  cash  and  cash
equivalents of US$115,258.

The  Company  primarily  used the  operating  cash  flows  to fund  its  capital
expenditures  and working capital  requirements.  For fiscal 1996, the Company's
working capital  requirements have not fluctuated  significantly.  From December
31, 1996 to December 31, 1995, net accounts receivable  increased from US$29,307
to US$980,172,  short-term  borrowings increased from US$60,120 to US$2,403,026,
and long-term  mortgage  payable  (including  current  portion)  decreased  from
US$992,433 to US$973,663.  Total  borrowings as of December 31, 1996 amounted to
US$3,376,689,  representing  an  increase  of 220.8%  over total  borrowings  of
US$1,052,553  as of December 31, 1995.  In addition,  cash and cash  equivalents
increased  from  US$55,001  at December 31, 1995 to  US$170,259  at December 31,
1996.

As discussed in Note 2 of the Notes to the  Consolidated  Financial  Statements,
the Company's operating losses and net asset deficiency raise substantial doubts
concerning the Company's  ability to continue as a going concern.  However,  the
Company's  principal  shareholder  has agreed to continue to provide the Company
with necessary financial support.

Exchange Rate Risk

At present,  the Company's  sales and purchases are  denominated  in US dollars,
Hong Kong dollars and  Renminbi  ("Rmb").  In view of the  exchange  rate pegged
between  Hong Kong  dollars  and US  dollars,  the Company is not subject to any
direct exposure from the fluctuation of US dollars.

Rmb is currently not freely  convertible.  Prior to January 1, 1994, all foreign
exchange transactions  involving Rmb in the PRC were placed through the People's
bank of China or authorised financial institutions at the official exchange rate
set by the State  Administration of Exchange Control (the "SAEC").  In addition,
Rmb could also be converted at swap centres  established by the SAEC open to PRC
enterprises and foreign investment enterprises,  subject to the SAEC approval of
each foreign  currency  transaction,  at exchange rate  influenced by the actual
demand and supply of foreign  currency in the PRC. The  exchange  rate quoted by
the SAEC generally differs from the exchange rate quoted by the swap centres.


                                       11
<PAGE>

On January 1, 1994, the PRC government unified the two-tier system by adopting a
unified floating exchange rate system largely based on market supply and demand.
In place of the  official  rate and swap rate,  the  People's  Bank of China now
publishes a daily  exchange  rate (the "PBOC  Exchange  Rate").  Banks and other
financial  institutions  authorised  to deal in foreign  currency may enter into
foreign exchange transactions at exchange rates within an authorised range above
or below the PBOC Exchange Rate  according to the market  conditions.  While the
new system has removed the two-tier  exchange  rate  system,  Rmb is still not a
freely convertible currency.

Full  convertibility  of the Rmb was  expected  to be possible by the year 2000.
However,  recent  improvements  in the  PRC's  foreign  exchange  reserves  have
accelerated the PRC government's plan to make the Rmb fully convertible.

As a matter of policy,  the Company  sources  supply of raw  materials  from PRC
domestic producers whenever  possible.  The management  believes that the policy
allows the Company to utilise the Rmb received  from its  customers and minimise
the Company's  exposure to Rmb exchange  risks.  The Company  therefore does not
anticipate any exchange rate  fluctuation  which would have an adverse effect on
the financial performance and assets value of the Company when measured in terms
of U.S. Dollars.

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

Inflation

The general inflation rate in China was approximately 13%, 24% and 15% per annum
in 1993, 1994 and 1995, respectively.  Accordingly, the PRC Government has taken
steps to control inflation by means of credit restrictions, increase in interest
rates and open  market  operations,  which in turn,  lead to a  slowdown  of the
Chinese  economy.  As a result  of the PRC  inflation,  the  austerity  measures
implemented by the PRC Government have continued to affect the operations of Min
You and Wuhan  Container.  Although  there is a sign of easing in such austerity
measures,  both  turnover and profit  margin of Min You and Wuhan  Container are
still severely affected.

The Operating Subsidiaries

Vancouver Hong Kong Properties Limited - Summary Financial Information

                               Fiscal 1996       Fiscal 1995       Fiscal 1994
Revenues                        $ 336,644         $ 347,034         $ 327,381
Income from operations             85,883           110,608           125,119

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

Revenue  decreased by 3% to  US$336,644  in 1996 from  US$347,034  in 1995.  The
decrease was principally attributable to a decrease of the occupancy rate during
1996.

Operating income dropped by 22.4% to US$85,883 in 1996 compared to US$110,608 in
1995, and also decreased as a percentage of revenue to 25.5% in 1996 compared to
31.9% in 1995.  The decrease was  primarily due to the extent of the increase in
rentals  is  less  than  the  extent  of  the  increase  in  the  operating  and
administrative expenses during 1996.

Year Ended December 31, 1995 Compared to Year Ended December 31, 1994


                                       12
<PAGE>

Income  increased by 6% to  US$110,608  in 1995 from  US$327,381;  however,  the
operating  income has been  dropped by 11.6% which mainly due to the increase in
the operating costs.

Min You Cement Company Limited - Summary Financial Information

                               Fiscal 1996       Fiscal 1995
Revenues                         $ 540,191         $ 278,622
Loss from operations                62,487            75,107

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

Revenues for Min You increased by 93.9% to US$540,191 in 1996 from US$278,622 in
1995. Min You only started its production in the second half of 1995 and when it
operated at its full capacity, the volume produced almost doubled those of 1995.

The operating  loss decreased by 17% to US$62,487 in 1996 from US$75,107 in 1995
and also a percentage of revenues to 11.6% in 1996 compared to 27% in 1995.  The
austerity measures mentioned above had severely  undermined the profitability of
the cement operation.

The cement operation only commenced in the second half of 1995.

Wuhan Container Company Limited

The Company's operation of container manufacturing incurred an operating loss of
US$241,208 in fiscal 1996, is as follows:

     Sales                     $ 1,082,317
     Cost of Sales              (1,009,105)
     Other                        (314,420)
                               -----------
                               $  (241,208)
                               =========== 

For the months of September through December 1996, Wuhan Container operated less
than its full  capacity.  As a result,  the sales and gross profit margin of the
container manufacturing  operations in 1996 were lower than the level management
believes can be achieved under normal  operating  conditions.  In addition,  the
cost of sales have increased due to an overall increase in raw material costs.

Summary financial information has not been provided for securities investment as
its operations is insignificant compared to the above.

Significant Uncertainties

The Company, by choosing to concentrate many of its resources in the PRC, may be
subject  to  substantial   regulatory  hurdles  and  governmental  and  economic
uncertainties.  By doing  business in the PRC through joint  ventures with local
Chinese partners this risk is reduced;  however,  there is no assurance that the
Company will be successful in financing and carrying through these projects into
profitability.

The Company's  investments are principally  carried out in Rmb, Canadian dollars
and Hong Kong  dollars.  At present,  the  Company's  currency  receipts for the
manufacturing  segments  are in Rmb  while  the  currency  receipts  for  rental
operations  and  securities  investments  are in Canadian  dollars and Hong Kong
dollars  respectively.  With the increase in the manufacturing  operation of the
Company in the PRC, the currency 


                                       13
<PAGE>

receipts in Rmb will to some extent be increased.

Since the late  1980's,  the PRC  economy  has moved  from a  centrally  planned
economy to a "socialist market-oriented economy" subject to a series of economic
reforms  and  economic  plans  adopted  by the PRC  government.  Although  it is
expected  that  the PRC  government  will  continue  to  follow  the  model of a
socialist  market-oriented  economy more closely, there is no assurance that the
PRC government will continue to pursue its economic reforms and that its current
policies will remain  relatively  consistent with such reforms,  particularly in
the  event of any  change in the  political  leadership  of,  or the  political,
military, economic or social conditions in, the PRC.

The policies  adopted by the PRC government to regulate matters such as currency
conversion,  taxation and restrictions on the import and distribution of foreign
goods can have  significant  effects on the economic  environment in the PRC and
consequently on enterprises with business interests in the PRC.

The Company's production facilities are located in the PRC. The PRC has been the
Company's largest market and sales to the PRC accounted for approximately  82.2%
of the  Company's  turnover for the year ended  December  31, 1996.  There is no
assurance  that the  Company  will not be  adversely  affected  by any change in
governmental  policies or any  unfavourable  change in the political,  military,
economic or social conditions; the laws or regulations; or the rates or basis of
taxation in the PRC.


                                       14
<PAGE>

Item 8. Financial Statements

The  following  financial  statements  are  filed  at the  end of  this  report,
beginning on page F-1:

                         HENG FAI CHINA INDUSTRIES, INC.
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                      FOR THE YEAR ENDED DECEMBER 31, 1996

CONTENT                                                                  PAGE(S)
-------                                                                  -------

REPORT OF INDEPENDENT AUDITORS ...................................         F - 1

CONSOLIDATED BALANCE SHEETS ......................................         F - 2

CONSOLIDATED STATEMENTS OF INCOME ................................         F - 4

CONSOLIDATED STATEMENTS OF SHAREHOLDERS'
  EQUITY (DEFICIT) ...............................................         F - 5

CONSOLIDATED STATEMENTS OF CASH FLOWS ............................         F - 6

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ...................         F - 7


                                       15
<PAGE>

Item 9. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosures

There have been no changes in or  disagreements  with accountants on accounting,
financial disclosure or other matters, which would require disclosure herein.


                                       16
<PAGE>

                                    PART III

Item 10. Directors and Executive Officers of the Registrant

The names and ages of all directors and executive officers of the Company are as
follows:

Name                     Age     Position with the Company

Fai H. Chan              52      President, Chief Executive Officer and Director

Ronald M.T. Lau          27      Director

Robert H. Trapp          41      Secretary, Treasure and Director

Management Biographies

Fai H. Chan has been the president and a director of the Company since June 1994
and has served as the Company's  Chief  Executive  Officer since June 1995. From
June 1993 onwards, Mr. Chan has been a director of Inter-Asia Equities,  Inc., a
Canadian  company and since  September 1992, Mr. Chan has also been an executive
director and director of Heng Fung Holdings Co.,  Ltd., a public company in Hong
Kong which is listed on the Hong Kong Stock Exchange. Since March 1988, Mr. Chan
has been chairman of the board of directors of American  Pacific Bank, a bank in
Oregon,  and  between  April  1991 and April  1993,  he was the chief  executive
officer of such bank.

Ronald M.T. Lau has been a director of the Company  since July 1995.  Since June
1995, Mr. Lau has been the financial controller of Heng Fung Holdings Co., Ltd.,
a public  company in Hong Kong which is listed on the Hong Kong Stock  Exchange.
Prior thereto, from August 1991 until October 1994, Mr. Lau worked as an auditor
at Deloitte  Touche Tohmatsu in Hong Kong. He had been the vice president of Hua
Jian  International  Finance  Company  Limited (a member of China Huaneng Group)
until June 1995.

Robert H. Trapp has been the  secretary  and  treasurer  and a  director  of the
Company  sine June 1994.  Since May 1995,  Mr. Trapp has been a director of Heng
Fung Holding Co.,  Ltd., a public  company in Hong Kong,  which is listed on the
Hong Kong Stock Exchange.  Since April 1994, Mr. Trapp has been the secretary of
the Company.  Since  February  1995, Mr. Trapp has been a director of Inter-Asia
Equities, Inc. a Canadian company.

Since July 1991,  he has also been the Canadian  operational  manager of Pacific
Concord  Holding  (Canada) Ltd.,  responsible  for  management,  marketing,  and
financial  reporting  operations of such company to Pacific Concord Holding Ltd.
of Hong Kong. Between March and June 1991, Mr. Trapp was a securities trainee at
Pacific International  Securities in Vancouver,  B.C., Canada. Between September
1985 and June 1989,  Mr. Trapp served as an executive  officer and a director of
Inter-Asia Equities, Inc.

All  officers of the Company are elected to serve in such  capacities  until the
next  annual  meeting of the Board of  Directors  of the Company and until their
successors are duly elected and qualified.

The Board of Directors met twice during the fiscal year ended December 31, 1996.
No incumbent  director attended fewer than all of the meetings held by the Board
of Directors.


                                       17
<PAGE>

There are no material proceedings to which any director, officer or affiliate of
the Company, any owner of record or beneficially of more than 5% of any class of
voting  securities  of the  Company,  or any  associate  of any  such  director,
officer,  affiliate of the Company or security  holder is a party adverse to the
Company or any of its subsidiaries.

Indemnification of Directors and Officers

Section 145 of the Delaware  General  Corporation  Law empowers a corporation to
indemnify its directors and officers and to purchase  insurance  with respect to
liability  arising out of their  capacity or status as  directors  and  officers
provided  that this  provision  shall not  eliminate of limit the liability of a
director:  (i)  for  any  breach  of  the  director's  duty  of  loyalty  to the
corporation or its shareholders; (ii) for acts or omissions not in good faith or
which  involve  intentional  misconduct  or a knowing  violation  of law;  (iii)
arising under Section 174 of the Delaware  General  Corporation Law; or (iv) for
any transaction  from which the director derived an improper  personal  benefit.
The Delaware General  Corporation Law provides further that the  indemnification
permitted  thereunder shall not be deemed exclusive of any other rights to which
the directors and officers may be entitled under the corporation's  by-laws, any
agreement,  vote of  shareholders  or otherwise.  The Company's  Certificate  of
Incorporation  eliminates the personal  liability of directors to fullest extent
permitted by Section 102(b)(7) of the Delaware General Corporation Law.

The effect of the  foregoing is to require the Company to indemnify the officers
and directors of the Company for any claim arising against such persons in their
official  capacities  if such person acted in good faith and in a manner that he
reasonably  believed  to be in or not  opposed  to  the  best  interests  of the
corporation,  and,  with respect to any criminal  action or  proceeding,  had no
reasonable cause to believe his conduct was unlawful.

Insofar as indemnification  for liabilities arising under the Securities Act may
be permitted to directors,  officers or persons controlling the Company pursuant
to the foregoing  provisions,  the Company has been informed that in the opinion
of the  Securities  and Exchange  Commission,  such  indemnification  is against
public policy as expressed in Securities Act and is therefore unenforceable.

Committees of the Board of Directors

The Board of Directors has not established any committees.

Compliance with Section 16(a) of the Exchange Act of 1934

Section 16(a) of the Securities  Exchange Act of 1934, as amended (the "Exchange
Act"),  requires the Company's officers and directors,  and persons who own more
than ten percent of a registered  class of the Company's equity  securities,  to
file reports of ownership  and changes in ownership of equity  securities of the
Company with the  Securities  and Exchange  Commission  (the  "Commission")  and
NASDAQ.  Officers,  directors  and  greater-than-ten  percent  stockholders  are
required by  regulation  to furnish the Company with copies of all Section 16(a)
forms that they file.

Based  solely  upon a review of Form 3,  Forms 4, and Forms 5  furnished  to the
Company  pursuant to Rule 16a-3  under the  Exchange  Act,  it is the  Company's
belief that,  other than that as set forth below,  any such forms required to be
filed  pursuant  to Section  16(a) of the  Exchange  Act were timely  filed,  as
necessary, by the officers,  directors and security holders required to file the
same.


                                       18
<PAGE>

Item 11. Executive Compensation

Summary Compensation Table

During the year ended  December  31, 1996 Heng Fai  Management,  Inc.,  a wholly
owned subsidiary of the Company, paid $500,000 in consulting and management fees
to Tight Hold  Investment  Limited,  a company  wholly owned by Fai H. Chan, the
Company's chief executive officer. No other officers or directors of the Company
earned in excess of $100,000 during the year ended December 31, 1996.

<TABLE>
<CAPTION>
                                                               Long-Term Compensation
                                 Annual Compensation   ------------------------------------
                               ----------------------
                                                          Awards                 Payouts
                                                          ------                 -------
Name                                                   Restricted
and                                      Other Annual       Stock                                             All
Principal             Salary    Bonus    Compensation      Awards    Options/           LTIP                Other
Position      Year       ($)      ($)             ($)         ($)     SARs (#)    Payout (#)      Compensation(s)
---------    ------   ------    -----    ------------      ------    --------     ----------      ---------------
                            
<S>            <C>      <C>    <C>               <C>          <C>          <C>           <C>                 <C>
Fai H. Chan   '96    500,000(1)   --              --           --           --            --                  --
President     '95       --        --              --           --           --            --                  --
  & CEO       '94       --        --              --           --           --            --                  --
                    
</TABLE>

(1)  Represents  fees paid to Tight Hold  Investment Ltd. a company wholly owned
     by Mr. Chan

Stock Option Plans

The Company currently has no stock option plans.

Option/SAR Grants in Last Fiscal Year

There were no options  granted during the fiscal year ended December 31, 1996 as
set forth below.

Aggregate   Option/SAR  Exercises  in  Last  Fiscal  Year  And  Fiscal  Year-End
Options/SAR Values

No options were exercised  during the fiscal year ended December 31, 1995 as set
forth below and there exist no  unexercised  options as of the end of the fiscal
year ended December 31, 1996.

Employment Agreements

Heng Fai  Management,  Inc., a wholly owned  subsidiary of the Company,  entered
into a consultation and management agreement with Tight Hold Investment Limited,
a company wholly owned by Fai H. Chan,  President and Chief Executive Officer of
the  Company.  The term of this  agreement  is for ten  years  having  commenced
November 1st, 1996 and ending  October 31, 2006.  The  remuneration  the Company
shall pay for services  rendered  pursuant to this agreement is as follows:  (i)
the  sum of  $500,000  per  year  for  the  duration  of  employment,  a rate of
$41,666.67 per month over 12 equal  payments;  and (ii) upon the Company meeting
Nasdaq National Markets System requirements of having $4,000,000 in net tangible
assets,  and obtaining the other requirements which allow the Company's stock to
be marginable  on NASDAQ and having  declared at least a minimum $0.10 per share
earning and $0.05  dividend to common  shareholders,  the fee shall  increase to
US$1,000,000  per year for the duration of employment,  a rate of $83,333.00 per
month.

Remuneration of Directors

Directors do not receive compensation for attendance at meetings of the Board of
Directors.  All directors are entitled to reimbursement of reasonable travel and
lodging expenses related to attending meetings of the Board of Directors.


                                       19
<PAGE>

Item 12. Security Ownership of Certain Beneficial Owners and Management

The following table sets forth, as of April 7, 1997,  certain  information  with
respect  to stock  ownership  of:  (i) all  persons  known by the  Company to be
beneficial owners of five percent or more of its outstanding  Common Stock: (ii)
each of the Company's directors and executive officers;  and (iii) all directors
and executive officers as a group (3 persons).  Unless otherwise indicated,  the
beneficial  owners  have sole  voting  and  investment  power over the shares of
Common Stock listed below.

                                                            % of Outstanding
                                                                 Shares
Name and Address                  Number of Shares          of Common Stock
of Beneficial Owner (1)           Beneficially Owned (1)  Beneficially Owned (1)
-------------------------------   ----------------------  ----------------------

Fai H. Chan
Unit B, 13/Floor
Lippo Leighton Tower
103-109 Leighton Road
Causeway Bay
Hong Kong                         3,892,886 (2)                   28.4%

Keow Y. Chan
Unit B, 13/Floor
Lippo, Leighton Tower
103-109 Leighton Road
Causeway Bay
Hong Kong                         2,180,000 (3)                   15.9%

Ebly Profit Limited
7 Temasek Boulevard
#43-03 Suntec City Tower 1
Singapore, 038987                 2,000,000                       14.6%

Ronald M.T. Lau
Room 204, Block West
Upper Wong Tai
Sin Estate, Kowloon                 100,000                         .7%

Robert H. Trapp
2103-1651 Harwood Street
Vancouver, B.C.
Canada V6G 1Y2                      100,000                         .7%

All Executive Officers & 
   Directors as a Group
   (3 Persons) (4)                6,272,886                       45.8%

(1)  Unless  otherwise  noted,  the Company believes that all of such shares are
     owned of record by each individual  named as beneficial owner and that such
     individual has sole voting and dispositive power with respect to the shares
     of Common Stock owned by each of them. Such person's  percentage  ownership
     is determined by assuming that the options or convertible  securities  that
     are held by such person which are exercisable  within 60 days from April 7,
     1997 have been exercised or converted, as the case may be.

(2)  Includes   3,300,000   shares  owned  of  record   directly  by  the  noted
     stockholder.  Also includes 37,500 shares of Common Stock and 37,500 shares
     of Common Stock underlying Warrants owned of record by Inter-Asia Equities,
     Inc.  ("Inter-Asia")  and 258,943 shares of Common Stock and 258,943 shares
     Common Stock  underlying  Warrants owned by the Excess  Pension 


                                       20
<PAGE>

     Fund, Inc. (the "Fund"). The noted stockholder is an officer,  director and
     stockholder  of  Inter-Asia  and  a  beneficial  owner  of  the  Fund.  The
     stockholder's  wife is the  President  and  Director  of  Inter-Asia  and a
     beneficial owner of the Fund. Excludes the 2,180,000 shares owned of record
     by the wife of the noted stockholder. See Footnote (3) below.

(3)  Excludes  3,300,000  shares  owned of  record by the  husband  of the noted
     stockholder,  258,943 shares of Common Stock and 258,943  Warrants owned by
     the Fund and the 37,500 shares of Common Stock and 37,500 Warrants owned by
     Inter-Asia. See Footnote (2) above.

(4)  In the event that the noted  stockholder was deemed to beneficially own all
     of the shares owned of record by the spouse of the noted stockholder,  such
     stockholder  would be  deemed  to  beneficially  own  6,272,886  shares  or
     approximately 45.8% of the outstanding Common Stock of the Company.

There are no agreements or other  arrangements  or  understandings  known to the
Company  concerning  the voting of the Common  Stock of the Company or otherwise
concerning  control of the Company which are not disclosed herein.  There are no
pre-emptive rights applicable to the Company's securities.

Item 13. Certain Relationships and Related Transactions

The Company maintains deposits in accounts at American Pacific Bank. Fai H. Chan
(an officer,  director  and  stockholder  of the  Company) is an officer  and/or
director of such bank.  See Note 12 of the Notes to the  Consolidated  Financial
Statements.

The Company owns 7,492,000  shares of common stock of Heng Fung Holdings Company
Limited.  Messrs. Chan ,Trapp, and Lau (officers,  directors and/or stockholders
of the Company) are officers,  directors and /or  stockholders  of such company.
See  Note 12 of the  Notes  to the  Consolidate  Financial  Statements  included
elsewhere herein.

                                     PART IV

ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8K

(a)(1)(2)   Financial   Statements  and  Schedules  -  See  index  to  financial
            statements  and  financial  statement  schedule  on  page 15 of this
            Annual Report.
          
(a)(3)      Exhibits  marked  with an (*) are filed  herewith.  Other  exhibits,
            incorporated by reference, were previously filed with the Securities
            and Exchange Commission ("SEC") as indicated.
          
Exhibit No.                      Description
          
*3.1(a)     Certificate of Incorporation of Registrant, as amended.

*3.1(b)     Agreement and Plan of Merger, as amended.

*3.2        By-laws of Registrant, as amended.

*4.1        Specimen certificate representing Registrant's Common Stock.

10.1        Wuhan Container Acquisition  Agreement  incorporated by reference to
            Exhibit 2 of the Registrant's  Current Report on Form 8-K filed with
            the SEC on September 20, 1996, as amended.

10.2        Consulting   Agreement  between   Registrant  and  Thomas  E.  Waite
            incorporated  by reference to Exhibit 4.1 of the  Registrant's  Form
            S-8 filed with the SEC on March 20, 1997.

*10.3       Consulting and  Management  Agreement  between Heng Fai  Management,
            Inc. and Tight Hold Investment Limited dated November 4, 1996.

*21         Subsidiaries of the Registrant.

*27         Financial Data Schedule.

(b)         The  Company  has not filed any  reports  on Form 8K during the last
            quarter of the period covered by this Report.


                                       21
<PAGE>


                                   SIGNATURES

     In accordance  with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorised, on April 16, 1997


                                          HENG FAI CHINA INDUSTRIES, INC.


                                          By: /s/ Fai H. Chan
                                              ----------------------------------
                                              Fai H. Chan


     In  accordance  with  Exchange  Act,  this  report  has been  signed by the
following  persons on behalf of the  Registrant,  in the  capacities  and on the
dates indicated


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


/s/ Fai H. Chan             President, CEO & Director            April 16, 1997
----------------------
Fai H. Chan



/s/ Robert H. Trapp         Secretary, Treasurer & Director      April 16, 1997
----------------------
Robert H. Trapp



/s/ Ronald M.T. Lau         Director                             April 16, 1997
----------------------
Ronald M.T. Lau


                                       22

<PAGE>

REPORT OF INDEPENDENT AUDITORS

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
HENG FAI CHINA INDUSTRIES, INC.

We have audited the accompanying consolidated balance sheets of Heng Fai China
Industries, Inc. (the Company) and its subsidiaries as of December 31, 1996 and
1995 and the related consolidated statements of income, shareholders' equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 1996. 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 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Heng Fai China Industries, Inc. and
its subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and cash flows for each of the three years in the period ended
December 31, 1996 in conformity with accounting principles generally accepted in
the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company's recurring losses from operations and minimal
net tangible assets raise doubt its ability to continue as a going concern. The
financial support from a principal shareholder is described in Note 2.



Hong Kong
April 14, 1997



                                      F-1
<PAGE>

                         HENG FAI CHINA INDUSTRIES, INC.

                           CONSOLIDATED BALANCE SHEETS
                             (United States Dollars)

                                     ASSETS
                                                            As of December 31,
                                                        ------------------------
                                                            1996         1995
                                                        -----------  -----------
Current assets:
  Cash and cash equivalents ..........................  $   170,259  $    55,001
  Available-for-sale securities (note 5) .............      682,331      480,835
  Accounts receivable, trade, less allowance 
     for doubtful accounts of $70,258 in 1996 
     and $0 in 1995 ..................................      980,172       29,307
  Inventories (note 6) ...............................    4,403,682      154,370
  Prepaid and other current assets ...................      151,722       19,726
  Amounts receivable from related parties (note 12) ..      136,439       11,639
  Value added taxes recoverable ......................      611,790         --
                                                        -----------  -----------
     Total current assets ............................    7,136,395      750,878
Property, plant and equipment, net (note 7) ..........    3,402,238      857,548
Prepaid rental (note 3) ..............................       86,747      115,430
                                                        -----------  -----------
    Total assets .....................................  $10,625,380  $ 1,723,856
                                                        ===========  ===========

                 LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

Current liabilities:
  Short-term borrowings (note 9) .....................  $ 2,403,026  $    60,120
  Mortgage loan payable - current portion (note 13) ..      108,069       17,325
  Accounts payable ...................................      837,596      165,652
  Bills payable (note 10) ............................      722,892         --
  Margin loans payable (note 11) .....................      489,193      274,420
  Interest payable ...................................       40,212       32,983
  Other accrued expenses .............................      360,749      116,718
  Security deposits payable ..........................       11,992       10,095
  Amounts payable to related parties (note 12) .......    1,110,544       22,005
                                                        -----------  -----------
     Total current liabilities .......................    6,084,273      699,318
                                                        -----------  -----------
Long-term liabilities:
  Mortgage loans payable (note 13) ...................      865,594      975,108
  Long-term payable (note 3) .........................       88,744       91,415
                                                        -----------  -----------
     Total long-term liabilities .....................      954,338    1,066,523
                                                        ===========  ===========


                                      F-2
<PAGE>

                         HENG FAI CHINA INDUSTRIES, INC.

                           CONSOLIDATED BALANCE SHEETS
                             (United States Dollars)

                 LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)

<TABLE>
<CAPTION>
                                                                     As of December 31,
                                                                ----------------------------
                                                                    1996            1995
                                                                ------------    ------------
<S>                                                             <C>             <C>         
Minority interests ..........................................      3,583,399            --
                                                                ------------    ------------
Commitments and contingencies (note 18)

Shareholders' equity (deficit):
  Preferred stock, $10 par value, 500,000 shares authorized,
     unissued ...............................................           --              --
  Common stock, $.01 par value, 30,000,000 shares authorized;
     issued and outstanding 1996: 11,986,814 shares and 1995:
     10,859,542 shares ......................................        119,868         108,595
  Contributed surplus .......................................      4,701,023       2,812,546
  Unrealized loss on available-for-sale securities (note 5) .        (78,825)        (43,941)
  Cumulative exchange adjustments ...........................          6,968           6,968
  Accumulated deficit .......................................     (4,510,914)     (2,222,586)
                                                                ------------    ------------
                                                                     238,120         661,582
  Common stock issued for consulting services to be received
   (note 8) .................................................       (234,750)       (703,567)
                                                                ------------    ------------
  Total shareholders' equity (deficit) ......................          3,370         (41,985)
                                                                ------------    ------------
  Total liabilities and shareholders' equity (deficit) ......   $ 10,625,380    $  1,723,856
                                                                ============    ============
</TABLE>

        See accompanying notes to the Consolidated Financial Statements.


                                      F-3
<PAGE>

                         HENG FAI CHINA INDUSTRIES, INC.

                        CONSOLIDATED STATEMENTS OF INCOME
                             (United States Dollars)

<TABLE>
<CAPTION>
                                                            Year ended December 31,
                                                --------------------------------------------
                                                     1996            1995            1994
                                                ------------    ------------    ------------
<S>                                             <C>             <C>             <C>         
Revenues:
  Rental income .............................   $    336,644    $    347,034    $    327,381
  Sales of cement ...........................        540,191         278,622            --
  Sales of containers .......................      1,082,317            --              --
  Interest ..................................          1,490           4,187           3,235
  Investment income .........................         56,552           3,731           2,703
  Others ....................................         34,172            --              --
                                                ------------    ------------    ------------
    Total revenues ..........................      2,051,366         633,574         333,319
                                                ------------    ------------    ------------
Expenses:
  Cost of sales of cement ...................        469,495         235,711            --
  Cost of sales of containers ...............      1,009,105            --              --
  Allowance for doubtful accounts ...........         70,258          48,420            --
  Machinery lease rental (note 3) ...........         28,683          28,570            --
  Depreciation ..............................         42,800          43,573          46,442
  Legal and professional fees ...............         82,831         133,101          22,350
  Consulting fees (note 8) ..................      1,368,567       1,620,433            --
  Consulting fees paid to a related company
    (note 12) ...............................        500,000            --              --
  Interest on long-term debt ................         85,990          89,650            --
  Interest on short-term debt ...............         99,985          15,785          79,165
  Utilities .................................         48,924          41,871          43,995
  Foreign exchange loss (gain) ..............         17,094          12,025         (50,153)
  Land lease ................................         80,321          80,321          80,533
  Plant lease rental ........................         22,809            --              --
  Real estate management fees ...............         14,020          15,845          12,373
  Salaries ..................................        107,716          11,185            --
  Travelling ................................         70,950          38,336            --
  Other operating and administrative expenses        297,245         174,527          71,299
                                                ------------    ------------    ------------
    Total expenses ..........................      4,416,793       2,589,353         306,004
                                                ------------    ------------    ------------
Net (loss) income before income taxes .......     (2,365,427)     (1,955,779)         27,315
                                                ------------    ------------    ------------
Provision for income taxes (note 15) ........           --            16,947            --
                                                ------------    ------------    ------------
Net (loss) income before minority interest ..     (2,365,427)     (1,972,726)         27,315

Minority interest ...........................         77,099            --              --
                                                ------------    ------------    ------------
Net (loss) income ...........................   $ (2,288,328)   $ (1,972,726)   $     27,315
                                                ============    ============    ============
Net (loss) income per share .................   $       (.20)   $       (.19)   $        .02
                                                ============    ============    ============
Weighted average number of shares of common
  stock outstanding .........................     11,223,288      10,624,064       1,108,037
                                                ============    ============    ============
</TABLE>

        See accompanying notes to the Consolidated Financial Statements.


                                      F-4
<PAGE>

                         HENG FAI CHINA INDUSTRIES, INC.

            CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
                             (United States Dollars)

<TABLE>
<CAPTION>
                                                                             Unrealized                 Common stock               
                            Common                                            loss on                   issued for    
                             stock                                            available   Cumulative    consulting    
                           Number of             Contributed  Accumulated     for sale     exchange     services to   
                            shares      Amount     surplus      deficit      securities   adjustments   be received      Total
                          ----------   --------   ----------  -----------    ----------   ----------      ---------     ----------
<S>                       <C>          <C>        <C>         <C>             <C>           <C>         <C>           <C>       
At December 31, 1993....   3,335,820   $167,000   $1,435,000  $(1,602,000)    $   --        $ --        $    --       $    --
Elimination of deficit                                                                                                
  and net assets at date                                                                                              
  of acquisition........        --         --     (1,602,000)   1,602,000         --          --             --            --
                          ----------   --------   ----------  -----------     --------      ------      ---------     ----------
                           3,335,820    167,000     (167,000)        --           --          --             --            --
Issued to effect the                                                                                                  
  acquisition of                                                                                                      
  Vancouver Hong                                                                                                     
  Kong (Note 1).........  10,357,700    517,885     (440,744)    (277,175)        --          --             --         (200,034)
Issued for cash                                                                                                       
  (Note 1)..............   1,500,000     75,000       45,000         --           --          --             --          120,000
                          ----------   --------   ----------  -----------     --------      ------      ---------     ----------
                          15,193,520    759,885     (562,744)    (277,175)        --          --             --          (80,034)
Reverse stock split                                                                                                   
  (Note 14a)............ (11,395,140)  (569,757)     569,757         --           --          --             --             --
                          ----------   --------   ----------  -----------     --------      ------      ---------     ----------
                           3,798,380    190,128        7,013     (277,175)        --          --             --          (80,034)
Reverse stock split                                                                                                   
  (Note 14b)............  (3,413,838)  (186,283)     186,283         --           --          --             --             --
                          ----------   --------   ----------  -----------     --------      ------      ---------     ----------
                             384,542      3,845      193,296     (277,175)        --          --             --          (80,034)
Private placement                                                                                                     
  (Note 14c)............  10,000,000    100,000         --           --           --          --             --          100,000
                          ----------   --------   ----------  -----------     --------      ------      ---------     ----------
                          10,384,542    103,845      193,296     (277,175)        --          --             --           19,966
Net income..............        --         --           --         27,315         --          --             --           27,315
                          ----------   --------   ----------  -----------     --------      ------      ---------     ----------
At December 31, 1994....  10,384,542    103,845      193,296     (249,860)        --          --             --           47,281

Issued to effect a                                                                                                    
  consulting agreement                                                                                                
  (notes 14d) (note 8a).     400,000      4,000    2,320,000         --           --          --       (2,324,000)          --
Amortization of                                                                                                       
  consulting fees.......        --         --           --           --           --          --        1,620,433      1,620,433
                          ----------   --------   ----------  -----------     --------      ------      ---------     ----------
                          10,784,542    107,845    2,513,296     (249,860)        --          --         (703,567)     1,667,714
Private placement                                                                                                     
  (Note 14e)............      75,000        750      299,250         --           --          --             --          300,000
                          ----------   --------   ----------  -----------     --------      ------      ---------     ----------
                          10,895,542    108,595    2,812,546     (249,860)        --          --         (703,567)     1,967,714
Foreign exchange                                                                                                      
  translation                                                                                                         
  adjustments...........        --         --           --           --           --         6,968           --            6,968
Net loss................        --         --           --     (1,972,726)        --          --             --       (1,972,726)
                          ----------   --------   ----------  -----------     --------      ------      ---------     ----------
                          10,859,542    108,595    2,812,546   (2,222,586)        --         6,968       (703,567)         1,956
Unrealized loss on                                                                                                    
  securities available                                                                                                
  for-sale..............        --         --           --           --        (43,941)       --             --          (43,941)
                          ----------   --------   ----------  -----------     --------      ------      ---------     ----------
At December 31, 1995....  10,859,542    108,595    2,812,546   (2,222,586)     (43,941)      6,968       (703,567)       (41,985)
                                                                                                                      
Issued to affect                                                                                                      
  consulting agreements                                                                                               
  (note 14f)(note 8b)...     400,000      4,000      895,750         --           --          --         (899,750)          --
Amortization of                                                                                                       
  consulting fee........        --         --           --           --           --          --        1,368,567      1,368,567
Issued for acquisition of                                                                                             
  a subsidiary (note 14g)    727,272      7,273      992,727         --           --          --             --        1,000,000
                          ----------   --------   ----------  -----------     --------      ------      ---------     ----------
                          11,986,814    119,868    4,701,023   (2,222,586)     (43,941)      6,968       (234,750)     2,326,582
Net loss................        --         --           --     (2,288,328)        --          --             --       (2,288,328)
                          ----------   --------   ----------  -----------     --------      ------      ---------     ----------
                          11,986,814    119,868    4,701,023   (4,510,914)     (43,941)       --         (234,750)        38,254
Unrealized loss on                                                                                                    
  securities available for                                                                                            
  sale..................        --         --           --           --        (34,884)       --             --          (34,884)
                          ----------   --------   ----------  -----------     --------      ------      ---------     ----------
At December 31, 1996....  11,986,814   $119,868   $4,701,023  $(4,510,914)    $(78,825)     $6,968      $(234,750)    $    3,370
                          ==========   ========   ==========  ===========     ========      ======      =========     ==========
</TABLE>                                                                       
        See accompanying notes to the Consolidated Financial Statements.

                                      F-5
<PAGE>

                         HENG FAI CHINA INDUSTRIES, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (United States Dollars)

<TABLE>
<CAPTION>
                                                               1996           1995           1994
                                                           -----------    -----------    -----------
<S>                                                        <C>            <C>            <C>        
Cash flow from operating activities
  Net (loss) income ....................................   $(2,288,328)   $(1,972,726)   $    27,315
  Adjustments to reconcile net (loss) income to net cash
    used in operating activities:
       Minority interest ...............................       (77,099)          --             --
       Depreciation and amortization ...................       194,939         43,573         46,442
       Consulting fees .................................     1,868,567      1,620,433           --
       Allowance for doubtful accounts .................        70,258           --             --
       Provision for stock obsolescence ................        52,322           --             --
       Changes in working capital components:
         Accounts receivable ...........................    (1,021,123)       (27,024)        (2,002)
         Inventories ...................................    (1,935,180)       (62,955)          --
         Prepaid and other current assets ..............         4,851        (17,654)          (166)
         Amounts receivable from related parties .......      (124,800)       (11,639)          --
         Value added taxes recoverable .................      (611,790)          --             --
         Accounts payable ..............................       576,792        164,646        (13,510)
         Bills payable .................................       722,892           --             --
         Interest payable ..............................         7,229         12,490          4,902
         Other accrued expenses ........................       197,553        116,327           --
         Security deposits payable .....................         1,897         (1,208)          (538)
         Unearned rent .................................          --          (12,053)        12,053
         Amounts payable to related parties ............       487,258        (10,383)       (32,617)
         Exchange difference ...........................          --             --          (60,717)
         Prepaid rental ................................        28,683       (115,430)          --
                                                           -----------    -----------    -----------
  Net cash used in operating activities ................    (1,845,079)      (273,603)       (18,838)
                                                           -----------    -----------    -----------
Cash flow from investing activities:
  Purchase of available for sale securities ............      (264,688)      (480,835)          --
  Proceeds from sale of available for sale securities ..        28,308           --             --
  Purchase of property, plant and equipment ............      (158,987)          --             --
  Cash acquired on purchase of subsidiary (note 4) .....        21,940           --             --
                                                           -----------    -----------    -----------
  Net cash used in investing activities ................      (373,427)      (480,835)          --
                                                           -----------    -----------    -----------
Cash flow from financing activities:
  Common stock issued for cash .........................          --          300,000        220,000
  Increase in margin loan payable ......................       243,081        274,420           --
  Repayment of margin loan .............................       (28,308)          --             --
  Increase in short-term borrowings ....................     1,092,930         60,120           --
  Repayment of mortgage loans ..........................       (18,770)       (16,832)       (15,449)
  Repayment of long-term payable .......................        (2,671)          --             --
  Advance from a minority shareholder ..................     1,047,502           --             --
                                                           -----------    -----------    -----------
  Net cash provided by financing activities ............     2,333,764        617,708        204,551
                                                           -----------    -----------    -----------
Net increase (decrease) in cash and cash equivalents ...       115,258       (136,730)       185,713
Cash and cash equivalents:
  Beginning of the period ..............................        55,001        191,731          6,018
                                                           -----------    -----------    -----------
  End of the period ....................................   $   170,259    $    55,001    $   191,731
                                                           -----------    -----------    -----------
Cash paid during the year for:
  Interest .............................................   $   184,078    $    89,650    $    84,399
Non-cash financing activities:
  Issuance of common stock for consulting services .....   $ 1,368,567    $ 2,324,000           --
  Inventories (note 3) .................................          --      $    91,415           --
                                                           ===========    ===========    ===========
</TABLE>

        See accompanying notes to the Consolidated Financial Statements.


                                      F-6
<PAGE>

                        HENG FAI CHINA INDUSTRIES, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                             (United States Dollars)

1.   ORGANIZATION AND BASIS OF FINANCIAL STATEMENTS

     In June  1994,  Heng Fai  China  Industries,  Inc.,  then  known as  Alpine
     International  Corporation  ("Alpine") entered into a business  combination
     with Vancouver Hong Kong Properties Limited ("Vancouver Hong Kong"),  which
     owns and operates a residential rental property in North Vancouver, British
     Columbia.   The  business  combination  resulted  in  the  shareholders  of
     Vancouver  Hong Kong being  issued  10,357,700  shares of common stock (the
     "Common  Stock")  and  10,357,700   common  stock  purchase  warrants  (the
     "Warrants")  of Alpine.  As a part of the  business  combination  a company
     related to Vancouver Hong Kong agreed to subscribe for 1,500,000  shares of
     common stock and 1,500,000 common stock purchase  warrants for an aggregate
     of  $120,000  in cash.  The  foregoing  share  numbers do not  reflect  the
     Company's  subsequent  one-for-four  reverse  stock split and a one-for-ten
     reverse  stock  split.  The business  combination  was  accounted  for as a
     reverse acquisition whereby the purchase method of accounting was used with
     Vancouver Hong Kong being the accounting  parent.  Accordingly,  results of
     operations  for  periods  prior to the  reverse  acquisition  are  those of
     Vancouver  Hong Kong,  and the results of Alpine's  operations are included
     only from the date of such reverse acquisition.  Subsequent to the business
     combination  the name of the legal  parent  Alpine was  changed to Heng Fai
     China Industries Inc. (the "Company").

     At  December  31,  1996,  the  Company  and  its  subsidiaries'   principal
     activities  are the  operation  of a rental  property  in North  Vancouver,
     British Columbia in Canada,  and the production of cement and containers in
     the  People's  Republic of China (the "PRC").  As a result,  changes in the
     economic environment in which these operations exist,  including changes in
     the cost or  availability  of labor or  materials,  could  have a  material
     impact  on the  Company.  See  Note 16 for  information  on the  geographic
     location of the Company's accounts.

     At December 31, 1996, details of the subsidiary companies are as follows:

<TABLE>
<CAPTION>
                                                                    Percentage of
                                                                    equity interest
                                               Place of             attributable to     Principal
     Name of subsidiary                        incorporation        the Company         activities
     ------------------                        -------------        -----------         ----------
<S>                                                                    <C>                                
     Heng Fai China & Asia Industries             Hong Kong            100%             Investment holding
     Limited                                                                           
     Heng Fai China Industries Limited            Hong Kong            100%             Investment holding
     Worldwide Containers Limited                 Hong Kong            100%             Investment holding
     Cangzhou Min You Cement Co., Ltd.            PRC                  100%             Cement manufacturing
                                                                                          and trading
     Wuhan Monkey King Container                  PRC                  70%              Container
       Co., Ltd.                                                                          manufacturing and
                                                                                          trading
     Vancouver Hong Kong Properties               Canada               100%             Property investment
       Ltd.                                                                              and management
     America & China Business Development         Canada               100%             Inactive
       Inc.                                                                            
     Heng Fai Management Inc.                     British Virgin       100%             Provision of
                                                   Islands                               management services
</TABLE>
                                                                       
     The Company holds certain  investments  in  marketable  equity  securities,
     which are  carried at fair  value.  Future  changes in the market  value of
     these securities could materially affect the Company's financial position.


                                      F-7
<PAGE>

                        HENG FAI CHINA INDUSTRIES, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                             (United States Dollars)


2.   CONTINUING OPERATIONS

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

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


3.   ACQUISITIONS

     During 1996 and 1995 the Company made two  acquisitions.  The  acquisitions
     were accounted for as a purchase and their  operating  results are included
     in the  consolidated  statements of income from their  respective  dates of
     acquisition.

     On  September  4, 1996,  through a  wholly-owned  subsidiary,  the  Company
     acquired a 70% interest in Wuhan Monkey King Container Co., Ltd.  ("Wuhan")
     in exchange for 727,272 shares of the Company's restricted common stock. No
     goodwill arose on the acquisition. Wuhan is a joint venture incorporated in
     the PRC which was formed to engage in the  design,  manufacture,  lease and
     repair of standard and non-standard  containers and related steel structure
     products.

     The  following  summary,  prepared  on a  pro  forma  basis,  presents  the
     consolidated  results  of  operations  of the  Company as if Wuhan had been
     acquired as of the beginning of the fiscal years presented.

                                            Year ended            Year ended
                                         December 31, 1996     December 31, 1995
                                         -----------------     -----------------

     Net revenues                           $2,154,644            $1,113,103

     Net loss                               $2,467,619            $2,168,331

     Net loss per share                          $0.22                 $0.20

     The above pro forma  financial  information is presented for  informational
     purposes and is not  necessarily  indicative of the operating  results that
     would  have  occurred  had  the  acquisition  been  consummated  as of  the
     beginning of the years presented.


                                      F-8
<PAGE>

                        HENG FAI CHINA INDUSTRIES, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                             (United States Dollars)


3.   ACQUISITIONS - continued

     On January 9, 1995,  the  Company  acquired  from Fai H. Chan,  an officer,
     director and  stockholder of the Company,  100% of the common stock of Heng
     Fai China & Asia  Industries,  Limited  ("Heng Fai Asia") in  exchange  for
     nominal consideration.  Heng Fai Asia through its wholly-owned subsidiaries
     had various  options to acquire  interests  in various  lease  interests or
     operating  joint ventures in the PRC, but otherwise had no material  assets
     and liabilities or operations at the time of acquisition.

     Heng Fai Asia,  through its wholly-owned  subsidiary formed in January 1995
     exercised  its  option to enter  into a lease,  for a period of five  years
     commencing January 1, 1995, of a production line at the Hebei Cangzhou City
     Chemical Corporation Factory (the "Cangzhou  Factory").  The subsidiary was
     entitled to lease the production line for five years for a rental of RMB1.2
     million ($144,288)  payable through  expenditures to renovate and modernize
     the Cangzhou Factory.  The expenditures were made in 1995 and the resulting
     prepaid  rental is being  amortized  over the five year term of the leases.
     Amortization  was $28,683 in 1996 and $28,750 in 1995. At the initiation of
     the Cangzhou  Factory lease,  the lessor provided certain raw materials and
     finished  goods  totalling  $91,415,  payment  of  which  is  due,  without
     interest,  at the expiration of the lease in December 1999. Heng Fai Asia's
     other options lapsed in 1995.


4.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     The accompanying  consolidated  financial  statements have been prepared in
     accordance  with  accounting  principles  generally  accepted in the United
     States.  The following  sets forth the  significant  accounting  principles
     utilized in the preparation of the consolidated financial statements:

     Principles of consolidation - The consolidated financial statements of Heng
     Fai China Industries,  Inc. include the assets,  liabilities,  revenues and
     expenses of the Company and all its subsidiaries. All material intercompany
     transactions and balances have been eliminated.

     Cash flows - The Company's cash and cash  equivalents  include cash on hand
     and short-term bank deposits,  with original  maturities of three months or
     less .

     The following  supplemental  schedule  summarizes  the fair value of assets
     acquired,  cash paid net of cash  acquired,  common  stock  issued  and the
     liabilities assumed in conjunction with the acquisition of equity interests
     in subsidiaries in 1996 and 1995:

                                                         As of December 31,
                                                    ---------------------------
                                                        1996            1995
                                                    -----------      ----------
     Fair value of non-cash assets acquired          $5,083,943            -
     Cash acquired                                       21,940            -
     Common stock issued                             (1,000,000)           -
                                                    -----------      ----------
     Liabilities assumed                            $ 4,105,883            -
                                                    ===========      ==========

     Inventories - Inventories are stated at the lower of cost determined by the
     weighted  average  method or market.  Work-in-progress  and finished  goods
     consist of raw  materials,  direct labor and overhead  associated  with the
     manufacturing process.


                                      F-9
<PAGE>

                        HENG FAI CHINA INDUSTRIES, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                             (United States Dollars)

4.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

     Investment  securities - The Company has classified  the marketable  equity
     securities  it  holds  as  available-for-sale.   Accordingly,  pursuant  to
     Statement  of Financial  Accounting  Standard  No. 115 the  securities  are
     measured at fair value, with unrealized gains and losses, net of applicable
     taxes, reported as a separate component of equity.

     Properties,  plant and  equipment -  Properties,  plant and  equipment  are
     stated at cost.  Depreciation  and  amortization is based on the respective
     estimated useful lives as calculated on the following bases:

     Building in Canada                  5% declining balance
     Buildings in the PRC                5% straight line method
     Leasehold improvements              Amortized over the term of the lease 
                                         which expires on May 31, 2032 using the
                                         straight line method
     Plant and machinery                 10% straight line method
     Furniture and equipment             10% to 20% straight line method
     Motor vehicles                      20% straight line method

     No depreciation is provided for construction in progress.

     Foreign  currency  translation  -  Financial  statements  of  international
     subsidiaries  are translated  into U.S.  dollars using the exchange rate at
     each balance sheet date for assets and liabilities  and a weighted  average
     exchange  rate for each period for revenue  and  expenses.  Where the local
     currency is the functional currency,  translation  adjustments are recorded
     as a separate component of shareholders'  equity.  Where the U.S. dollar is
     the  functional   currency,   the  financial  statements  of  international
     subsidiaries are translated at historical rates and translation adjustments
     are recorded in income.

     Revenue  recognition - Sales of cement and containers  are recognized  when
     merchandise is shipped and title has passed to the customer.  Rental income
     is recognized on a straight-line basis over the periods of the leases.

     Income  taxes  -  Certain  items  are  treated  differently  for  financial
     reporting purposes than for income tax purposes.  Pursuant to the provision
     of Statement of Financial  Accounting  Standards No. 109,  "Accounting  for
     Income Taxes",  deferred tax is provided,  under the liability method,  for
     the resulting temporary differences between the financial reporting and tax
     bases of assets  and  liabilities,  using the tax rates  expected  to be in
     effect when the related temporary difference reverse.

     Earnings per share - Earnings  per share are based on the weighted  average
     number of common stock outstanding during the year.

     Use of estimates - The  preparation  of financial  statements in conformity
     with generally accepted  accounting  principles requires management to make
     estimates and  assumptions  that affect the reported  amounts of assets and
     liabilities,  and the  disclosures of contingent  assets and liabilities at
     the date of the financial statements,  and the reported amounts of revenues
     and expenses during the reporting period.  Actual results could differ from
     these estimates.

     Reclassifications  - Certain prior year amounts have been  reclassified  to
     conform to the current year's presentation.


                                      F-10
<PAGE>

                        HENG FAI CHINA INDUSTRIES, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                             (United States Dollars)


5.   AVAILABLE-FOR-SALE SECURITIES

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

                                                     As of December 31,
                                                 -------------------------
                                                    1996            1995
                                                 ---------       ---------
     Corporate equity securities:
     Cost                                        $ 761,156       $ 524,776
     Less: Gross unrealized losses                 (78,825)        (43,941)
                                                 ---------       ---------
     Estimated fair value                        $ 682,331       $ 480,835
                                                 =========       =========
     Carrying value                              $ 682,331       $ 480,835
                                                 =========       =========

     All investment  securities are pledged to secure the Company's  margin loan
     payable (See Note 11).

     Included in the above  securities are 7,492,000 shares at December 31, 1996
     and 1995  representing  1.9 percent (1995:  2.7 percent) of the outstanding
     common  stock of Heng  Fung  Holdings  Company  Limited,  ("Heng  Fung") at
     December  31, 1996.  These  securities  were  acquired in 1995 at a cost of
     $484,778  and had a carrying  value of $426,342  at  December  31, 1996 and
     $445,722 at December 31, 1995.  Fai H. Chan and Robert H. Trapp,  directors
     of Heng Fung,  are also  officers,  directors  and/or  shareholders  of the
     Company.

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

6.   INVENTORIES

     Inventories by major categories are summarized as follows:

                                                      As of December 31,
                                                ---------------------------
                                                   1996             1995
                                                ----------       ----------

     Raw materials and supplies                 $3,176,209       $   67,253
     Work-in-progress                            1,070,066           67,591
     Finished goods                                157,407           19,526
                                                ----------       ----------
                                                $4,403,682       $  154,370
                                                ==========       ==========


                                      F-11
<PAGE>

                        HENG FAI CHINA INDUSTRIES, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                             (United States Dollars)


7.   PROPERTY, PLANT AND EQUIPMENT

     The components of property, plant and equipment are as follows:

                                                    As of December 31,
                                               --------------------------
                                                   1996           1995
                                               -----------    -----------
     Buildings .............................   $ 2,316,819    $   722,538
     Leasehold improvements ................       548,333        548,333
     Plant and machinery ...................     1,276,853           --
     Furniture and equipment ...............        50,024           --
     Motor vehicles ........................        55,816           --
     Construction in progress ..............         1,231           --
                                               -----------    -----------
     Total .................................     4,249,076      1,270,871
     Less: Accumulated depreciation 
       and amortization ....................      (846,838)      (413,323)
                                               -----------    -----------
                                               $ 3,402,238    $   857,548
                                               ===========    ===========

8.   DEFERRED EXPENDITURE

     (a)  In June 1995, the Company entered into a consulting  agreement with an
          unaffiliated  party  pursuant  to which it receives  various  investor
          relations and financial  advisory services.  The consulting  agreement
          has a term of 12 months,  subject to  earlier  termination  thereof or
          renewal  for  subsequent  periods.   Pursuant  to  the  terms  of  the
          agreement,  the Company: (a) in June 1995, issued to the consultant an
          aggregate  of 260,000  shares of common  stock and (b) is obligated to
          issue to the  consultant  20,000  shares of common  stock  each  month
          during the term of the agreement.

          The unamortized  portion of the amount recorded for the 260,000 shares
          of common stock initially issued brought forward from 1995 of $703,567
          was fully amortized in 1996 and recognized as consulting fees.

          During  1996,  100,000  shares  of  common  stock  were  issued to the
          consultant  pursuant to the terms of the  agreement in (b) above.  The
          value  attributable  to the 100,000  shares of common  stock issued of
          $581,000 was charged to the statement of income in 1996 and recognized
          as consulting fees.


                                      F-12
<PAGE>

                        HENG FAI CHINA INDUSTRIES, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                             (United States Dollars)


8.   DEFERRED EXPENDITURE - continued

     (b)  In September  1996,  the Company  entered into a consulting  agreement
          with another  unaffiliated party pursuant to which it receives various
          investor  relations and financial  advisory  services.  The consulting
          agreement  has a term of 12 months,  subject  to  earlier  termination
          thereof or renewal for  subsequent  periods.  Pursuant to the terms of
          the  agreement,  the Company  issued an aggregate of 300,000 shares of
          common  stock  to  the   consultant  in  September   1996.  The  value
          attributable to the 300,000 shares of common stock issued was $319,500
          which has been  capitalized  and is being amortized over the 12 months
          term of the  consulting  agreement.  The  unamortized  portion  of the
          amount  recorded  for the  300,000  shares of common  stock  issued is
          presented as a reduction of shareholders' equity.


9.   SHORT-TERM BORROWINGS

                                                      As of December 31,
                                                  -------------------------
                                                     1996           1995
                                                  ----------     ----------
     Short-term borrowings consist of:

     Unsecured bank overdraft ...............     $    2,977     $   60,120
     Unsecured bank borrowings ..............      2,400,049           --
                                                  ----------     ----------
                                                  $2,403,026     $   60,120
                                                  ==========     ==========

     The  weighted  average  interest  rate as of December 31, 1996 and 1995 was
     13.21% and 14.42% per annum, respectively.


10.  BILLS PAYABLE

     Bills  payable  represents  accounts  payable in form of bills of  exchange
     whose acceptances and settlements are handled by banks.


11.  MARGIN LOAN PAYABLE

     The margin  loan  payable is  collateralized  by the  Company's  investment
     securities  with a carrying  value of  $682,331.  The loan is  repayable on
     demand and bears interest at Hong Kong best lending rate (8.50% at December
     31, 1996) plus 3.5 percent per annum.


                                      F-13
<PAGE>

                        HENG FAI CHINA INDUSTRIES, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                             (United States Dollars)


12.  RELATED PARTY TRANSACTIONS

     At the  balance  sheet date the  Company had the  following  balances  with
     related parties, which are interest-free, repayable on demand and unsecured
     unless otherwise stated:

                                                       As of December 31,
                                                   ------------------------
                                                      1996          1995
                                                   ----------    ----------
     Amounts receivable from:
       A director .............................    $   12,409    $     --
       Parties related to certain directors ...       124,030        11,639
                                                   ----------    ----------
                                                   $  136,439    $   11,639
                                                   ----------    ----------
     Amounts payable to:
       Certain directors ......................    $  688,987    $   22,005
       Parties related to certain directors ...       421,557          --
                                                   ----------    ----------
                                                   $1,110,544    $   22,005
                                                   ==========    ==========

     In addition at December 31, 1996 and 1995,  the second  mortgage of $87,623
     and  related  interest  payable  of $3,522 are  payable to the  Silverstein
     Foundation,  Inc., a Panama  company,  in which Fai H. Chan's children have
     beneficial ownership interests.  The related interest expense was $8,947 in
     1996, $11,066 in 1995 and $9,463 in 1994.

     In addition to the above, in 1996, a consulting fee of $500,000 was paid to
     a company in which Fai H. Chan has a beneficial ownership interest.

13.  MORTGAGE LOANS PAYABLE

                                                          As of December 31,
                                                        ----------------------
                                                           1996         1995
                                                        ---------    ---------
     First mortgage, principal due monthly through
       June 15, 1998 with fixed interest at 8.75% ...   $ 886,040    $ 904,810
     Second mortgage, principal due September 1, 1997
       with interest at Canadian prime (4.75% as at
       December 31, 1996) plus 4% ...................      87,623       87,623
                                                        ---------    ---------
                                                          973,663      992,433
     Less: Current portion ..........................    (108,069)     (17,325)
                                                        ---------    ---------
                                                        $ 865,594    $ 975,108
                                                        =========    =========

     The mortgage loans are denominated in Canadian  dollars.  The maturities of
     the mortgage loans as at December 31, 1996 are as follows:

         1997                                           $108,069
         1998                                            865,594
                                                        --------
                                                        $973,663
                                                        ========

     The Company  has pledged  property  and  premises  with a net book value of
     $783,565 at December 31, 1996 to secure the mortgage loans.


                                      F-14
<PAGE>

                        HENG FAI CHINA INDUSTRIES, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                             (United States Dollars)


14.  CAPITAL STOCK

     During the three years ended  December 31, 1996 there were several  changes
     of the Company's capital as set out below:

     In 1994,

     a)   the Company changed its state of incorporation through a merger of the
          Company with and into its wholly-owned Delaware subsidiary.  A reverse
          stock split of four old shares for one new share effected the merger.

     b)   the Company  effected a reverse  stock split of ten old shares for one
          new share.

     c)   the  Company  issued  10,000,000  shares of common  stock at $0.01 per
          share pursuant to a private placement for proceeds of $100,000.

     In 1995,

     d)   the Company  issued  400,000 shares of common stock at $5.81 per share
          pursuant to a consulting agreement. (see Note 8).

     e)   the  Company  issued  75,000  shares of  common  stock at $4 per share
          pursuant to private placements for proceeds of $300,000.

     In 1996,

     f)   the Company issued 100,000 and 300,000 shares of common stock at $5.81
          and $1.0625 pursuant to consulting agreements (See Note 8).

     g)   the Company issued 727,272 shares of common stock at $1.375 to acquire
          a 70% interest in a subsidiary (See Note 3).

     As of December 31,  1996,  there were  outstanding  warrants to purchase an
     aggregate of 296,443 shares of common stock,  at an exercise price of $3.20
     per share  through  September 2, 1999. No warrants were issued or exercised
     during 1996.


                                      F-15
<PAGE>

                        HENG FAI CHINA INDUSTRIES, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                             (United States Dollars)


15.  INCOME TAXES

     No  provision  for income  taxes for 1994 and 1996,  as the Company and its
     subsidiaries  made losses in those  years.  The 1995  provision  for income
     taxes consists of Canadian taxes for 1995.

     Under current PRC regulations,  the Company's  subsidiaries  receive a full
     exemption from enterprise  income tax for two years starting from the first
     profitable  year,  followed by 50%  reduction  in income taxes for the next
     three  profitable  years.  At December  31, 1996 the  subsidiaries  had not
     reported any operating profits.

     At December 31, 1996 certain of its  subsidiaries  had  operating  tax loss
     carry  forwards  for  income  tax  purposes  which may be applied to reduce
     future taxable income of the same company.  At December 31, 1996 there were
     tax losses carry  forward in Hong Kong of  approximately  $107,000  with no
     expiration date.

     The Company has established a valuation  allowance for the entire amount of
     these losses. There were no other material timing differences.


                                      F-16
<PAGE>

                        HENG FAI CHINA INDUSTRIES, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                             (United States Dollars)


16.  SEGMENT INFORMATION

     The  following  is  a  summary  of  information   regarding  the  Company's
     operations  by  principal  activities  for each of the  three  years  ended
     December 31, 1996:

<TABLE>
<CAPTION>
                                                                        1996
                                     ---------------------------------------------------------------------------
                                        Rental                                       Investment
                                        income         Cement        Containers        income       Consolidated
                                     ------------   ------------    ------------    ------------    ------------
<S>                                  <C>            <C>             <C>             <C>             <C>         
     Revenues ....................   $    336,644   $    540,191    $  1,082,317    $     92,214    $  2,051,366
     Income (loss) from operations         85,883        (62,487)       (241,208)        (59,955)       (277,767)
     General corporate expenses ..           --             --              --              --        (1,901,685)
     Interest expense ............           --             --              --              --          (185,975)
                                                                                                    ------------

     Loss before income taxes ....           --             --              --              --      $ (2,365,427)
                                                                                                    ============

     Identifiable assets .........        787,920        395,955       8,560,939         710,307    $ 10,455,121
     Corporate assets ............           --             --              --              --           170,259
                                                                                                    ------------

                                                                                                    $ 10,625,380
                                                                                                    ============

<CAPTION>
                                                                        1995
                                     ---------------------------------------------------------------------------
                                        Rental                                       Investment
                                        income         Cement        Containers        income       Consolidated
                                     ------------   ------------    ------------    ------------    ------------
<S>                                  <C>            <C>             <C>             <C>             <C>         
     Revenues ....................   $    347,034   $    278,622    $       --      $      7,918    $    633,574
     Income (loss) from operations        110,608        (75,107)           --           (52,612)        (17,111)
     General corporate expenses ..           --             --              --              --        (1,833,233)
     Interest expense ............           --             --              --              --          (105,435)
                                                                                                    ------------

     Loss before income taxes ....           --             --              --              --      $ (1,955,779)
                                                                                                    ============

     Identifiable assets .........        877,265        299,107            --           492,483    $  1,668,855
     Corporate assets ............           --             --              --              --            55,001
                                                                                                    ------------

                                                                                                    $  1,723,856
                                                                                                    ============


<CAPTION>
                                                                        1994
                                     ---------------------------------------------------------------------------
                                        Rental                                       Investment
                                        income         Cement        Containers        income       Consolidated
                                     ------------   ------------    ------------    ------------    ------------
<S>                                  <C>            <C>             <C>             <C>             <C>         
     Revenues ....................   $    327,381   $       --      $       --      $      5,938    $    333,319
     Income from operations ......        125,119           --              --              --           125,119
     General corporate expenses ..           --             --              --              --           (18,639)
     Interest expense ............           --             --              --              --           (79,165)
                                                                                                    ------------

     Loss before income taxes ....           --             --              --              --      $     27,315
                                                                                                    ============

     Identifiable assets .........        939,734           --              --              --      $    939,734
     Corporate assets ............           --             --              --              --           189,962
                                                                                                    ------------

                                                                                                    $  1,129,696
                                                                                                    ============

</TABLE>


                                      F-17
<PAGE>

                        HENG FAI CHINA INDUSTRIES, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                             (United States Dollars)


16.  SEGMENT INFORMATION (Continued)

     The  following  is  a  summary  of  information   regarding  the  Company's
     operations by geographical  area for each of the three years ended December
     31, 1996:

                                   1996            1995            1994
                               ------------    ------------    ------------
     Revenues
       North America .......   $    342,112    $    349,698    $    333,319
       PRC .................      1,685,642         279,251            --
       Hong Kong ...........         23,612           4,625            --
                               ------------    ------------    ------------
                               $  2,051,366    $    633,574    $    333,319
                               ============    ============    ============
     Operating income (loss)
       North America .......   $     91,351    $    104,640    $    125,119
       PRC .................       (240,561)        (74,480)           --
       Hong Kong ...........       (128,557)        (47,271)           --
                               ------------    ------------    ------------
                                   (277,767)        (17,111)        125,119
                               ============    ============    ============
     Identifiable assets
       North America .......   $    787,920    $    877,265    $    939,734
       PRC .................      8,956,894         299,107            --
       Hong Kong ...........        710,307         492,483            --
     Corporate assets ......        170,259          55,001         189,962
                               ------------    ------------    ------------
                               $ 10,625,380    $  1,723,856    $  1,129,696
                               ============    ============    ============


                                      F-18
<PAGE>

                        HENG FAI CHINA INDUSTRIES, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                             (United States Dollars)


17.  ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

     The  following   disclosure  of  the  estimated  fair  value  of  financial
     instruments is made in accordance with the requirements of the SFAS No. 107
     "Disclosure about Fair Value of Financial Instruments".  The estimated fair
     value amounts have been determined by the Company,  using available  market
     information and appropriate valuation methodologies.  However, considerable
     judgment is  necessarily  required in  interpreting  market data to develop
     estimates of fair value.  Accordingly,  the estimates  presented herein are
     not necessarily indicative of the amounts that the Company could realize in
     a current market exchange.

     The carrying amounts of cash and cash equivalents,  short-term  borrowings,
     current  portion of mortgage  loans payable and margin loan payable,  are a
     reasonable  estimate  of their fair value due to the short  maturity of the
     instruments. The fair value for the available for sale securities are based
     primarily on quoted market prices and such  securities  are carried at fair
     value.

     The fair value for the  long-term  portion of  mortgage  loans  payable and
     long-term  payable were estimated  based on the current rates  available to
     the Company for debt of the same remaining maturities. At December 31, 1996
     mortgage  loans payable and long-term  payable with book values of $865,594
     and  $88,744  had  fair  values  of  approximately   $731,907  and  $61,162
     respectively.


18.  COMMITMENTS AND CONTINGENCIES

     At December  31,  1996,  the Company had capital  commitments  of $8,675 to
     acquire plant and machinery.

     The Company had contingent liability of approximately  RMB739,000 ($89,000)
     at December 31, 1996 for the delay in the  completion  of a sales order for
     containers.  The negotiation between the Company and the customer to revise
     the  contract  terms and  extend  the  completion  date of  contract  is in
     progress.  The  Company  does not believe the  ultimate  resolution  of the
     matters will have any material effect on the Company's financial position.

     The Company leases land in North  Vancouver,  British Columbia on which the
     Company's  rental  property  is  located.  The annual  rent of  CDN$110,000
     ($80,321) is fixed until May 31, 2010. The Company has the option to extend
     the lease to May 31,  2032 at a rent to be  negotiated.  The  Company  also
     leases  certain  manufacturing  equipment  under  operating  leases for its
     cement operation for a period of five years commencing January 1, 1995. All
     amounts due under this lease were prepaid.

     The Company also leases a plant in Wuhan,  for the production of containers
     at an annual rent of RMB380,000  ($45,618).  The operating  lease commenced
     from June 1, 1996 and  expires in 2016 and the annual  rental is subject to
     review every three years.

     Total rental expense  charged to operations was $131,813 in 1996,  $108,891
     in 1995 and $80,533 in 1994.


                                      F-19
<PAGE>

                        HENG FAI CHINA INDUSTRIES, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                             (United States Dollars)


18.  COMMITMENTS AND CONTINGENCIES - continued

     At  December  31,  1996,  the  minimum  future  rental   commitments  under
     non-cancellable leases payable over the remaining lives of the leases are:

     1997...................................   $   125,939
     1998...................................       125,939
     1990...................................       125,939
     2000...................................       125,939
     2001...................................       125,939
     2002 through 2016......................     1,380,552
                                               -----------
                                               $ 2,010,247
                                               ===========

19.  SUBSEQUENT EVENTS

     The following transactions took place subsequent to December 31, 1996:

     (a)  On January 13,  1997,  a  consulting  agreement  engaged Tom Kosta for
          public  affairs and related  financial  services  was  approved by the
          Board of Directors.  In consideration  for such services,  the Company
          issued options to acquire 50,000 shares of the Company's common stock,
          25,000 exercisable at $1.00 per common share and 25,000 exercisable at
          $1.25 per common share.

     (b)  On January 24, 1997, a private  placement to the following parties has
          been approved by the Board of Directors:

                             Number of shares      Issue price    Consideration
                             ----------------      -----------    -------------
                                                                 
          Fai H. Chan           1,300,000             $0.6           $780,000
          Y.K. Chan              200,000               0.6            120,000
          M.T. Lau               100,000               0.6            60,000
          Robert H. Trapp        100,000               0.6            60,000
                                                           
          Except for Y.K.  Chan,  who is the wife of Fai H. Chan,  all the above
          parties are directors of the Company.

     (c)  On March 19, 1997,  the Company  entered into a conditional  agreement
          (the  "Agreement")  through  a newly  formed,  wholly-owned  Hong Kong
          incorporated subsidiary, (the "Subsidiary") with an unaffiliated party
          in PRC, (the "PRC Party") to establish a joint venture, (the "JV"), in
          Zhangjiagang Free Trade Zone, PRC.

          The  principal  business  of  the  JV  is  property   development  and
          distribution of commercial buildings.  In accordance to the Agreement,
          the Company will issue 379,520 non-trading  preferred stock with a par
          value of  $10.00  each to the PRC  Party  for  consideration  of a 70%
          interest   in   the   JV   to   be   acquired   by   the   Subsidiary.

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

                                      F-20