<PAGE>   1
                                    FORM 20-F

              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                    For the fiscal year ended March 31, 2000


                        Commission file number 000-21919

                            DF CHINA TECHNOLOGY INC.
                 (PREVIOUSLY DRANSFIELD CHINA PAPER CORPORATION)
             (Exact name of Registrant as specified in its charter)



                     Territory of the British Virgin Islands
                     ---------------------------------------
                 (Jurisdiction of incorporation or organization)

               8th Floor, North Wing, Kwai Shun Industrial Centre
                      51-63 Container Port Road, Kwai Chung
                        New Territories, Hong Kong, China



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

                           Common Stock, no par value
                           --------------------------
                                (Title of Class)


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

                           Common Stock, no par value
                           --------------------------
                                (Title of Class)


         Indicate the number of outstanding shares of each of the issuer's
classes of capital or common stock as of the close of the period covered by the
annual report.

                        Common Stock - 18,165,007 Shares
                        --------------------------------

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

               Yes   X            No
                   -----             -----


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

               Item 17    X          Item 18
                        -----                 -----


<PAGE>   2



                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
<S>  <C>                                                                    <C>
Item 1.   Description of Business                                               2

Item 2.   Description of Property                                               8

Item 3.   Legal Proceedings                                                     9

Item 4.   Control of Registrant                                                 9

Item 5.   Nature of Trading Market                                             10

Item 6.   Exchange Controls and Other Limitations Affecting
          Security Holders                                                     10

Item 7.   Taxation                                                             13

Item 8.   Selected Financial Data                                              13

Item 9.   Management's Discussion and Analysis of Financial
          Conditions and Results of Operations                                 15

Item 9A.  Quantitative and Qualitative Disclosures About
          Market Risk                                                          30

Item 10.  Directors and Officers of the Company                                31

Item 11.  Compensation of Directors and Officers                               34

Item 12.  Options to Purchase Securities from the Company                      34

Item 13.  Interest of Management in Certain Transactions                       35

Item 14.  Description of Securities to Be Registered                           36

Item 15.  Defaults Upon Senior Securities                                      36

Item 16.  Changes in Securities and Changes in Security for
          Registered Securities                                                36

Item 17.  Financial Statements                                                 37

Item 18.  Financial Statements                                                 38

Exhibit List                                                                   38

SIGNATURE                                                                      39
</TABLE>


                                       1
<PAGE>   3



                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS.

     DF China Technology Inc. (Nasdaq: DFCT), formerly Dransfield China Paper
Corporation, is a 78.4%-owned subsidiary of Dransfield Holdings Limited
("Dransfield Holdings"), a Cayman Islands company that was founded by Sir
Kenneth Fung, CBE, JP, in the 1940s to market and distribute consumer products
in Hong Kong. Dransfield Holdings has three business divisions:

o    a paper business conducted by us, which bought and sold a Proctor & Gamble
     "Tempo" brand-name paper handkerchief, which we distributed to retailers
     until June 1997, and which business division is expanding its operations to
     include paper manufacturing and distribution of our own brand-name paper
     products;

o    a food and beverage division, which has breweries in China and the United
     Kingdom and an edible oil factory in China, and which distributes alcoholic
     and non-alcoholic beverages in Hong Kong; and

o    a logistics and services division that provides warehousing, deliveries,
     repair, exhibition and buying-program services to affiliated and
     non-affiliated companies in Hong Kong and China. The services division now
     includes a small consumer electronics department that distributes household
     appliances under the brand names of "Turbo" and "DF".

     Our parent, Dransfield Holdings, has been listed on the Hong Kong Stock
Exchange since April 1993.

     Through distribution of DFCT shares by Dransfield Holdings to its
shareholders on June 30, 2000, Dransfield Holdings reduced its shareholdings to
approximately a 32.2% level with the result that the public float of DFCT is
increased to approximately 9,180,120 shares (or 50%).

     Until February 26, 1997, our business was conducted by Dransfield Paper
Holdings Limited ("Dransfield Paper"), which merged with us on that date.

     The purpose of the merger was to transfer Dransfield Holdings' equity in
its paper business division from the Hong Kong Stock Exchange to the Nasdaq
Stock Market in the U.S. The paper business dates back to 1975, when A.
Dransfield & Co. Ltd., a wholly-owned subsidiary of Dransfield Holdings, secured
the exclusive distribution rights for Tempo paper handkerchiefs in Hong Kong and
Macau. In 1994 Dransfield Paper, before its merger with us, succeeded to this
business from its sister company and continued to develop a substantial
distribution network for Tempo handkerchiefs, principally through supermarkets,
drug stores and newspaper stands.


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<PAGE>   4


     Our ability to achieve consistent market share of more than 40% of the
paper handkerchief market in Hong Kong through our sales of Tempo handkerchiefs
provided the incentive to manufacture and distribute our own DF branded paper
products, distribution of which commenced in August 1997. In June 1997, we
ceased distributing Proctor & Gamble's Tempo product.

     In November 1994, our company undertook to establish business contacts and
to gain experience in buying waste paper, which it did both on an indent, or
pre-sold, basis and on an agency basis, all in support of its plan to become an
integrated manufacturer and distributor of hygienic paper products for
consumers. This paper merchanting operation was conducted by a subsidiary
company named C.S. Paper Holdings (International) Limited, which comprised the
following operations:


o    A paper agency company, Central National Hong Kong Limited, through a joint
     venture with Central National Gottesman, Inc., a U.S. company, which agency
     was sold pursuant to an agreement dated March 27, 1997, to one of its
     beneficial owners, and

o    A paper trading company in Hong Kong, Dransfield Paper (HK) Trading
     Limited, which sold and still sells packaging grade papers on an indent
     basis or from stock.

     In August 1997, our company began production of our own DF brand-name paper
products at a paper converting facility we established at Conghua, in the city
of Guangzhou, Guangdong Province, Southern China. This was a major step in our
evolution into a vertically-integrated hygienic paper producer and distributor
serving some of China's most densely populated and fastest growing areas, as
well as in Hong Kong.

     To date, the converting facility has not been able to locate a sufficient
domestic source of consistent quality jumbo rolls that meet the quality and cost
criteria for our intended market segments. Quality imports are available, but
high price and import duties pose major hurdles to market penetration.

     Until we obtain the needed funding to complete either paper mill No.1 or
mill No. 2, our converting facility will always be short of affordable raw
materials and, as a result, our market penetration will be delayed. As we
continue aggressively to seek funds to complete the mills, we have made
arrangements to meet part of our production requirements, thereby alleviating
this problem in the short term.

1.   We have signed a seven-year agreement with Jiangmen Sugar Cane Chemical
     Factory (Group) Corporation Limited to operate its small paper mill in
     Jiangmen, Guangdong Province. The mill has annual capacity of up to 5,500
     metric tons of tissue paper and 33,000 metric tons of deinked pulp.
     However, the recent price increase in virgin pulp, which this paper mill
     uses as its primary raw


                                       3
<PAGE>   5


     material, has prevented the mill from producing paper at a cost that will
     allow us to make a reasonable return. We are therefore limiting our use of
     the Jiangmen mill at this time.

2.   We have signed up two small paper mills in the county of Conghua, Guangzhou
     City, to contract manufacture jumbo rolls to our specifications. We have
     begun taking delivery of approximately 75-100 metric tons per month, which
     represent the excess capacity of these two paper mills. In order to assure
     quality, our process engineers are stationed at these paper mills to
     supervise the production of our paper.

3.   We have identified two small paper mills in Guangxi Province that together
     have excess capacity of approximately 150 metric tons per month. Again, we
     will be supervising the production of our contracted volume in order to
     assure consistent quality.

4.   Guangdong Dransfield Paper Ltd. has signed a five-year lease with a small
     paper mill in Xinhui, also in Guangdong Province. The mill will manufacture
     medium-quality paper under our direct management, operating as a branch
     factory of our own paper mill under construction in Xinhui. We began test
     production in this mill in early September, 2000.

5.   We will continue to supplement domestically sourced jumbo rolls with
     imported paper in order to serve export markets. In the final quarter of
     fiscal 2000, we began marketing our products overseas and are beginning to
     meet with encouraging success in Macau, Hong Kong and Taiwan.

THE PAPER INDUSTRY IN CHINA

     China currently has more than 700 business enterprises producing tissue
paper, most of which are small mills with a daily output of 1 to 5 metric tons.
Most are equipped with cylinder and fourdrinier paper machines with paper widths
of 1,092mm to 1,760mm and speeds of 60m to 120m per minute only. Raw materials
are mostly mixed waste paper pulp, white paper trimmings, rice and wheat straw
pulp, bagasse pulp, tail pulp of paper mills, waste cotton pulp and others which
have just been simply bleached. Only a few paper machines imported from
overseas, together with a few Chinese-made cylinder and fourdrinier machines use
imported wood pulp as raw material to produce higher grade tissue paper.

     The following table is an estimate of raw material utilization in tissue
paper plants.



                                       4
<PAGE>   6


TABLE 1

<TABLE>
<CAPTION>
                                                                ESTIMATED
RAW MATERIALS                                QUALITY           USAGE RATE (%)
<S>                                          <C>               <C>
100% imported wood pulp or                   Best                  10
Chinese-made cotton pulp

30% imported wood pulp,                      Good                  20
70% wood pulp and waste paper
or quality bleached bagasse pulp

White paper shorts and bleached              Average               20
rice and wheat straw pulp

Mixed waste paper, ordinary straw            Bad                   50
pulp and tail pulp of paper mills
</TABLE>

     In 1997, an estimated 31 million metric tons of paper and paper board were
produced in China. Approximately 2.1 million metric tons of hygienic paper were
produced by tissue paper mills.

     Although annual consumption of hygienic paper in China is only a fraction
of that in the West, tissue paper consumption grew at an annual compound rate of
15.7%, from 680,000 metric tons in 1990 to 2.1 million metric tons in 1997.
Annual per capita consumption increased from 0.6kg to 1.7kg, which is still less
than 10% of the United States, where annual per capita consumption exceeds 19kg.

     While China still lags developed countries in the consumption of hygienic
paper products, the volume and variety of paper products consumed is growing
each year. Tissue paper products currently available in China include folded
handkerchiefs, facials, napkins, bathroom tissues, kitchen and other paper
towels, and moist tissues. Western packaged facials, handkerchiefs, napkins and
bathroom tissues are now sold in supermarkets of major cities.

     From 1988 to 1992, toilet paper accounted for more than 95% of all tissue
paper sold in China. With the subsequent increase in consumer income, toilet
paper accounted for 88% and tissues 12%, according to a 1995 industry survey. In
1997, the estimated proportion of toilet paper fell to approximately 75%, while
tissues rose to 25%, of which 15% was napkins and 10% facials.

     We believe that most mills producing hygienic paper in China are
under-financed, poorly managed and producing low-grade products, covering
approximately 65% of the mass market.

     The two mills we are building target medium- and premium-quality paper
product markets. Depending on the grade of raw materials used, our products can
also compete in the top end of the mass market.


                                       5
<PAGE>   7


Currently, the top end of the tissue paper market comprises 15% of total market
share.

THE COMPETITION

     Our competitors in China are:

o    Scott Shanghai (now owned by Kimberly Clark). Estimated output: 14,000
     metric tons per annum.

o    Taiwan Long Chen (now owned by Procter & Gamble) located in Suzhou, Jiangsu
     Province. Estimated output: approximately 14,000 metric tons per annum.

o    Taiwan Yuen Foong Yu located in Kunshan, Jiangsu Province. Estimated
     output: approximately 15,000 metric tons per annum.

o    Guangdong Vinda Paper Co. Ltd., the largest and most influential local
     paper mill, located in Xinhui, Guangdong Province. Estimated expanded
     capacity: approximately 30,000 metric tons per annum.

o    Asia Pulp & Paper Co. Ltd. has a factory in Jiangsu Province that produces
     jumbo rolls and a converting facility in Guangdong Province. Estimated
     maximum capacity of the paper making facility: 120,000 metric tons per
     annum. (The factory is currently producing approximately 96,000 tons per
     annum of which approximately 50% is sold as jumbo rolls to converters.)

o    Fujian Hengan Holding Co. Ltd. in Changde, Hunan Province, now produces
     tissue paper to meet its requirements for production of diapers as well as
     paper. Estimated capacity: approximately 30,000 metric tons per annum.

     Given the above-described capacities together with our estimated production
capacity, we believe the need for top quality products for both domestic and
on-premise (tourist) consumption will be temporarily met until the next round of
economic growth in China.

DF CHINA TECHNOLOGY POSITIONING

     Despite recent double-digit growth in China and projected annual growth of
around 7%, we assume that the majority of consumers in China will not afford
themselves the luxury of premium-priced hygienic paper products for several
years to come. Accordingly, we plan to position ourselves in the mass market as
well as in the medium- to premium-priced market. Our rationale is to penetrate
the mass market with the aim of cultivating consumer purchasing habits,
appreciation of our quality, and recognition of our brand name over the years.
We intend to have raw materials for the mass-market products
contract-manufactured by smaller paper mills and to produce raw materials for
higher-end products at our own mills as they are commissioned.

     In addition to the vast market in China, we are beginning to target


                                       6
<PAGE>   8


nearby Asian export markets, namely Macau, Taiwan and Hong Kong. We have begun
to produce away-from-home products including hand roll towels (HRT), jumbo roll
tissues (JRT) and "N" multi-fold towels. Our aim is to export sufficient
quantity to match our U.S. dollar expenditures for imported waste paper, mainly
from the U.S. Export sales help to control currency risk by currency matching
expenses and revenues. Export of Chinese-manufactured goods coupled with the
purchase of raw materials from overseas is also consistent with the national
policy of the People's Republic of China, which encourages two-way trade.

RESEARCH AND DEVELOPMENT. We have not incurred any significant expenses on
research and development activities.

ENVIRONMENTAL CONTROLS. We anticipate that the Chinese government will increase
its requirements for environmental controls. With this in mind, we are
installing and employing environmental control standards that meet U.S.
standards, which are higher than those currently required by the PRC.

     The environmental controls we are installing at Paper Mill No. 2 have been
approved by the provincial authorities and the central government. The paper
mills will use an enzymatic deinking agent instead of the traditional chemical
agent. This biological process will reduce the use of chemicals by approximately
90%. The effluent output is mostly clay, which can be used as a construction
material, and the effluent water will be treated in lagoons. The effluent water,
after treatment, will meet the standards set by the Chinese government for
biological oxygen demand (BOD), chemical oxygen demand (COD), suspended solids
(SS) and pH.

     The entire deinking process has been designed by in-house U.S. and European
experts assisted by an independent consultant. Our waste treatment process and
plants have been designed by specialists in the U.S., but are being built in
China.

     Similar environmental controls are proposed for Paper Mill No. 1 and have
been approved by the local environmental protection agency. We expect them to be
approved by the provincial authorities and the central government.

     Because our environmental procedures will have received local authority
approval prior to installation of the equipment, we do not anticipate incurring
any significant environmental clean-up expenses other than those that are part
of our regular operating costs.

NUMBER OF EMPLOYEES. On March 31, 2000 we employed 156 persons. Once the
operations in Conghua and the small paper mill we just leased in Xinhui go into
full operation, the number of employees will increase substantially, as it will
when installation of the deinking and tissue making operations commence at the
paper mills.

VENUE OF SALES. Most of our sales for the last three fiscal years were in Hong
Kong. Less than 10% of our sales during the year ended March 31, 2000, were
attributable to exports to China.

                                       7
<PAGE>   9


PATENTS, COPYRIGHTS AND INTELLECTUAL PROPERTY.

     We hold no patents, copyrights or intellectual property other than
trademarks established for our new paper products for the consumer market. We
are not aware of any patents, trademarks, licenses, franchises and concessions
that would affect our business and production described herein.



ITEM 2. DESCRIPTION OF PROPERTY.

     CONGHUA - PAPER MILL NO. 1.

     We have the land use rights to 16,011 square meters in a development zone
in Conghua, Guangzhou, PRC, on which we have constructed a paper converting
plant and warehouse, a conference center, and a 52-room guest house. The
recycled pulp production and paper making facilities are planned for a tract of
approximately 35,000 square meters in Xinhui, near Guangzhou, near other
manufacturers of tissue and industrial-grade paper, on a major river with ready
access to road and river transportation facilities and with an abundant supply
of electricity.

     JIANGYIN - PAPER MILL NO. 2.

     Paper Mill No. 2 is owned by a Sino-foreign equity joint venture of our
company, Jiangsu Huaxi Holdings Corporation and Broadsino Investment Company Ltd
("Broadsino"). The joint venture company, Jiang Ying Dransfield Paper Co. Ltd.
("Jiang Ying") is 40% owned by Jiangsu Huaxi Holdings Corporation and 60% owned
by Dransfield Broadsino Paper Holdings Limited ("Dransfield Broadsino Paper"), a
company 80% owned by us and 20% owned by Broadsino. We have agreed to provide
Broadsino's equity contribution (approximately US$1.9 million) to the joint
venture through a loan to Broadsino bearing compound interest at the rate of 6%
a year.

     Our joint venture partner, Jiangsu Huaxi Holdings Corporation, has a
50-year land use agreement with the local authority in Jiangyin, Jiangsu
Province, for a 65,000-square-meter tract on which Paper Mill No. 2 is being
constructed. Jiangsu Huaxi, a PRC government corporation, originally agreed to
provide this parcel of land as part of its capital contribution. The project
site is adjacent to a Yangtze River tributary, which will supply water to the
paper mill. The tract is also accessible by a major highway, near other
manufacturers of industrial grade papers, and adequate to meet medium-term
expansion needs.

     Originally, the joint venture was established in order to ensure an
adequate supply of electricity to the mill. Our Chinese partners were to
contribute a 12,000-kilowatt-hour, coal-fired, power plant as their 40% interest
in the joint venture. This power plant currently supplies electricity to other
plants nearby and was to supply the required electricity and steam to the paper
mill. However, there now being an adequate supply of electricity in the area in
which the factory is


                                       8
<PAGE>   10


situated, we believe we are in a position to develop and operate the factory on
the strengths of our own management.

     In an effort to generate funds from sources other than the public market,
we came to an agreement in July 1999 with Jiangsu Huaxi to exchange shares of
our common stock in partial payment for land in Jiangyin, the site of Paper Mill
No. 2. Under the agreement, we expect to convert our Sino-foreign equity joint
venture into a foreign company, wholly owned by Dransfield Broadsino Paper
Holdings Ltd., which is 80% held by us. Since the conversion to a wholly-owned
foreign company in the third quarter 1999 we are now able to focus on our
investment.

     In July 1999 our converting facility at Paper Mill No. 2 in Huaxi was
commissioned and test production begun.

     OFFICE FACILITIES.

     We rent office facilities in Hong Kong from another subsidiary corporation
of our parent, Dransfield Holdings, and share these facilities with other
Dransfield subsidiary.

ITEM 3. LEGAL PROCEEDINGS.

     Neither our company nor any of its properties is a party to or the subject
of any material pending legal proceedings other than ordinary routine litigation
incidental to its business.

ITEM 4. CONTROL OF REGISTRANT.

     At the balance sheet date, we were a 78.4%-owned subsidiary of Dransfield
Holdings, a Cayman Islands company listed on the Hong Kong Stock Exchange.

     Through distribution of DFCT shares by Dransfield Holdings to its
shareholders on June 30, 2000, Dransfield Holdings reduced its shareholdings to
approximately a 32.2% level.

     The following table sets forth, as of August 31, 2000, information with
respect to any person known to us to be the beneficial owner of more than ten
percent of our Common Stock and the total amount of our Common Stock
beneficially owned by the officers and directors as a group:

<TABLE>
<CAPTION>
                                                                               Percent
                Owner                               Amount Owned              of Class
                -----                               ------------              --------
<S>                                                  <C>                        <C>
         Dransfield Holdings Limited                 5,909,000(1)               32.2%

         Grandom Asia Trading Limited                2,226,156                  12.1%

         Grandom Inc.                                1,004,439                   5.5%
</TABLE>


                                       9
<PAGE>   11

<TABLE>
<S>                                                  <C>                        <C>
         Officers and Directors as a
                  Group(8 persons)                   9,176,098                  50.0%
</TABLE>

----------

(1)  Represents sole voting and investment powers with respect to these shares.

ITEM 5.  NATURE OF TRADING MARKET.

OUTSIDE THE UNITED STATES

     There is currently no trading market outside the United States for our
Common Stock.

INSIDE THE UNITED STATES

     Our Common Stock is listed for trading on the Nasdaq SmallCap Market under
the symbol "DFCT".

     Our Common Stock commenced trading in the U.S. on April 2, 1997. The
reported high and the low sales prices have been as follows:

<TABLE>
<CAPTION>
                                                      (Closing Price)
                           Calendar Quarters          High      Low
                           <S>                       <C>      <C>
                           1997, 2nd Quarter         $5.250   $2.500
                           1997, 3rd Quarter         $4.875   $3.250
                           1997, 4th Quarter         $4.875   $4.313
                           1998, 1st Quarter         $4.000   $2.750
                           1998, 2nd Quarter         $2.875   $1.625
                           1998, 3rd Quarter         $2.375   $0.750
                           1998, 4th Quarter         $2.125   $0.313
                           1999, 1st Quarter         $2.250   $1.250
                           1999, 2nd Quarter         $1.250   $0.781
                           1999, 3rd Quarter         $1.125   $0.797
                           1999, 4th Quarter         $12.000  $0.438
                           2000, 1st Quarter         $7.563   $2.625
                           2000, 2nd Quarter         $4.375   $1.438
</TABLE>

     Of the 18,165,007 outstanding shares of Common Stock, 3,563,307 shares are
held in the United States by approximately 1,200 record holders and 14,601,700
shares are held in Hong Kong by approximately 520 shareholders, one of whom,
Dransfield Holdings Limited, a Cayman corporation, owns 5,909,000 shares.


ITEM 6.  EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS.

     The business of our company is conducted in and from Hong Kong and the
People's Republic of China ("the PRC") in Hong Kong dollars and the

                                       10
<PAGE>   12

PRC Renminbi. Periodic reports made to U.S. shareholders are expressed in U.S.
dollars using the then-current exchange rates.

     The PRC Government imposes control over its foreign currency reserves in
part through direct regulation of the conversion of Renminbi into foreign
exchange and through restrictions on foreign trade. The conversion of the
Renminbi into U.S. dollars must be based on the People's Bank of China ("PBOC")
Rate. The PBOC Rate is set based on the previous day's PRC interbank foreign
exchange market rate and with reference to current exchange rates on the world
financial markets. In line with the unification of the two exchange rates, the
Renminbi was revalued at HK$1.00=RMB1.12 and US$1.00=RMB8.70 on January 3, 1994.
Since revaluation, the exchange rate has fluctuated between a range of US$1.00 =
RMB8.30 and US$1.00 = RMB8.70.

     The following table sets forth the average noon exchange rate between
Renminbi and U.S. dollars for the periods indicated and is expressed in RMB per
U.S. Dollar:

<TABLE>
<CAPTION>
PERIOD            AVERAGE NOON BUYING RATE(1)(2)
------            ------------------------
<S>               <C>
1989                      3.8149
1990                      4.8175
1991                      5.3431
1992                      5.5309
1993                      5.7769
1994                      8.6402
1995                      8.3700
1996                      8.3389
1997                      8.3193
1998                      8.3008
</TABLE>

----------

Source: The Noon Buying Rate in New York for cable transfers payable in foreign
        currencies as certified for customs purposes by the Federal Reserve
        Bank of New York. Figures after 1998 are no longer available.

Notes:

(1)  The Noon Buying Rate did not differ significantly from the Official Rate
     prior to January 1, 1994, the date on which the Official Rate was
     abolished. Prior to the adoption of the PBOC Rate, there was a significant
     degree of variation between the Official Rate and the rates obtainable at
     Swap Centers, such as the Shanghai Swap Center. After January 1, 1994 and
     the unification of the foreign currency exchange system there have not been
     significant differences between the Noon Buying Rate, the PBOC Rate and the
     Shanghai Swap Center Rate.

(2)  The average rates were determined by averaging the Noon Buying Rate in New
     York for cable transfers payable in New York in foreign currencies on the
     last business day of each month.


     The Hong Kong dollar is freely convertible into the U.S. dollar.



                                       11
<PAGE>   13

Since October 17, 1983, the Hong Kong dollar has been linked to the U.S. dollar
at the rate of HK$7.80 to US$1.00. The central element in the arrangements which
give effect to the link is an agreement between the Hong Kong government and the
three Hong Kong banknote issuing banks, HSBC, Standard Chartered Bank and the
Bank of China. Under the agreement, certificates of indebtedness, which are
issued by the Hong Kong Government Exchange Fund to the banknote issuing bank to
be held as cover for their banknote issues, are issued and redeemed only against
payment in U.S. dollars, at the fixed exchange rate of US$1.00 = HK$7.80. When
the banknotes are withdrawn from circulation, the banknote issuing banks
surrender the certificates of indebtedness to the Hong Kong Government Exchange
Fund and are paid the equivalent of U.S. dollars at the fixed rate. Exchange
rates between the Hong Kong dollar and other currencies are influenced by the
linked rate between the U.S. dollar and the Hong Kong dollar.

     The market exchange rate of the Hong Kong dollar against the U.S. dollar
continues to be determined by the forces of supply and demand in the foreign
exchange market. However, against the background of the fixed rate system which
applies to the issue of Hong Kong currency in the form of banknotes, as
described above, the market exchange rate has not deviated significantly from
the level of HK$7.80 to US$1.00. See "Selected Financial Data" below. The Hong
Kong government has stated its intention to maintain the link at that rate. The
Hong Kong government has stated that is has no intention of imposing exchange
controls in Hong Kong and that the Hong Kong dollar will remain freely
convertible into other currencies (including the U.S. dollar). The PRC and the
United Kingdom agreed in 1984 pursuant to the Joint Declaration of the
Government of the United Kingdom of Great Britain and Northern Ireland and the
Government of the People's Republic of China on the Question of Hong Kong ("the
Joint Declaration") that, after Hong Kong became a special administrative region
of the PRC (the "SAR")on July 1, 1997, the Hong Kong dollar will continue to
circulate and remain freely convertible. However, no assurance can be given that
the SAR government will maintain the link at HK$7.80 to US$1.00, if at all.

     Our company is organized under the laws of the British Virgin Islands ("the
BVI"). The relevant BVI law imposes no limitations on the rights of nonresidents
or foreign owners to hold or vote securities of the company, nor are there any
charters or other constituent documents of the company - that would impose
similar limitations.


                                       12
<PAGE>   14


ITEM 7. TAXATION.

     There are no British Virgin Islands ("BVI") governmental laws, decrees or
regulations affecting the remittance of dividends or other payments to
nonresident holders of our company's securities. U.S. holders of our securities
are subject to no taxes or withholding provisions under existing BVI laws and
regulations. By reason of the fact that we conduct no business operations within
the BVI, there are no applicable reciprocal tax treaties between the BVI and the
U.S. that would affect the preceding statement that there are no BVI taxes,
including withholding provisions, to which U.S. security holders are subject
under existing laws and regulations of the BVI.

ITEM 8. SELECTED FINANCIAL DATA.

     The following selected financial data for the five years ended March 31,
2000, are derived from the audited consolidated financial statements of our
company and of Dransfield Paper, with whom we merged on February 26, 1997. The
data should be read in conjunction with the consolidated financial statements
and the related notes, which are included elsewhere in this annual report.

<TABLE>
<CAPTION>
                                                              Years ended March 31,
                                    ----------------------------------------------------------------------
                                      1996        1997       1998        1999         2000         2000
                                    HK$'000     HK$'000     HK$'000     HK$'000    HK$ "000(1)  US$'000(1)
                                    --------    --------    --------    --------   ---------    ----------
<S>                                  <C>         <C>          <C>          <C>         <C>           <C>
Income Statement Data:

Net Sales(2)                         307,047     147,244      54,631       4,812       1,502         193

Income (loss) before interest and
  income taxes and minority           13,443         329      (3,791)     (8,843)     (7,009)       (900)
  interests

Interest income/(expenses),
  net(2)                              (5,603)     (1,810)       (525)       (254)         41           5

Provision for income taxes            (1,391)       (309)       (417)          9          --          --

Income (loss) after income
  taxes but before minority
  interests                            6,449      (1,790)     (4,733)     (9,088)     (6,968)       (895)

Net income (loss)(2)                   5,034         (24)     (4,733)     (9,088)     (6,968)       (895)

Basic net income (loss) per share
  (cents)                                 54         (16)        (39)        (58)        (43)         (6)
</TABLE>



                                       13
<PAGE>   15

<TABLE>
<CAPTION>
                                                      As at March 31,
                           ---------------------------------------------------------------------
                              1996        1997        1998        1999        2000        2000
                            HK$'000     HK$'000     HK$'000     HK$'000   HK$ "000(1)  US$'000(1)
                           ---------   ---------   ---------   ---------  ----------   ---------
<S>                        <C>         <C>         <C>         <C>        <C>          <C>
Balance Sheet Data:

Fixed assets(3)               57,880     123,161     178,434     186,642     200,909      25,791

Total assets(3)              176,577     209,466     211,277     208,338     224,983      28,881

Long term liabilities(4)      73,459     120,652      53,532      58,359      14,350       1,842
</TABLE>

----------

(1)  The translation from Hong Kong dollars into U.S. dollars for the 2000 data
     is at US$1.00 equals HK$7.79, the conversion rate prevailing on March 31,
     2000.

(2)  For a discussion of the reasons for the significant changes in certain
     selected financial data between fiscal years 1998, 1999 and 2000, see
     below, "Management's Discussion and Analysis of Financial Condition and
     Results of Operations" and the subsections thereof as follows: for "Net
     Sales" in the table above, see "Sales" below; for "Interest
     income/(expenses), net" above, see "Interest Expense" below; and for "Net
     income" above, see "Net income" below.

(3)  Total assets increased to US$28.8 million in 2000,an increase of US$2.1
     million over 1999, which had seen a decrease of US$435,000 over 1998. The
     2000 increase of US$2.1 million was mainly attributable to an increase of
     US$1.8 million in fixed assets, an increase of US$94,000 in inventories and
     an increase of US$161,000 in deposit for fixed assets. The 1999 decrease of
     US$435,000 was mainly attributable to an increase of US$1 million in fixed
     assets, a decrease of US$1.3 million in accounts receivables and a decrease
     of US$143,000 in inventories.

(4)  Long-term liability of US$1.8 million in 2000 is a loan from a related
     company. Long-term liabilities in 1999 were composed mainly of US$5.7
     million owed to the company's parent, Dransfield Holdings Limited and a
     US$1.8 million loan from a related company.


     The following table sets forth certain information concerning exchange
rates between Hong Kong dollars and U.S. dollars for the periods presented,
expressed in HK$ per US$:



                                       14
<PAGE>   16

<TABLE>
<CAPTION>
           Calendar
            Period     Period End    Average      High          Low
         ------------  ----------    -------    ---------     ---------
<S>                    <C>           <C>        <C>           <C>
          1991            7.7800     7.7713     7.8025        7.7155
          1992            7.7430     7.7412     7.7765        7.7237
          1993            7.7280     7.7348     7.7650        7.7230
          1994            7.7375     7.7284     7.7530        7.7225
          1995            7.7323     7.7357     7.7665        7.7300
          1996            7.7345     7.7345     7.7440(1)     7.7310(1)
          1997            7.7495     7.7431
          1998            7.7476     7.7467
          1999,Sep 17     7.7663
</TABLE>

----------

Source: Federal Reserve Bank of New York.

Note: The average rates were determined by averaging the Noon Buying Rate in New
York for cable transfers payable in New York in foreign currencies on the last
business day of each month.

(1)  Average high and low are through 9/17/96; average highs and lows are no
     longer published and, therefore, not available for 12/31/96 and thereafter.

ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS.


     The following discussion and analysis should be read in conjunction with
the financial statements and the accompanying notes thereto and is qualified
entirely by the foregoing and by other more detailed financial information
appearing elsewhere see "Financial Statements." All dollar amounts are in Hong
Kong dollars unless otherwise noted.

OVERVIEW.

     We had no business until we merged on February 26, 1997, with Dransfield
Paper. The financial statements included herein (see "Financial Statements") and
the references below to our business operations refer also to Dransfield Paper's
financial statements and business operations before the merger, to which we
succeeded upon our merger with Dransfield Paper. Certain vertical integration
activities (see "Outlook" below) are reflected in the statements of operation
and cash flows for the fiscal years ended March 31, 1998, 1999 and 2000.


                                       15
<PAGE>   17






RESULTS OF OPERATIONS.

     The following table presents, as a percentage of sales, certain selected
consolidated financial data for each of the three years in the period ended
March 31, 2000:

<TABLE>
<CAPTION>
Year ended March 31                                1998         1999         2000
-------------------                              --------     --------     --------
<S>                                              <C>          <C>          <C>
Sales                                               100.0%       100.0%       100.0%
Cost of sales                                        91.2         90.9        104.7
                                                 --------     --------     --------

Gross margin                                          8.8          9.1         (4.7)
                                                 --------     --------     --------

Selling, general and
  administrative expenses                            18.7        192.8        536.5
Interest expense                                      1.0          5.3         (2.7)
                                                 --------     --------     --------
Other income and expenses, net                       (2.2)         -0-        (74.6)
                                                     17.5        198.1        459.2
                                                 --------     --------     --------
Net loss                                             (8.7)%     (189.0)%     (463.9)%
                                                 --------     --------     --------
</TABLE>


SALES.

     Sales for fiscal year 2000 decreased approximately HK$3.3 million
(US$423,000) or 69% from the prior year as compared with a decrease of
approximately HK$49.8 million (US$6.4 million) or 91% in 1999 over 1998. The
decreases were due to further contraction of paper merchanting activities that
had been commenced in November 1994 in an effort to obtain experience and
establish business contacts for a planned expansion into hygienic paper
manufacturing. These paper merchanting activities decreased HK$34.8 million
(US$4.5 million), or 87.9%, in 1999 and then decreased HK$4.2 million
(US$539,000), or 88% in 2000. There were no sales of the Tempo brand
handkerchief for 1999, which represented a decrease of HK$15 million (US$1.9
million) or 100%, over 1998 as compared with a decrease of HK$65 million (US$8.4
million), or 81%, over 1998. Sales of our own manufactured hygienic paper
products in fiscal 2000 were approximately HK$905,000 (US$116,000).

Total sales for the first two months of fiscal 2001 is approximately HK$1.1
million (US$141,000).

GROSS MARGIN.

     In fiscal 2000 we incurred a gross loss of HK$70,000 (US$9,000) as compared
with a gross margin of HK$436,000 (US$56,000) in 1999. Gross margin decreased by
HK$4.4 million (US$568,000) in 1999 or 91% from 1998. The gross loss in 2000 was
due to high manufacturing costs resulting from start-up production. The 1999
gross margin increased to 9.1% of sales from 8.8% of sales in 1998. The 1999
increase from the 1998 level was due to the sales of our paper merchanting
division being achieved at higher margin.


                                       16
<PAGE>   18


SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.

     Selling, general and administrative expenses for fiscal 2000 decreased by
HK$1.2 million (US$154,000) or 13% below 1999. In 1999 these expenses decreased
by HK$143,000 (US$21,000) or 1.5% below 1998. The 2000 decreases were due to a
further reduction in the paper merchanting business.

INTEREST EXPENSE, NET.

     The interest income of HK$41,000 (US$5,000) in 2000 was interest earned
from time deposit of capital fund raised through new issue of common stock. The
net interest expenses of HK$254,000 (US$33,000) in 1999 and HK$525,000
(US$68,000) in 1998 were attributable mainly to the financing of the Company's
paper merchanting activities. Currently the company has no interest bearing
liabilities.

NET INCOME.

     We had a net loss of HK$6.9 million (US$895,000)in 2000 compared with a net
loss of 9 million (US$1.2 million) in 1999 and a net loss of HK$4.7 million
(US$612,000) in 1998. HK$5.2 million (US$667,000) of the 2000 net loss were due
to

o    a loss of HK$827,000 (US$106,000) in the paper merchanting division,

o    HK$873,000 (US$112,000) in corporate expenses,

Items not affecting cash flow:

o    HK$2.3 million (US$295,000) in amortization and depreciation of land and
     building, factory and machinery of our Conghua converting plant during the
     year,

o    HK$616,000 (US$79,000) increase in provision for inventories, and

o    HK$624,000 (US$80,000) amortization of employee stock option expenses.

The 1999 net loss was mainly due to

o    a loss of HK$3.9 million (US$510,000) in the paper merchanting division,

o    HK$630,000 (US$81,000) in corporate expenses,

Items not affecting cash flow:

o    HK$2.8 million (US$359,000) in amortization and depreciation of land and
     building, factory and machinery of our Conghua converting plant during the
     year, and

o    HK$939,000 (US$121,000) amortization of employee stock option expenses.

                                       17
<PAGE>   19


The 1998 loss was mainly due to a loss of HK$832,000 (US$108,000) in the paper
merchanting division, the cost of HK$644,000 (US$83,000) in corporate promotion
expenses, the cost of HK$200,000 (US$26,000) in production of the first annual
report after listing on NASDAQ, the cost of HK$650,000 (US$84,000) in product
development and testing, and the cost of HK$1.2 million (US$155,000)
amortization of employee stock option expenses.

BALANCE SHEET ITEMS.

     Significant changes in several balance sheet items occurred from 1999 to
2000, in particular accounts receivable, inventories, fixed assets, and
shareholders' equity. These changes reflect -

o    the reduction of the company's operations of the high-volume, large-
     inventory, and low-gross-margin paper merchanting activities,

o    the increase in fixed assets from HK$186.6 million (US$24.1 million) in
     1999 to HK$200.9 million (US$25.8 million) in 2000, reflecting the
     construction works carried out for Paper Mill Nos. 1 and 2,

o    the issuance of 1,674,787 shares of common stock in exchange for the
     cancellation of HK$46.4 million (US$6 million) in amounts owed to our
     parent company, Dransfield Holdings,

o    the issuance of 438,138 shares of common stock for HK$7.8 million (US$1
     million) in cash,

o    the issuance of 218,232 shares of common stock in exchange for services
     rendered and the acquisition of construction works in Mill Nos. 1 and 2
     amounting to HK$11.8 million (US$1.5 million), and

o    the issuance of 248,850 shares of common stock to employees on the exercise
     of stock options.


                                       18
<PAGE>   20


LIQUIDITY AND CAPITAL RESOURCES.

     We had negative cash flows from operations of HK$2.7 million (US$351,000)
in 2000 and had positive cash flows from operations of HK$6.4 million
(US$831,000) in 1999 and HK$19.2 million (US$2.5 million) in 1998. The 2000
negative performance was due to an increase in inventories of HK$0.7 million
(US$94,000) and a decrease in accounts payable of HK$506,000 (US$65,000). The
1999 towards fiscal year end positive performance was due to a decrease in
accounts receivable of HK$10.2 million (US$1.3 million) and a decrease in
inventories of HK$1.1 million (US$143,000). The 1998 positive performance was
due to a decrease in accounts receivable of HK$4.1 million (US$528,000), a
decrease in inventories of HK$9.9 million (US$1.3 million) and the net decrease
of amounts due from fellow subsidiaries to HK$16 million (US$2 million). Our
additions of fixed assets for our planned paper business expansion reduced our
cash flow by HK$6.8 million (US$873,000) in 2000, HK$3.1 million (US$405,000) in
1999 and HK$4.5 million (US$582,000) in 1998.

     Fiscal 1998 saw a reduction of HK$16.7 million (US$2.2 million) in bank
loans and overdrafts and a receipt of HK$5.8 million (US$750,000) from new
issues of common stock. Fiscal 1999 saw a repayment of HK$4.1 million
(US$533,000) of loans made to us by our parent company. Fiscal 2000 saw a
receipt of HK$13.1 million (US$1.7 million) from new issues of common stock, a
repayment of HK$2.4 million (US$311,000) of a loan from a minority shareholder
and a repayment of HK$0.7 million (US$87,000) of loans made to us by our parent
company. Significant capital expenditures have been both made and committed with
respect to the acquisition, refurbishment, and installation of equipment, land
and buildings for the company's planned paper business expansion.

     Additional capital expenditures of HK$86 million (US$11 million) must be
made to complete the first two paper mills, and additional capital expenditures
of approximately HK$194 million (US$25 million), not yet obtained or committed,
must be made to complete our proposed third and fourth paper mills, as follows:



                                       19
<PAGE>   21

<TABLE>
<CAPTION>
                                                                US$000s
                                            ------------------------------------------
                                                              To Be
Capital Requirement                         Purchased         Purchased         Timing
-------------------                         ---------         ---------         ------
<S>                                         <C>               <C>               <C>
MILL NO. 1:
Used Deink Line (Belgium)                                                       Apr 96
Used Paper Making Machine (USA)                                                 Nov 96-Apr 97
Used Paper Converting (USA, Japan)                                              Jan 96
Land & Building (USA)                                                           Jan 95-Oct 95
                                            ---------
         Sub-Total                          $  13,789
New Auxiliary Equipment (China)                               $   3,800         Apr 00-Jul 01
New Environmental Control
  Equipment (China/USA)                                             158         Apr 00-Jul 01

Infrastructure (China)                          1,211             1,966         Apr 00-Jul 01
                                            ----------        ---------
         Sub-Total                          $   15,000        $   5,924

MILL NO. 2:
Used Deink Line (USA)                                                           Jan 96
Used Paper Making Machine (Belgium)                                             Jan 96
Used Paper Converting (USA, Japan)                                              Apr 96
Land & Building (USA)                                                           Sep 96-Dec 97
                                            ---------
         Sub-Total                          $   8,211
New Auxiliary Equipment (China)                               $   3,750         Apr 00-Apr 01

New Environmental Control
  Equipment (China/USA)                                             206         Apr 00-Apr 01
Infrastructure (China)                           1,452            1,320         Apr 00-Apr 01
                                            ----------        ---------
         Sub-Total                          $    9,663        $   5,276

MILL NO. 3:
Used Paper Making Machine                   $    1,000                          Nov 96-Apr 97
                                            ----------
(USA)
         Sub-Total                          $    1,000

MILL NO. 4:
Used Paper Making Machine                   $    1,000                          Nov 96-Apr 97
                                            ----------
(USA)
         Sub-Total                          $    1,000
                                            ----------        ---------
                 TOTAL                      $   26,663        $  11,200
</TABLE>

     The source of funds for these capital expenditures for Paper Mill Nos. 1
and 2 was as follows:

     o    $10 million advance from parent, Dransfield Holdings in November 1996
          and April 1997,

     o    $6.5 million advance from Dransfield Holdings from January through
          August 1997,

     o    $6.5 million advance from Dransfield Holdings from September 1997
          through March 1998,

     o    $1.0 million advance from Dransfield Holdings from April 1998 through
          March 1999,


                                       20
<PAGE>   22


     o    $1.5 million by the issuance of common stock to contractors from April
          1999 through March 2000, and

     o    $1.2 million advance from Dransfield Holdings from April 1999 through
          March 2000.

     The proposed sources of funds for Paper Mill Nos. 3 and 4 are as follows:

     o    $25 million by March 2003 from the sale of shares of the company in a
          rights offering with standby underwriters, and

     o    profits generated from Mills No.1 and No.2.

     Of the advances from Dransfield Holdings to complete Paper Mills Nos. 1 and
2, $5 million were converted into common stock of the company in May 1997 at $5
a share. $4.2 million were converted into common stock of the company in
September 1997 at $4.25 per share, $4.5 million were converted into common stock
of the company in March 1998 at $4.50 per share, $147,000 were converted into
common stock of the company in November 1999 at $7 per share and $5.8 million
were converted into common stock of the company in February 2000 at $3.51 per
share. The proposed source of funds for Plant Nos. 3 and 4 would involve the
issuance of equity securities and, accordingly, represent potential dilution to
our shareholders.

THE YEAR 2000 PROBLEM.

     Our company, our parent company, and its other affiliates have fully
recognized the importance of the Year 2000 problem, which arises from computer
hardware and software systems using two digits to represent the year. The
problem may cause uncertainty, unreliability or disruption to the operations of
a company during several key dates. We understand the term "Year 2000 Compliant"
to mean the elimination of these problems.

     Beginning in 1997, our parent company formed a working committee to
evaluate its exposure and the exposure of its subsidiaries, including us, to the
Year 2000 problem and then to develop and implement ways to reduce exposure to
the problem. This working committee tested and evaluated our electronic and
mechanical systems. It identified our parent company's three main areas of
possible significant exposure to the Year 2000 problem to lie in its telephone
system, its trading and accounting software and its computer hardware, all of
which we share.

     The working committee then developed a schedule - for the period July 1998
through October 1999 - for the upgrading or replacement of all the identified
systems. It also developed procedures and plans for the continuous monitoring,
testing and evaluation (and where needed, upgrading or replacement) of
electronic and mechanical systems with




                                       21
<PAGE>   23

regard to exposure to the Year 2000 problem.

     We believe that this project is completed. Besides installing and
activating a new telephone system and accounting and trading software, our
parent company is replacing our computer hardware. Our parent company has
completed the installation of its new Year 2000 compliant local area network
(LAN) servers at its head office and at its Victorison Tradeport in Shenzhen,
China. In addition, all mission-critical computer workstations in our parent
company's head office and in the Victorison Tradeport have been upgraded with
Year 2000 compliant workstations and productivity software. Other workstations
that are not mission-critical are being upgraded. Certain operational software
which is not mission-critical is also being replaced with Year 2000 compliant
software written, implemented and tested on an in-house basis. Delivery,
implementation and testing of this software are in the final stage of
completion.



                                       22
<PAGE>   24



             TABLE SHOWING DF CHINA TECHNOLOGY INC.'S SUBSIDIARIES

1.  DF CHINA TECHNOLOGY INC. (new name effective 3-28-00.  Previous name:
    Dransfield China Paper Corporation. Incorporated in British Virgin Islands)

    1.1.  DF CHINA TECHNOLOGY INC. owns 100% of DRANSFIELD CHINA PAPER
          CORPORATION (Cayman Islands corporation).

      Paper mills in China:
           Enzymatic deinking of waste paper
           Paper making into jumbo rolls
           Converts jumbo rolls into paper products

    1.2.  DF CHINA TECHNOLOGY INC. owns 80% of DRANSFIELD CYBER INC. (Cayman
          Islands corporation).

     1.2.1. DRANSFIELD CYBER INC. owns 85% of DFtradelink.com INC. (Cayman
            Islands corporation) (1)

      Distribution (Logistics)
      E-Commerce B to B
      Domain expertise (in house):
           Paper
           Consumer electronics
           Apparel
           Toiletries
           Food and beverages

     1.2.2. DRANSFIELD CYBER INC. owns 55% of E-NET BOX INC. (Cayman Islands
            corporation) (1)

      Set-Top-Box technology
      Ad-based E-Commerce B to C

     1.2.3. DRANSFIELD CYBER INC. has agreed to purchase, subject to due
            diligence, a 28.9% interest in VISIONSOFT INC.   (Cayman Islands
            corporation)

       1.2.3.1.  VISIONSOFT INC. owns 90% of TIANJIN 3D IMAGE TECHNIQUE CO. LTD.
                 (People's Republic of China corporation)

                 Manufacturing and marketing of products using 3-D technology

Note:
(1)  Participation in these ventures is to accelerate market penetration, at the
     least cost, with adequate resources to fulfil orders.

OUTLOOK.

     The statements contained in this Outlook are based on current expectations.
These statements are forward looking, and actual results may vary materially.

     We are building a vertically-integrated, multi-product, consumer hygienic
paper manufacturing and distribution business. Planning for the development of
this business began in 1993. We made business contacts in the buying and selling
of unfinished paper and established business alliances for two plants in China.
Material capital expenditures were both committed and made, and the first two
paper converting plants are now operational.

     During 1998 we began working with a number of local Chinese paper mills,
sharing our specialized technical knowledge of market recycled pulps. Although
China has initiated a number of reforestation programs, the country is unlikely
ever to become self-sufficient in wood fiber and must import it from world
markets. We believe we are unique in China in our ability to help local mills
purchase imported market recycled pulp made from wood fiber, and combine it with
local, non-wood fiber to produce an improved grade of pulp that is a
good-quality and cost-effective substitute for imported virgin pulp.

     Our vertical integration plans embrace the following activities, one of
which is operational. All others are still in the development stage:

     o    Recycled pulp production. We will process waste paper into recycled
          pulp. Until we need all the recycled pulp for our own further
          processing, we will offer approximately half of what we produce for
          sale to other paper mills in China and will use the balance in our own
          paper making operation.

     o    Paper making. We will employ our paper making machines to process
          recycled pulp into jumbo rolls. Until we need all the jumbo rolls for
          our own further processing, we will offer approximately half of what
          we produce for sale to other companies in China with paper converting
          plants and will use the balance in our own paper converting plants.

     o    Paper converting. We are now converting jumbo rolls of paper into
          finished paper products, such as bathroom tissue, facial tissue,
          napkins and handkerchiefs, which are packaged and distributed to
          customers.


                                       23
<PAGE>   25


We estimate the net operating margins in these divisions will be as follows:

<TABLE>
<CAPTION>
               Division                            Net Operating Margin
               -----------------------             --------------------
<S>                                                <C>
               Recycle pulp production                  10 to 15%
               Paper making                             10 to 16%
               Paper converting                         11 to 21%
</TABLE>

     TIMING OF THE EXPANSION. Phase I of our business expansion is the
completion of Paper Mills Nos. 1 and 2. Phase II of our long-term growth plan
involves constructing two more paper mills, one in the Tianjin region in
northern China and another in the Sichuan Province in western China. We will
only begin Phase II when Phase I begins to achieve our targeted financial
results and after we have demonstrated that we can apply the knowledge and
experience gained in building Paper Mill Nos. 1 and 2 to construct the third and
fourth mills with maximum speed and efficiency. The projected dates for the
completion and commencement of operations of each of the four mills are as
follows:


<TABLE>
<CAPTION>
                                             Recycled Pulp              Paper                 Paper
                                               Production               Making             Converting
                                             -------------          --------------         -----------
<S>                                          <C>                    <C>                    <C>
Phase 1:  Under construction

  Paper Mill No. 1                           April 2001             September 2001         Operational
  Paper Mill No. 2                           February 2000          July 2001              Operational

Phase 2:  Planned.  Not under construction
  Paper Mill No. 3                           March 2003             March 2003             March 2003
  Paper Mill No. 4                           March 2004             March 2004             March 2004
</TABLE>

     PAPER MILL NO. 1. Our company invested US$6 million in establishing a paper
conversion plant, a conference center, and a research and development center in
Conghua county in the city of Guangzhou, Guangdong Province in southern China.
The paper conversion plant tested production and came on stream in August 1997
and now converts jumbo rolls of paper into toilet tissue, paper handkerchiefs,
napkins and facial tissue. Its maximum capacity is approximately 1,200 metric
tons per month. The plant will also serve as a training and research and
development center to develop our paper business throughout China. An expert
plant manager with 30 years' experience was brought from the U.S. to manage and
supervise this plant and to develop a capable production team to spearhead our
expansion. He has completed his mission and retired, but remains as a consultant
to the company.

     Distribution of paper products from the paper converting plant commenced in
August 1997 under our own brand name, DF. These products are being marketed
primarily in Hong Kong and Southern China. In June 1998, we recruited a 20-year
veteran of the converting business to be responsible



                                       24
<PAGE>   26

for marketing jumbo rolls, finished goods and our newly introduced
away-from-home products to overseas markets.

     A used deinking plant for recycled pulp production was purchased in
Belgium, dismantled, shipped to China in May 1996, and is planned to begin
operations within eight months of receipt of required funding of about US$5
million. This plant has output capacity of approximately 90 metric tons per day.
The targeted customers for half of the recycled pulp production of this plant
are located in the Pearl River delta area, which is within eight miles of the
mill and represents current annual customer demand exceeding 800,000 metric
tons.

     We will invest a total of approximately US$11.1 million for the deinking
and paper-making plants, both of which will be 100% owned by us.

     To develop a reliable interim supply of quality tissue paper for our
converting facility, we have signed a number of contracts, described in Item 1,
with small local mills in Guangdong Province, which will supply our converting
facility with medium- and low-grade tissue paper. In all cases, we will be
providing the technical expertise and supervision to ensure the quality and
consistency of the tissue paper.

     Once funding is obtained to complete our own mill, we expect to adhere to
the following timetable: Completion of infrastructure, four months; completion
of deinking facility within a further four months; and completion of paper mill
with in four months after that.

         PAPER MILL NO. 2. We expect to invest a total of approximately US$13
million for a 60% controlling voting interest and a 48% equity interest in a
paper mill, called Paper Mill No. 2, to be established in the city of Jiangyin
in Jiangsu Province, 90 minutes west of Shanghai, China. Paper Mill No. 2 is
owned by a Sino-foreign equity joint venture of our company, Jiangsu Huaxi
Holdings Corporation and Broadsino Investment Company Ltd., as described under
Item 2.

     Originally, the Chinese partners were to contribute a 12,000-kilowatt-hour,
coal-fired, power plant for their 40% interest in the joint venture. However,
there is now an adequate supply of electricity in the area where the factory is
situated, and negotiations to exclude the power plant in the joint venture were
completed in July 1999. We believe we are in a position to develop and operate
the factory on the strength of our own management.

     A further agreement was reached with our joint venture partner under which
the equity joint venture will be converted into a foreign company wholly owned
by Dransfield Broadsino Paper Holdings Ltd. We will shortly commence discussion
with Broadsino Investment Company Limited with a view to acquiring the 20%
equity held by Broadsino in Dransfield Broadsino Paper Holdings Ltd. Upon
successful negotiation and completion, we will be the sole owners of Paper Mill
No. 2. Conversion to a wholly-owned foreign company with the sole operation
being the



                                       25
<PAGE>   27


manufacture of paper products will enable us to focus on our investment.

     The converting facility at Paper Mill No. 2 in Huaxi, Jiangsu Province, was
commissioned in July 1999 and is now in test production. Pending completion of
our own recycled pulp production and paper making plant, we will be obtaining an
interim supply of medium- and low-grade tissue paper for our converting facility
from a number of small local mills with which we have contracted to manage
production, as described under Item 1.

     Once our deinking and paper mill plants are completed, we will purchase
unsorted office waste directly from U.S. suppliers such as Weyerhaeuser,
Smurfit, Allan & Co., etc. We will also make use of other grades of waste paper
to reduce our cost of production.

     A used 120-metric-tons-per-day deinking plant for recycled pulp production
has been purchased from Georgia Pacific Company in the U.S., and a used
28-metric-tons-per-day paper making plant has been purchased from VPK in
Belgium. The machines arrived in China in May and July 1996.

     At first, we estimate we will use less than half of the
120-metric-tons-per-day recycled pulp production in Paper Mill No. 2's own
tissue paper plant. Until we need it for our own end products, we will offer for
sale more than half of the production to other paper mills in Jiangsu and
Zhejiang Provinces, which have an annual demand of 1,400,000 metric tons.

     We expect to complete infrastructure construction in May 2000, with
completion of the de-inking facility to follow four months later, and completion
of the paper mill three months after that.

         PAPER MILLS NO. 3 AND 4. Eventually we plan to assemble and operate two
additional integrated paper mills -- that is, plants for recycled pulp
production, paper making, and paper conversion -- one in northern China in the
Tianjin area, and the other in western China in Sichuan Province. These two
paper mills will be installed after the first two mills, now under construction,
are operational. Subject to funding and satisfactory operation of Mills No. 1
and 2, our plans envision the commencement of full operations at Paper Mills No.
3 and 4 by the last quarter of fiscal 2004. Considerable equipment has already
been acquired for the paper making and conversion plants for Paper Mills No. 3
and No. 4.

     As stated earlier, our plans include recycling waste paper into pulp, which
is against the trend in China of importing virgin fiber. The following table
shows the present annual demand for recycled pulp and jumbo rolls, in the areas
to be served by our four planned paper mills, and the expected annual production
of the mills:


                                       26

<PAGE>   28
<TABLE>
<CAPTION>
                                                                      The Company's
                                                                         Planned
                                                                         Maximum
                                                       Potential      Production
                                                       Demand         (Recycled Pulp)
         Phase I   Province/City                       (Metric Tons)  (Metric Tons)
         --------  -------------                       -------------  -------------
<S>                <C>                                 <C>            <C>
         No. 1     Guangdong Province                       861,022      100,000*
         No. 2     Jiangsu Province                         767,050       72,000
         No. 2     Zhejiang Province                        679,100
         No. 2     Shanghai Municipality                    234,547
                                                         ----------   ----------
                         Total                            2,541,719      172,000
</TABLE>

<TABLE>
<CAPTION>
                                                                      The Company's
                                                                         Planned
                                                                         Maximum
                                                       Potential      Production
                                                       Demand         (Recycled Pulp)
         Phase II  Province/City                       (Metric Tons)  (Metric Tons)
         --------  -------------                       -------------  -------------
<S>                <C>                                 <C>            <C>
         No. 3     Tianjin Municipality                     221,400       60,000
         No. 3     Beijing Municipality                     101,000
         No. 3     Heibei Province                          128,000
         No. 4     Sichuan Province                         238,750       60,000
                                                         ----------   ----------
                         Total                              689,150      120,000
</TABLE>

     * includes 40,000 metric tons from Jiangmen Paper Mill


     Our planned production represents only 4% of the annual requirements of the
targeted markets.

     Over recent years the price of virgin pulp has ranged from US$390 to US$960
a metric ton. The price of office waste paper in the U.S. has ranged from US$20
to US$250 a metric ton. For example, prices in April 1999 were US$510 (cost and
freight from U.S. West Coast to China) for virgin pulp plus 1% duty, compared
with US$110 (cost, freight and duty) for office waste paper. Recycling costs in
China are estimated to average US$200 per metric ton and not to exceed US$250
per ton. There is little market recycled fiber in China, and what there is sells
at prices 5 to 10% lower than virgin fiber prices.

     With reference to the volatility of the prices of virgin pulp and office
waste paper, the table below suggests, pro forma, how our planned integrated
facilities would dampen the effects of price volatility with respect to profit
margins:


                                       27
<PAGE>   29
<TABLE>
<CAPTION>
                                                  (US$ per Metric Ton)
                                                         March
                              1996        1997           1998            1999           2000
                            --------    --------       --------        --------       --------
<S>                         <C>         <C>            <C>             <C>            <C>
1.   Virgin Pulp Cost       $    390    $   520        $    500        $    510       $    640

2.   Secondary Fiber
     -Raw Material
     (Office Waste)         $  20-70    $30-100        $ 30-100        $ 30-100       $ 50-150
     -Freight Cost                80         50              35              35             25
     -Processing Cost
     (Average)                   200        200             200             200            200
                            --------    --------       --------        --------       --------
                            $300-350    $280-350       $265-335        $265-335       $275-375

3.   Profit Margin
     -Recycled Pulp(1)      Low         Medium         Medium          Medium         Medium
     -Jumbo Roll(1)         Low         Medium         Medium          Medium         Medium
     -Finished Products     High        Medium         Medium          Medium         Medium
</TABLE>

----------

(1)  Until needed for our own production of consumer hygienic paper products,
     approximately half of this production is planned to be available for sale
     to other paper mills in China.

     From mid-1994 through March 2000, the price of virgin pulp experienced the
     most volatility in the last 30 years.


MARKETING AND DISTRIBUTION.

     Our personal hygienic paper products are marketed by franchised
distribution agents primarily in Hong Kong and Southern China, and via the
company's business-to-business e-commerce platform joint venture to retailers in
China. In June 1998, we recruited a 20-year veteran of the converting business
to be responsible for marketing jumbo rolls, finished goods and our newly
introduced away-from-home products to overseas markets, including Macau and
Taiwan.

E-COMMERCE PLATFORM.

          By establishing a business-to-business (B2B) e-commerce platform in
2000, we took an important step in our effort to increase penetration of the
domestic market in China and bring cost-efficient delivery to our customers.
Called DF Tradelink.com, Inc., the platform is a 50-50 joint venture with DFCT
major shareholder, Dransfield Holdings Limited. The goal of DF Tradelink.com,
Inc., is to become a dominant B2B marketplace for Chinese businesses dealing
with one another in China as well as with foreign buyers and sellers. The
initial customer target will be China's grass roots retailers for whom a B2B
platform can expand product offerings and deliver cost savings. A soft launch of
DF Tradelink.com is expected before year-end 2001.


                                       28
<PAGE>   30


          In a related undertaking, DFCT is also participating in a joint
venture to create E-Net Box Inc., a company that will provide set-top boxes to
access the new B2B platform. A set-top box connects users with service providers
via a box placed on top of a television set; messages appear on a television
screen. E-Net Box has a number of innovative features and costs much less than a
PC. A five-year plan calls for placing more than one million set-top boxes in
retail outlets across China.

          We recognize that initial volume in B2B e-commerce will be small. To
protect shareholders' interests, we have chosen an approach that is unique to
China, one that we expect will hasten the profitability of the venture. We will
use e-commerce in support of our conventional trading, not to replace it.
Instead of relying on transaction fees, we expect to generate income by charging
a fee for use of our set-top boxes and for technical information provided by us.


     OUR PRESENT POSTURE.

     Our paper converting facility in Plant No. 1 is in operation and is making
our own DF-branded products. We are producing five products for distribution.
The mill output for each product is initially set as follows:

<TABLE>
<CAPTION>
Product                             Approximate Percentage
-------                             ----------------------
<S>                                 <C>
Paper handkerchiefs                             9%
Tissues                                        26%
Napkins                                        14%
Toilet rolls                                   40%
Away-from-home products                        10%
</TABLE>

     We anticipate that our gross margins on sales will be greater than the
margins we received distributing Proctor & Gamble's manufactured Tempo-brand
paper handkerchief. Further, we will be distributing five products, not one. The
equipment for Plant No. 2's paper converting facility was commissioned in July
1999 and is now in test production.

     The company's future results of operations and the other forward-looking
statements contained in this Outlook, in particular the statements regarding
achievement of its expansion plans, capital spending, costs of office waste
paper and virgin fiber, and marketing, involve a number of risks and
uncertainties. In addition to the factors discussed above, among the other
factors that could cause actual results to differ materially are the following:
volatility of prices of office waste paper and virgin fibers, risk of nonpayment
of accounts receivable, inability of the company to obtain its necessary
capital, political instability in China, inflation, unforeseen competition,
weather, loss of personnel as a result of accident or for health reasons,
funding delays, supply interruption, currency fluctuation, market changes,
government interference, or change of laws.


                                       29
<PAGE>   31


ITEM 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.

     The only market risk to which we are exposed is foreign currency risk. We
trade in Renminbi, U.S. dollars and Hong Kong dollars. Both Renminbi and Hong
Kong dollars are effectively pegged to the U.S. dollar at, respectively,
approximately 8.32 and HK$7.8 to US$1. The table and narrative below describe
how we intend to manage the foreign currency risk.

     Chinese paper mills that import a substantial portion of raw materials,
notably wood fiber, are subject to foreign exchange risk in the event of a
decline in the Renminbi versus the U.S. dollar. Because wood fiber is traded on
the world market in U.S. dollars, a weakening of the local currency would raise
costs, which would normally be passed on to customers. We will set prices in
U.S. dollar equivalents for our market-recycled pulp, thereby protecting our
revenues against exchange rate fluctuations. Export sales will further help
manage foreign currency risk by matching expense and revenue currencies. To that
end, our experienced marketing staff will focus on extending our sales efforts
in neighboring Southeast Asian countries.

     On the cost side, only about one-third of our costs to manufacture
market-recycled pulp are paid in U.S. dollars and are therefore subject to
exchange rate fluctuations. Our unique technical ability to combine imported
waste-paper fiber with local non-wood fiber to manufacture import-substitute,
market recycled pulp significantly decreases our dependence on imported raw
materials. Accordingly, the proportion of our costs subject to U.S. dollar
foreign exchange risk is substantially less than that of most mills that use
100% imported raw materials (see table below).

     There is no ready market in the PRC for our company to enter into forward
exchange rate swaps or other instruments designed to mitigate its exposure to
foreign currency risks. However, by establishing prices in U.S. dollar
equivalents, by building export sales, and by reducing the amount of raw
material costs we pay in U.S. dollars relative to our competitors, we will be
protecting ourselves against foreign currency risk, thereby improving our
competitiveness and margins.

TABLE SHOWING IMPACT OF CLOSE TO 50% DEVALUATION OF THE RENMINBI


<TABLE>
<CAPTION>
Exchange               BEFORE DEVALUATION                 AFTER DEVALUATION            COST DIFFERENCE
Rate US$1 =                 RMB 8.32                           RMB 12.00                PER METRIC TON
                  ---------------------------       ------------------------------     ---------------
                  Our Mill        Other Mills       Our Mill          Other Mills
                  --------        -----------       --------          -----------
<S>               <C>             <C>               <C>               <C>              <C>
Imported cost
per metric
ton, say          US$  150         US$  400         US$  150           US$  400

Renminbi
Equivalent        RMB1,248         RMB3,328         RMB1,800           RMB4,800

Our cost
advantage over
competitors       RMB2,080                                             RMB3,000         RMB  920

US$ difference using the devalued exchange rate                                         US$   76
</TABLE>


                                       30
<PAGE>   32


ITEM 10. DIRECTORS AND OFFICERS OF THE COMPANY.

EXECUTIVE OFFICERS, DIRECTORS AND KEY PERSONNEL

     Set forth below are the names, and terms of office of each of the
directors, executive officers and significant employees of the company and a
description of the business experience of each.

<TABLE>
<CAPTION>
                                                                 Office
                                                                 Held           Term of
         Person                       Office                     Since          Office(1)
         ------                       ------                     --------       ---------
<S>                           <C>                                <C>            <C>
Horace YAO Yee Cheong, 54     Deputy Chairman                    Apr 1994       Apr 2001
                              and Chief Executive
                              Officer

Warren MA Kwok Hung, 43       Treasurer and                      Apr 1994       Apr 2001
                              Secretary, Director

Andy PANG Kwong Wah, 55       Director-Converting                Jan 2000       Apr 2001
                              Operation

Francis NG Ah Ba, 52          Director                           Jun 1998       Apr 2001

Kenneth MAK Kar Shun, 43      Director                           Apr 2000       Apr 2001

Thomas J. KENAN, 68           Director                           Mar 1997       Apr 2001

Kurt W. Krause, 55            Director                           Apr 1997       Apr 2001

Professor Li Chang, 42        Director                           Aug 2000       Apr 2001

James MADISON, 50             General Manager                    May 1996       May 2000
                              of Pulp
                              and Paper; now a
                              Consultant

CHOW Yeung Chee, 59           Plant Manager of                   Jan 1996       Apr 2001
                              Guangzhou Dransfield
                              Paper Ltd.
</TABLE>


                                       31
<PAGE>   33


<TABLE>
<S>                           <C>                                <C>            <C>
Manuel ALVAREZ, 64            General Manager                    Apr 1995       Dec 1999
                              of paper converting
                              operations; now a
                              Consultant

CHEN Shu Hen, 46              General Manager of                 Apr 1997       Apr 2001
                              Paper Mill No.1

JIA Yu Qiu, 36                Plant Manager                      Apr 1997       Apr 2001

Mou Wai Kim, 43               General Manager of                 Mar 2000       Apr 2001
                              Marketing & Sales
                              -Domestic Market

Dela LI Siu Yin, 38           Finance Manager                    Sep 2000       Apr 2001

Frank GUO, 26                 Marketing Manager of               Sep 2000       Apr 2001
                              E-Net Box Inc.
</TABLE>

----------

(1)  A director is subject to earlier removal, with or without cause, by the
     shareholders and with cause by the other directors. Officers are subject to
     earlier removal, with or without cause, by the directors.


EXECUTIVE DIRECTORS.

     HORACE YAO YEE CHEONG. Mr. Yao spent 17 years with Arthur Young & Company,
international accountants, where he worked in accounting and business advisory
services and rose to managing partner covering Hong Kong and the PRC. Mr. Yao's
responsibilities include strategic planning, business development,
administration and management of the Group. Mr. Yao holds a master of business
administration degree from a university in the U.S. and is a certified public
accountant in the U.S., Australia and Hong Kong.

     WARREN MA KWOK HUNG. Mr. Ma is a fellow of the Association of Chartered
Certified Accountants and an associate of the Hong Kong Society of Accountants.
He spent 18 years in the accounting profession of which 12 years are with
Dransfield Holdings. He holds a Higher Diploma in Accountancy from Hong Kong
Polytechnic University.

     ANDY PANG KWONG WAH. Mr. Pang is Chief Operating Officer of our paper
operation. He has extensive experience in finance and administration, business
and general management. Prior to joining Dransfield, he was Assistant Managing
Director of Yee Tung Garment Co. Ltd. He holds a master's of business of
administration degree from the University of Southern California, U.S.A.

     FRANCIS NG AH BA. Mr. Ng was a founder of Mearl Paper Industries Sdn. Bhd.,
in Malaysia and has more than 20 years of experience in the paper industry. He
holds a diploma in Management Development from the


                                       32
<PAGE>   34


ASEAN Institute of Management in the Philippines.

     KENNETH MAK KAR SHUN. Mr. Mak is Director of Research & Development of
E-Net Box Inc. He has over 20 years of experience in engineering and research
and development in Europe, Middle East and Asia. He holds a B.Sc. degree in
Electrical Engineering from University of Alberta, Canada.



NONEXECUTIVE DIRECTORS.

     THOMAS J. KENAN. Mr. Kenan has 36 years experience as a practicing attorney
in the United States, primarily in securities, corporation, and business
reorganization law. He holds a master's of comparative laws degree from New York
University.

     KURT W. KRAUSE Mr. Krause is a founder and the president of Beverage
Marketing Company, Inc., a US-based company specializing in the food and
beverage industry. He has more than 30 years of experience in the industry,
having been national sales manager of Pabst Brewing Company and a consultant to
leading German breweries and American and Canadian spring water companies. He
holds a BA degree from the University of Nebraska.

     PROFESSOR LI CHANG. Professor Li is a founder and the CEO of Tianjin 3D Lab
and Tianjin 3D Image Technique Co., Ltd. He has been involved in research and
development of 3D imaging technology for over 18 years. He holds 52 patents and
has received numerous international awards for his inventions. He is the
Director of Ph.D. Post Graduate Studies at the Civil Aviation University of
China, Vice Chairman of National Inventors Association and National Specialist
of Engineering and Technology. In 1998, he received an Inventor's Gold Medal
from the Chief Executive of Hong Kong Special Administrative Region.


SENIOR EXECUTIVES.

     JAMES MADISON. Mr. Madison has more than 25 years experience in tissue
paper making and converting. He holds a bachelor of science degree in mechanical
engineering from a university in the U.S. Mr. Madison completed his initial
contract as general manager of pulp and paper with DFCT and continues as a
consultant to the company.

     CHOW YEUNG CHEE. Mr. Chow has more than 32 years experience chemical
engineering and managing manufacturing plants. He has a bachelor of science
degree in chemistry.

     MANUEL ALVAREZ. Mr. Alvarez has more than 30 years experience in the paper
converting business in the U.S. Prior to joining the Group, he was the Vice
President of Production of a major paper company in the U.S. He joined DFCT to
develop capable production team to spearhead our expansion.


                                       33
<PAGE>   35


He has completed his mission and retired, but remains as a consultant to the
company.

     CHEN SHU HAN Mr. Chen is General Manager of Paper Mill No. 1 (Xinhui,
Guangdong Province). Prior to joining our company, he was the General Manager of
Xinhui City Jiangyuan Trading Development Corporation. Mr. Chen graduated from
Jiangmen Wu-Yi University

     JIA YU QIU Mr. Jia is a Plant Manager for DFCT. He has worked in the paper
industry in China since completing his studies at Northwest Institute of Light
Industry. Most recently he was the General Manager for Yangzhou Zhonghua Paper
Co. Ltd.

     MOU WAI KIM Mr. Mou was a founder of Wei Bao, a paper mill in Xinhui. He
has engaged in the paper trading business for 20 years and has extensive
experience in doing business in the PRC, including Chuhai, Xinhui and Wunan.

     DELA LI SIU YIN Ms. Li has over 15 years of practical experience in the
accounting profession, with more than 7 years of exposure with various listed
companies in Hong Kong. She is a fellow member of the Association of Chartered
Certified Accountants and an Associate of Hong Kong Society of Accountants.

     FRANK GUO Mr. Guo graduated from Commerce University of China in 1995.
Before joining the company, Mr. Guo spent 5 years in charge of the regional
business of an electronic consumer company.



ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS.

     The directors and officers of our company received from it and its
subsidiaries an aggregate of US$454,825 of compensation in the last fiscal year
for their services in all capacities. There are no present plans, arrangements,
or understandings concerning any change in compensation for them. Our company
has no pension, retirement or similar benefits for directors and officers
pursuant to a plan contributed to by our company.

ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM THE COMPANY.

     WARRANTS. Our company has no outstanding warrants as of May 31, 2000.

     STOCK OPTION PLAN. Our company has adopted a stock option plan ("the
Plan"), the major provisions of which Plan are as follows:

     Nontransferable options may be granted by the directors to employees and
executive officers of our company. The options are for four-year terms but may
not be exercised during the first year. The exercise price for each option shall
be set by the directors but may not be less than 80 percent of the average or
closing price of our company's Common Stock during the five trading days prior
to the grant of the option or, if the


                                       34
<PAGE>   36


Common Stock is not trading, not less than the net book value per share of our
company's Common Stock as reflected in our company's most recent balance sheet.
The total number of shares of Common Stock which can be subject to the options
at any time, both under this plan and otherwise, shall not exceed 10 percent of
the number of shares of Common Stock then outstanding. No person can be granted
options which, if fully exercised, would result in that person's owning more
than 25% of the outstanding shares of Common Stock after such exercise.




     Changes in the stock options granted under the Plan during the year are as
follows:

<TABLE>
<CAPTION>
                                                      Exercise Price
Number of Options                      $2.8          $3.67       $4.05         Total
-----------------                    --------      --------     --------     --------
<S>                                  <C>           <C>          <C>          <C>
Balance outstanding at
  Mar 31, 1999                        510,000            --           --      510,000

Options granted on
  Jan 3, 2000                              --            --      465,000      465,000

Options granted on
  Mar 4, 2000                              --       188,000           --      188,000

Options cancelled during year
  Upon termination of employment      (31,000)           --           --      (31,000)

Options exercised during year        (248,850)           --           --     (248,850)
                                     --------      --------     --------     --------
Balance outstanding at
  Mar 31, 2000                        230,150       188,000      465,000      883,150
                                     ========      ========     ========     ========
</TABLE>

Subsequent to the balance sheet date, 30,000 stock options were granted on May
17, 2000 at an exercise price of $4.375. As of May 30, 2000, 666,600 options are
held by directors and officers of the company.

On June 20, 2000, the Board of Directors invited the grantees of share options
issued between January and May 2000 to surrender their share options by June 30,
2000. The Board authorized the Company Secretary to exchange the shares
surrendered by the same number of shares by granting a new share option at
US$1.75 per share, being the market closing price of the Company's shares on
June 19, 2000.


ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS.

     Since the inception of the company's predecessor, Dransfield Paper, in
March 1994, and since the merger on February 26, 1997, between Dransfield


                                       35
<PAGE>   37


Paper and the company, the company has had transactions with fellow subsidiary
companies (that is, companies that are subsidiaries of Dransfield Holdings
Limited) in which Mr. Horace Yao, chief executive officer and a director earlier
of Dransfield Paper and now of the company, had a direct or indirect interest as
a director or as a beneficial shareholder. The fellow subsidiary companies
provided accounting services, electronic data processing, and building lease and
management services, all at rates believed by the directors of Dransfield Paper
and now the company to be at approximately normal commercial rates. It is
proposed that such transactions will continue during the present fiscal year.
The amounts involved are not deemed to be material by the company.

     Similarly, the company and its predecessor have had, since April 1996, and
still have, transactions with Dransfield Trading Limited, a subsidiary of
Dransfield Holdings Limited which employs and accounts for the activities of the
sales personnel and for the distribution in Hong Kong and Macau not only of the
company's earlier-distributed Tempo products but of the consumer products
distributed by other business divisions of Dransfield Holdings Limited (see
"Business - General"). Under a new distribution agreement, Dransfield Trading
Limited is responsible for marketing and administration of the sales of paper
handkerchief products. The company believes that its use of Dransfield Trading
Limited in this manner results in lower distribution costs for a sales force.
The company has continued to make use of Dransfield Trading Limited for the
sales and distribution of its own DF-branded paper products, distribution of
which products commenced in August 1997. Such arrangement ceased during the year
ended March 31, 1999.


ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED. Inapplicable.

ITEM 15. DEFAULTS UPON SENIOR SECURITIES.

     There has been no material default in the payment of principal, interest, a
sinking or purchase fund installment, or any other material default not cured
within 30 days, with respect to any indebtedness of the company or any of its
significant subsidiaries exceeding five percent of the total assets of the
company and its consolidated subsidiaries.

ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED
         SECURITIES.

     Information describing the registered securities of the company is
contained in a Form F-1 Registration Statement filed with the Securities and
Exchange Commission, Commission file number 333-11641. There are no material
modifications, limitations, or changes that have occurred with respect to such
information.


                                       36
<PAGE>   38

ITEM 17. FINANCIAL STATEMENTS.

         The financial statements of the Company appear as follows

<TABLE>
<S>                                                                                     <C>
         Report of Independent Auditors                                                  F-1
          Consolidated Balance Sheets as of March 31, 1999 and
                 March 31, 2000                                                          F-2
          Consolidated Statements of Operations for the years ended
                 March 31, 1998, March 31, 1999, and March 31, 2000                      F-3
          Consolidated Statements of Cash Flows for the years ended
                 March 31, 1998, March 31, 1999, and March 31, 2000                      F-4
          Consolidated Statements of Changes in Shareholders' Equity
                 for the years ended March 31, 1998, March 31, 1999,
                 and March 31, 2000                                                      F-5
         Notes to Consolidated Financial Statements                                      F-7
</TABLE>




                                       37
<PAGE>   39

                         REPORT OF INDEPENDENT AUDITORS


To the Board of Directors and Shareholders
DF China Technology Inc.
(Formerly Dransfield China Paper Corporation)
(Incorporated in the British Virgin Islands with limited liability)


         We have audited the accompanying consolidated balance sheets of DF
China Technology Inc. and subsidiaries (hereinafter aggregately referred as the
"Group") as of March 31, 1999 and 2000 and the related statements of operations,
cash flows and changes in shareholders' equity for each of the years in the
three-year period ended March 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

         We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

         In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Group at March 31, 1999 and 2000, and the consolidated results of its operations
and its cash flows for each of the years in the three-year period ended March
31, 2000, in conformity with accounting principles generally accepted in the
United States of America.

/s/ Ernst & Young

Ernst & Young

Hong Kong
August 1, 2000



                                      F-1
<PAGE>   40

                    DF CHINA TECHNOLOGY INC. AND SUBSIDIARIES

            CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 1999 and 2000

       (Amounts in thousands, except number of shares and per share data)

<TABLE>
<CAPTION>
                                                   Notes       2000            2000            1999
                                                                US$             HK$             HK$
                                                            ----------      ----------      ----------
<S>                                               <C>       <C>             <C>             <C>
ASSETS
Current assets
    Cash and bank balances                                         220           1,710           1,203
    Accounts receivable, net                         6               5              41             430
    Inventories, net                                 7             275           2,147           1,415
    Prepayments and other receivables                              146           1,137             863
    Income tax recoverable                                          12              92              92
                                                            ----------      ----------      ----------
Total current assets                                               658           5,127           4,003
Fixed assets                                         8          25,791         200,909         186,642
Loan to a related company                            9           1,842          14,350          14,350
Deposit for fixed assets                                           564           4,397           3,143
Other assets                                                        26             200             200
                                                            ----------      ----------      ----------

                                                                28,881         224,983         208,338
                                                            ==========      ==========      ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
    Accounts payable                                                 8              65             571
    Accrued liabilities                                            497           3,870           1,527
    Due to a former minority shareholder            12              --              --           2,421
                                                            ----------      ----------      ----------
Total current liabilities                                          505           3,935           4,519
Due to holding company                              13              --              --          44,009
Loan from a related company                          9           1,842          14,350          14,350
                                                            ----------      ----------      ----------
                                                                 2,347          18,285          62,878
Shareholders' equity:
Common stock, no par value,
    40,000,000 shares authorized;
    18,165,007 issued, (1999: 15,585,000)                       28,883         225,001         153,584
    Unpaid subscription receivable                                (492)         (3,835)             --
                                                            ----------      ----------      ----------
                                                                28,391         221,166         153,584
Contributed surplus                                 23             549           4,277           3,653
Accumulated deficit                                             (2,406)        (18,745)        (11,777)
                                                            ----------      ----------      ----------
Total shareholders' equity                                      26,534         206,698         145,460
                                                            ----------      ----------      ----------

Total liabilities and shareholders' equity                      28,881         224,983         208,338
                                                            ==========      ==========      ==========
</TABLE>


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




                                      F-2
<PAGE>   41

                    DF CHINA TECHNOLOGY INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
      FOR THE YEARS ENDED MARCH 31, 1998, MARCH 31, 1999 AND MARCH 31, 2000

       (Amounts in thousands, except number of shares and per share data)

<TABLE>
<CAPTION>
                                                     Notes      2000            2000            1999            1998
                                                                 US$             HK$             HK$             HK$
                                                             ----------      ----------      ----------      ----------
<S>                                                  <C>     <C>             <C>             <C>             <C>
Net sales:
    Distribution of hygienic paper products
       -fellow subsidiaries                           15             --              --              --          14,992
    Paper merchanting
         -third parties                                              77             597           4,812          39,639
    Paper manufacturing
         -third parties                                              48             373              --              --
         -fellow subsidiaries                         15             68             532              --              --
                                                             ----------      ----------      ----------      ----------
                                                                    193           1,502           4,812          54,631

Cost of sales:
    Hygienic paper products                                        (127)           (989)             --         (12,935)
    Other paper products                                            (75)           (583)         (4,376)        (36,870)
                                                             ----------      ----------      ----------      ----------
                                                                   (202)         (1,572)         (4,376)        (49,805)
Gross profit/(loss)                                                  (9)            (70)            436           4,826
Consulting services income                                          132           1,026              --              --
Selling, general and administrative expenses           3
    - third parties                                                (866)         (6,744)         (7,222)         (7,319)
    - fellow subsidiaries                             15           (169)         (1,315)         (2,057)         (2,103)
                                                             ----------      ----------      ----------      ----------
                                                                 (1,035)         (8,059)         (9,279)         (9,422)

Interest income                                                       5              41              --              12
Interest expense                                      10             --              --            (254)           (537)
Loss on disposal of subsidiaries                      11             --              --              --            (406)
Other income, net                                                    12              94              --              16
Compensation from a supplier                          19             --              --              --           1,195
                                                             ----------      ----------      ----------      ----------

Loss before income taxes                                           (895)         (6,968)         (9,097)         (4,316)

Provision for income taxes:                            5
    - Current                                                        --              --               9             100
    - Deferred                                                       --              --              --            (517)
                                                             ----------      ----------      ----------      ----------
                                                                     --              --               9            (417)
                                                             ----------      ----------      ----------      ----------

Net loss                                                           (895)         (6,968)         (9,088)         (4,733)
                                                             ==========      ==========      ==========      ==========

Basic and diluted net loss per share (cents)           2             (6)            (43)            (58)            (39)
                                                             ==========      ==========      ==========      ==========
</TABLE>

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




                                      F-3
<PAGE>   42

                    DF CHINA TECHNOLOGY INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
      FOR THE YEARS ENDED MARCH 31, 1998, MARCH 31, 1999 AND MARCH 31, 2000

                             (Amounts in thousands)

<TABLE>
<CAPTION>
                                                                 2000            2000            1999            1998
                                                                  US$             HK$             HK$             HK$
                                                              ----------      ----------      ----------      ----------
<S>                                                           <C>             <C>             <C>             <C>
Cash flows from operating activities:
     Net loss                                                       (895)         (6,968)         (9,088)         (4,733)
Adjustments to reconcile income to net
     cash provided by operating activities:
      Depreciation                                                   301           2,346           2,800             590
      Deferred income taxes                                           --              --              --             517
      Loss on disposal of subsidiaries                                --              --              --             406
      Gain on disposal of fixed assets                                (9)            (68)             --              --
      Stock option compensation expense                               80             624             939           1,184
(Increase)/decrease in current assets:
     Accounts receivable                                              50             389          10,233           4,081
     Inventories                                                     (94)           (732)          1,106           9,851
     Prepayments and other receivables                               (35)           (274)             71           3,355
     Income tax recoverable                                           --              --             (31)             --
     Due from fellow subsidiaries                                     --              --              --          29,902
Increase/(decrease) in current liabilities:
     Accounts payable                                                (65)           (506)            106          (5,566)
     Accrued liabilities                                             316           2,459             308          (4,045)
     Income tax payable                                               --              --              --            (444)
     Due to fellow subsidiaries                                       --              --              --         (15,851)
                                                              ----------      ----------      ----------      ----------
Net cash provided/(used) by operating activities                    (351)         (2,730)          6,444          19,247
                                                              ----------      ----------      ----------      ----------

Cash flows from investing activities:
     Acquisition of fixed assets                                    (309)         (2,408)             --          (2,452)
     Payment of deposit for purchase of fixed assets                (564)         (4,397)         (3,143)         (2,049)
     Proceeds from disposal of fixed assets                            9              68              --              --
     Net cash outflow from disposal of and acquisition
          of minority interests in subsidiaries                       --              --              --          (4,601)
                                                              ----------      ----------      ----------      ----------
Net cash used in investing activities                               (864)         (6,737)         (3,143)         (9,102)
                                                              ----------      ----------      ----------      ----------

Cash flows from financing activities:
     Bank loans and overdrafts, secured                               --              --              --         (16,718)
     New issue of common stock                                       984           7,666              --           5,805
     Issue of common stock on exercise of stock options              694           5,410              --              --
     Advances from a former minority shareholder                      --              --              --           2,452
     Repayment of loan to a former minority shareholder             (311)         (2,421)            (31)             --
     Repayment of loan to holding company                            (87)           (681)         (4,132)         (2,873)
                                                              ----------      ----------      ----------      ----------
Net cash provided/(used) in financing activities                   1,280           9,974          (4,163)        (11,334)
                                                              ----------      ----------      ----------      ----------

Net increase/(decrease) in cash and cash equivalents                  65             507            (862)         (1,189)
Cash and cash equivalents, at beginning of year                      155           1,203           2,065           3,254
                                                              ----------      ----------      ----------      ----------
Cash and cash equivalents, at end of year                            220           1,710           1,203           2,065
                                                              ==========      ==========      ==========      ==========
</TABLE>


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



                                      F-4
<PAGE>   43

                    DF CHINA TECHNOLOGY INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
      FOR THE YEARS ENDED MARCH 31, 1998, MARCH 31, 1999 AND MARCH 31, 2000

       (Amounts in thousands, except number of shares and per share data)

<TABLE>
<CAPTION>
                                                                                                    Retained
                                                                                                   earnings/
                                                       Common      Preferred     Contributed    (accumulated
                                                        stock          stock         surplus        deficit)
                                                          HK$            HK$             HK$             HK$
                                                   ----------     ----------      ----------      ----------

<S>                                                <C>           <C>              <C>             <C>
Balance at March 31, 1997                               3,004         26,687           1,530           2,044

New issue of 2,300,000 shares of common
    stock at US$1.5 each on conversion
    of preferred stock (note 22)                       26,687        (26,687)             --              --

New issue of 1,000,000 shares of common
    stock at US$5 each on conversion of
    amount due to holding company                      38,699             --              --              --

New issue of 1,000,000 shares of common
    stock at US$4.25 each on conversion
    of amount due to holding company                   32,893             --              --              --

New issue of 1,335,000 shares of common
    stock at US$4.5 each on conversion
    of amount due to holding company                   46,496             --              --              --

New issue of 150,000 shares of common stock
    at US$5 each                                        5,805             --              --              --

Stock compensation expense (notes 21 and 23)               --             --           1,184              --

Net loss                                                   --             --              --          (4,733)
                                                   ----------     ----------      ----------      ----------
Balance at March 31, 1998                             153,584             --           2,714          (2,689)

Stock compensation expense (notes 21 and 23)               --             --             939              --

Net loss -                                                 --             --          (9,088)
                                                   ----------     ----------      ----------      ----------
Balance at March 31, 1999                             153,584             --           3,653         (11,777)
</TABLE>




                                      F-5
<PAGE>   44

                    DF CHINA TECHNOLOGY INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
      FOR THE YEARS ENDED MARCH 31, 1998, MARCH 31, 1999 AND MARCH 31, 2000

       (Amounts in thousands, except number of shares and per share data)

<TABLE>
<CAPTION>
                                                                                                           Retained
                                                                                                          earnings/
                                                                Common      Preferred    Contributed   (accumulated
                                                                 stock          stock        surplus       deficit)
                                                                   HK$            HK$            HK$            HK$
                                                            ----------     ----------     ----------   ------------

<S>                                                          <C>           <C>            <C>           <C>
New issue of 3,000 shares of common stock
    at US$5 each on conversion of accrued                          116             --             --             --
    liabilities

New issue of 21,087 shares of common
    stock at US$7 each on conversion
    of amount due to holding company                             1,144             --             --             --

New issue of 429,515 shares of common stock
     at US$2.3 each to a former minority                         7,666             --             --             --
     shareholder

New issue of 8,623 shares of common stock
     at US$2.3 each for construction costs incurred                154             --             --             --

New issue of 96,912 shares of common stock
     at US$7 each for construction costs incurred                5,276             --             --             --

New issue of 103,022 shares of common stock
    at US$7 each on conversion of holding
    company's accounts payable                                   5,721             --             --             --

New issue of 248,850 shares of common stock
    at US$2.8 each on exercise of stock options                  5,410             --             --             --

New issue of 15,298 shares of common stock
    at US$5.5 each for construction costs
    incurred                                                       655             --             --             --

New issue of 1,653,700 shares of common
    stock at US$3.51 each on conversion
    of amount due to holding company                            45,275             --             --             --

Stock compensation expense                                          --             --            624             --

Net loss                                                            --             --             --         (6,968)
                                                            ----------     ----------     ----------     ----------
Balance at March 31, 2000                                      225,001             --          4,277        (18,745)
                                                            ==========     ==========     ==========     ==========
</TABLE>

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



                                      F-6
<PAGE>   45

                    DF CHINA TECHNOLOGY INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               (Amounts in thousands, unless otherwise stated and
                   except number of shares and per share data)


1.       ORGANIZATION AND BASIS OF PRESENTATION

         (a)      Organization

                  DF China Technology Inc., formerly known as Dransfield China
         Paper Corporation, (the "Company") was incorporated in the British
         Virgin Islands on June 24, 1996. The Company is a subsidiary of
         Dransfield Holdings Limited ("DHL"), a company incorporated in the
         Cayman Islands and the shares of which are listed for trading on the
         Hong Kong Stock Exchange.

                  The Company and its subsidiaries (hereinafter aggregately
         referred as the "Group") is principally engaged in three industry
         segments of paper distribution, paper merchanting and paper
         manufacturing. Paper distribution and merchanting are being operated in
         Hong Kong, Macau and the People Republic of China ("PRC"). The
         manufacturing of hygienic paper is being operated in the PRC.
         Intercompany balances and transactions have been eliminated on
         consolidation.

                  On March 28, 2000, the Company changed its name to DF China
         Technology Inc. and on May 11, 2000, the symbol for stock trading in
         the NASDAQ Stock Market was changed to DFCT.

         (b)      Basis of presentation

                  The consolidated financial statements were prepared in
         accordance with U.S. GAAP. This basis of accounting differs from that
         used in the statutory accounts of the Group which were prepared in
         accordance with the accounting principles and the relevant financial
         regulations applicable to accounting principles and practices generally
         accepted in Hong Kong.

                  The principal adjustments made to conform with the statutory
         accounts to U.S. GAAP included the following:

         o        Write-off of advertising expenses deferred;

         o        Compensation from related parties; and

         o        Deferred taxation.

                  The financial information has been prepared in Hong Kong
         dollars ("HK$"), the official currency of Hong Kong. Solely for the
         convenience of the reader, the financial statements have been
         translated into United States dollars ("US$") using rates prevailing on
         March 31, 2000 which was US$1.00 = HK$7.79. No representation is made
         that the Hong Kong dollar amounts could have been, or could be,
         converted into United States dollars at that rate or any other certain
         rate on March 31, 2000.



                                      F-7
<PAGE>   46

                    DF CHINA TECHNOLOGY INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               (Amounts in thousands, unless otherwise stated and
                   except number of shares and per share data)


2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         (a)      Cash and bank balances

                  Cash and bank balances include cash on hand and demand
         deposits with banks with an original maturity of three months or less.
         None of the Group's cash is restricted as to withdrawal or use.

         (b)      Inventories

                  Inventories comprising raw materials held for production and
         goods held for resale, are stated at lower of cost, on a first-in,
         first-out basis, or market.

         (c)      Fixed assets and depreciation

                  Property, machinery and equipment are stated at cost less
         accumulated depreciation. Depreciation of property, machinery and
         equipment is computed using the straight-line method over the assets'
         estimated useful life. The principal annual rates used are as follows:

<TABLE>
<S>                                                            <C>
                  Land and buildings held in the PRC           Over the period of the land use rights
                  Buildings                                    4%
                  Leasehold improvements                       20% or over the lease terms, whichever is shorter
                  Machinery and equipment                      5%
                  Motor vehicles                               20 - 25%
                  Furniture, fixtures and office equipment     20%
</TABLE>

         (d)      Income taxes

                  Income taxes are accounted for under Statement of Financial
         Accounting Standards No.109, "Accounting for Income Taxes", which
         requires the use of the liability method of accounting for income
         taxes. The liability method measures deferred income taxes by applying
         enacted statutory rates in effect at the balance sheet date to the
         differences between the tax bases of assets and liabilities and their
         reported amounts in the financial statements.



                                      F-8
<PAGE>   47

                    DF CHINA TECHNOLOGY INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               (Amounts in thousands, unless otherwise stated and
                   except number of shares and per share data)


2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

         (e)      Foreign currency translation

                  Foreign currency transactions are translated into Hong Kong
         dollars at the applicable rates of exchange ruling at the transaction
         dates. Monetary assets and liabilities denominated in foreign
         currencies at the balance sheet date are translated into Hong Kong
         dollars at the applicable rates of exchange ruling at that date.
         Exchange differences are accounted for in the statements of operations.

         (f)      Operating leases

                  Leases where substantially all the rewards and risks of
         ownership of assets remain with the leasing company are accounted for
         as operating leases. Rentals applicable to such operating leases are
         charged to income on the straight-line basis over the lease terms.

         (g)      Revenue recognition

                  Revenue from sales of goods are recognized on delivery to
         customers. Consulting services income is recognized as the services are
         provided.

         (h)      Advertising expenses

                  Advertising expenses, net of cooperative advertising
         reimbursements, are charged to the statements of operations when
         incurred.

         (i)      Use of estimates

                  The preparation of financial statements in conformity with
         generally accepted accounting principles requires management to make
         estimates and assumptions that affect amounts reported in the financial
         statements and accompanying notes. Actual results could differ from
         stated estimates.

         (j)      Employee stock plans

                  The Company has elected to follow Accounting Principles Board
         Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25")
         and related interpretations in accounting for its employee stock
         options. Under APB 25, the excess of exercise price of employee stock
         options over the fair market value of the underlying stock on the date
         of grant, is expensed and is credited to contributed surplus. For
         disclosure purposes, pro-forma information in accordance with Statement
         of Financial Accounting Standards No. 123 "Accounting for Stock-Based
         Compensation" has been included in note 21 to the consolidated
         financial statements.




                                      F-9
<PAGE>   48

                    DF CHINA TECHNOLOGY INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               (Amounts in thousands, unless otherwise stated and
                   except number of shares and per share data)


2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

         (k)      Basic and diluted net income/loss per share

                  Basic net income/loss per share is computed using the weighted
         average number of common shares outstanding during the periods. Diluted
         net income/loss per share is computed using the weighted average number
         of common and potentially dilutive common shares during the periods,
         except those that are antidilutive.

                  The basic net loss per share for the year ended March 31, 1998
         was computed by dividing net loss applicable to common stock, including
         the cumulative dividends in arrears (note 22), by the weighted average
         number of 13,328,014 shares of common stock, which was outstanding
         during the year on the assumption that the 9.3 million shares of common
         stock issued to DHL upon the effectiveness of the merger had existed at
         April 1, 1997. The basic net loss per share for the years ended March
         31, 1999 and 2000 were computed by dividing net loss applicable to
         common stock by the weighted average number of 15,585,000 and
         16,073,338 shares of common stock, respectively.

         (l)      Cash and cash equivalents

                  The Company considers all highly liquid investments with a
         maturity of three months or less when purchased to be cash equivalents.


3.       SUPPLEMENTARY INCOME STATEMENT INFORMATION

<TABLE>
<CAPTION>
                                                                          Year ended March 31,
                                                             2000          2000          1999          1998
                                                              US$           HK$           HK$           HK$
                                                           --------      --------      --------      --------

<S>                                                        <C>           <C>           <C>           <C>
         Selling, general and administrative expenses:
             Depreciation                                       301         1,848         2,800           590
             Advertising expenses                                 3            25            --            33
             Exchange gain, net                                  (2)          (18)          (53)          (72)
                                                           ========      ========      ========      ========
</TABLE>




                                      F-10
<PAGE>   49

                    DF CHINA TECHNOLOGY INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               (Amounts in thousands, unless otherwise stated and
                   except number of shares and per share data)


4.       SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                                                            Year ended March 31,
                                                                2000         2000         1999         1998
                                                                 US$          HK$          HK$          HK$
                                                              --------     --------     --------     --------

<S>                                                           <C>          <C>          <C>          <C>
         Cash paid during the year for:
             Interest                                              339        2,642        2,741        5,939
             Income taxes                                           --           --           22          344
                                                              ========     ========     ========     ========

         Non cash investing and financing activities:
             Loan from a related company
                financed by a loan to a
                related company (note 9)                            --           --           --          984
             Fixed assets contributed by holding company           639        4,977        8,959       52,857
             Issuance of common stock for
                construction costs incurred                        781        6,085           --           --
             Issuance of common stock on
                conversion of accrued liabilities                   15          116           --           --
             Issuance of common stock on
                conversion of holding company's
                accounts payable                                   734        5,721           --           --
             Issuance of common stock on
                conversion of amount due
                to holding company                               5,959       46,419           --      118,088
             Issuance of common stock on
                conversion of preferred stock                       --           --           --       26,687
                                                              ========     ========     ========     ========
</TABLE>


5.       INCOME TAXES

                  The Company was incorporated in the British Virgin Islands
         and, under current law of the British Virgin Islands, is not subject to
         tax on income or on capital gains.

                  Grandom Dransfield (International) and Company Limited ("GDI")
         and Dransfield Paper (HK) Trading Limited ("DPT"), wholly-owned
         subsidiaries of the Company, were incorporated in Hong Kong and under
         the current Hong Kong tax law, any income arising in and deriving from
         business carried on in Hong Kong is subject to Hong Kong tax. No tax is
         charged on dividends received and capital gains earned.




                                      F-11
<PAGE>   50

                    DF CHINA TECHNOLOGY INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               (Amounts in thousands, unless otherwise stated and
                   except number of shares and per share data)


5.       INCOME TAXES (continued)

                  Guangzhou Dransfield Paper Limited, a co-operative joint
         venture formed in the PRC in which the Company has a 100% interest, and
         Jiangsu Dransfield Paper Co. Ltd. ("JSDP"), formerly known as Jiang
         Ying Dransfield Paper Co., Ltd., an equity joint venture formed in the
         PRC in which the Company has an 80% (1999 : 48% and 1998 : 48%)
         effective interest, are subject to PRC income taxes at the applicable
         tax rate of 33% for Sino-foreign joint venture enterprises. These two
         joint ventures are eligible for full exemption from joint venture
         income tax for the first two years starting from its first profitable
         year of operations followed by a 50% deduction from the third to fifth
         year. Under the Income Tax Law applicable to Sino-foreign joint
         ventures, no PRC income tax was levied on the above companies as they
         have not commenced operation as at March 31, 2000.

                  Total income tax expense differs from the amount computed by
         applying Hong Kong statutory income tax rate of 16% (1999: 16% and
         1998: 16.5%) to income before taxes as follows:

<TABLE>
<CAPTION>
                                                                     Year ended March 31,
                                                        2000          2000          1999          1998
                                                         US$           HK$           HK$           HK$
                                                      --------      --------      --------      --------

<S>                                                   <C>           <C>           <C>           <C>
         Computed expected income taxes                    143         1,115         1,455           712
         Non-deductible losses of subsidiaries            (120)         (933)         (811)         (581)
         Other                                              --            --             9           100
         Valuation allowance                               (23)         (182)         (644)         (648)
                                                      --------      --------      --------      --------

         Tax credit/(charge) for the year                   --            --             9          (417)
                                                      ========      ========      ========      ========
</TABLE>


         Deferred tax asset is comprised of the following:

<TABLE>
<CAPTION>
                                                                      2000          2000          1999
                                                                       US$           HK$           HK$
                                                                    --------      --------      --------

<S>                                                                 <C>            <C>          <C>
         Tax losses carried forward                                      189         1,474         1,292

         Valuation allowance                                            (189)       (1,474)       (1,292)
                                                                    --------      --------      --------

                                                                          --            --            --
                                                                    ========      ========      ========
</TABLE>

                  Due to its history of losses, the Company does not believe
         that sufficient objective, positive evidence currently exists to
         conclude that recoverability of its net deferred tax assets is more
         likely than not. Consequently, the Company has provided a valuation
         allowance covering 100% of its net deferred tax assets.

                  As at March 31, 2000, the Company has Hong Kong net operating
         loss carry forward of approximately HK$9,212 (US$1,183). Currently, the
         net operating loss can be carried forward indefinitely.




                                      F-12
<PAGE>   51

                    DF CHINA TECHNOLOGY INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               (Amounts in thousands, unless otherwise stated and
                   except number of shares and per share data)


6.       ACCOUNTS RECEIVABLE, NET

         Accounts receivable are comprised of:

<TABLE>
<CAPTION>
                                                                              March 31,
                                                                  2000          2000          1999
                                                                   US$           HK$           HK$
                                                                --------      --------      --------

<S>                                                             <C>           <C>           <C>
         Accounts receivable - trade                                   5            41         1,600
         Less: Allowance for doubtful debts                           --            --        (1,170)
                                                                --------      --------      --------

         Accounts receivable, net                                      5            41           430
                                                                ========      ========      ========
         Movement of allowance for doubtful debts:
              Balance as at April 1,                                 150         1,170           350
              Provided/(Written back) during the year                 (2)          (20)          820
             Written off during the year                            (148)       (1,150)           --
                                                                --------      --------      --------

         Balance as at March 31,                                      --            --         1,170
                                                                ========      ========      ========
</TABLE>


7.       INVENTORIES, NET

         Inventories are comprised of:

<TABLE>
<CAPTION>
                                                                              March 31,
                                                                  2000          2000          1999
                                                                   US$           HK$           HK$
                                                                --------      --------      --------

<S>                                                             <C>           <C>           <C>
         Raw materials                                               188         1,470           814
         Work in progress                                             11            83            --
         Finished goods                                              220         1,715         1,106
         Less: Allowance for obsolescence and
                    net realizable value                            (144)       (1,121)         (505)
                                                                --------      --------      --------

         Inventories, net                                            275         2,147         1,415
                                                                ========      ========      ========
         Movement of allowance for obsolescence
          and net realizable value
              Balance as at April 1,                                  65           505         1,103
              Provided during the year                                90           699            --
              Deduction during the year                              (11)          (83)         (598)
                                                                --------      --------      --------

         Balance as at March 31,                                     144         1,121           505
                                                                ========      ========      ========
</TABLE>




                                      F-13
<PAGE>   52

                    DF CHINA TECHNOLOGY INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               (Amounts in thousands, unless otherwise stated and
                   except number of shares and per share data)


8.       FIXED ASSETS

<TABLE>
<CAPTION>
                                                                              March 31,
                                                                  2000          2000          1999
                                                                   US$           HK$           HK$
                                                                --------      --------      --------

<S>                                                             <C>           <C>           <C>
         Land and buildings                                        7,391        57,569        48,331
         Leasehold improvements                                       29           224           224
         Machinery and equipment                                  18,623       145,071       137,748
         Motor vehicles                                              105           822         1,134
         Furniture, fixtures and office equipment                    515         4,015         3,963
                                                                --------      --------      --------
                                                                  26,663       207,701       191,400

         Less: Accumulated depreciation                             (872)       (6,792)       (4,758)
                                                                --------      --------      --------

                                                                  25,791       200,909       186,642
                                                                ========      ========      ========
</TABLE>

                  The Group's land and buildings are located in the PRC and held
         under land use rights of 50 years from December 1, 1992 to November 30,
         2041.

                  No depreciation was provided on the land and buildings and
         machinery and equipment which were under construction at March 31,
         2000. The carrying value of the assets which are under construction at
         the balance sheet date amounted to HK$156.46 (1999: HK$138.89).


9.       LOANS WITH A RELATED COMPANY

                  In May 1995, the Company entered into an agreement with a
         third party, Broadsino Investment Company Limited ("Broadsino") to
         establish Dransfield Broadsino Paper Holdings Limited ("DBPHL"), a
         company which is 80% owned by the Company. DBPHL then entered into an
         agreement to establish a Sino-foreign equity joint venture company,
         JSDP, which was 60% owned by DBPHL and was principally engaged in paper
         manufacturing. DBPHL has committed to contribute an amount of US$9,260
         (approximately HK$72,000) to JSDP, to be financed by a shareholders'
         loan. During the year, JSDP became a wholly-owned subsidiary of DBPHL
         as a result of changes in the agreement with the PRC joint venture
         partner and the registration status of JSDP was changed from a
         Sino-foreign equity joint venture company to a wholly-owned foreign
         enterprise on 14 October 1999. Further details are set out in note 11.




                                      F-14
<PAGE>   53

                    DF CHINA TECHNOLOGY INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               (Amounts in thousands, unless otherwise stated and
                   except number of shares and per share data)


9.       LOANS WITH A RELATED COMPANY (continued)

                  In prior years, the Company, DBPHL and Broadsino entered into
         a loan agreement whereby the Company and Broadsino agreed to make an
         interest-free shareholders' loan of US$9,260 million (approximately
         HK$72,000) (the "Shareholders' Loan") to DBPHL. Pursuant to another
         agreement, the Company agreed to make a loan of US$1,852 (approximately
         HK$14,000) to Broadsino, bearing compound interest at the rate of 6
         percent per annum, to finance its share of the Shareholders' Loan to
         DBPHL. DBPHL has pledged all its assets with the Company and Broadsino
         for the repayment in full of the Shareholders' Loan. In addition, DBPHL
         also undertakes to apply any amounts, including dividends, which may be
         distributed by JSDP to it to repay, in full, the Shareholders' Loan.
         Broadsino has pledged both its 20 per cent shareholding in DBPHL and
         any amount it may receive from DBPHL as repayment of its proportion of
         the Shareholders' Loan to secure the repayment, in full, of the loan
         from the Company. A promissory note has been issued by a wholly owned
         subsidiary of Broadsino in favor of the Company.

                  As at March 31, 2000, the Company advanced HK$14,350
         (US$1,842) to Broadsino for the capital injection in JSDP, which is
         classified as a loan to a related company. The same amount of HK$14,350
         (US$1,842) is recorded in the consolidated financial statements as long
         term loan payable to Broadsino by DBPHL. The loan to and loan from a
         related company have no fixed repayment terms.


10.      BANK BORROWINGS

                  The Group has utilized the banking facilities of the holding
         company to finance the Group's capital investment. The interest
         incurred on the banking facilities were reimbursed by the Group based
         on the actual interest charged by the banks.

                  Interest expense on the above-mentioned bank borrowings, net
         of the amounts capitalized, is as follows:

<TABLE>
<CAPTION>
                                                      Year ended March 31,
                                         2000          2000          1999          1998
                                          US$           HK$           HK$           HK$
                                       --------      --------      --------      --------

<S>                                    <C>           <C>           <C>           <C>
         Interest incurred                  339         2,642         2,741         5,939
         Interest capitalized              (339)       (2,642)       (2,487)       (5,402)
                                       --------      --------      --------      --------

         Interest expense                    --            --           254           537
                                       ========      ========      ========      ========
</TABLE>

         As at the balance sheet date, the interest rates on the above-mentioned
         bank borrowings ranged from 9% to 10.25% per annum (March 31, 1999:
         5.75% to 10.25% per annum).




                                      F-15
<PAGE>   54

                    DF CHINA TECHNOLOGY INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               (Amounts in thousands, unless otherwise stated and
                   except number of shares and per share data)


11.      ACQUISITION AND DISPOSAL OF SUBSIDIARIES

         (a) On March 27, 1997, the Company entered into a sale and purchase
         agreement to acquire the remaining 33.3% interest in CS Paper Holdings
         (International) Limited, a 66.7% subsidiary of the Company, and certain
         of its wholly-owned subsidiaries (collectively the "CSP Group") and to
         dispose of Dransfield Paper (S.E.A.) Pte. Limited ("DPSEA") and Central
         National Hong Kong Limited ("CN"), subsidiaries in which the Company
         had 66.7% and 34% equity interests, respectively.

                  The agreement was declared unconditional on May 9, 1997. The
         net amount of consideration payable to the minority shareholder of
         HK$3,000 (US$388) was settled in cash on June 4, 1997. The net cash
         outflow of the above transactions amounted to HK$4,601 (US$595) which
         consisted of the aforesaid consideration of HK$3,000 and cash and bank
         balances of HK$1,601 (US$207) of the subsidiaries disposed of.

                  The loss on disposal of DPSEA and CN amounting to HK$406
         (US$52) was reflected in the Company's statements of operations for the
         year ended March 31, 1998.

         (b) On 20 July 1999, DBPHL entered into an agreement with Jiangsu Huaxi
         Holdings Corporation ("Jiangsu Huaxi"), the PRC joint venture partner
         of JSDP.

                  It was agreed that Jiangsu Huaxi gave up the rights to invest
         40% equity interest in JSDP as originally stated in the joint venture
         agreement entered into between DBPHL and Jiangsu Huaxi. Accordingly,
         JSDP became a wholly-owned subsidiary of DBPHL and the registration
         status of JSDP was changed from a Sino-foreign equity joint venture
         company to a wholly-owned foreign enterprise on 14 October 1999.


12.      DUE TO A FORMER MINORITY SHAREHOLDER

                  The balance at March 31, 1999 represented a loan from a former
         minority shareholder, which was unsecured, interest-free and had no
         fixed repayment terms. During the year, the balance was fully repaid.


13.      DUE TO HOLDING COMPANY

                  As mentioned in note 10, the unsecured long term liability
         arose when the Group utilized the banking facilities of the holding
         company to finance the Group's capital investment. The interest
         incurred on the banking facilities were reimbursed by the Group.

                  During the year, the Company issued shares of common stock to
         DHL and fully settled the amount due to holding company at a range of
         US$3.5 per share to US$7.0 per share, which represented fair market
         value at the date of transactions.


                                      F-16
<PAGE>   55
                    DF CHINA TECHNOLOGY INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               (Amounts in thousands, unless otherwise stated and
                   except number of shares and per share data)


14.      COMMITMENTS

                  As of March 31, 2000, the Group had outstanding capital
         commitments of HK$37,000 (US$5,000).


15.      RELATED PARTY TRANSACTIONS AND ARRANGEMENTS

                  The major related party transactions are described in further
         detail below. Management believes that the methods used in allocating
         costs are reasonable.

<TABLE>
<CAPTION>
                                                                  Year ended March 31,
Nature of transactions                         Notes     2000       2000       1999       1998
                                                          US$        HK$        HK$        HK$
                                                        ------     ------     ------     ------
<S>                                            <C>      <C>        <C>        <C>        <C>
Revenue:
     Sales of products                          (a)         68        532         --     14,992
                                                        ======     ======     ======     ======
Expenses:
     Electronic data processing, accounting
         services and personnel and
         administrative charges                 (b)         --         --      1,447        632
     Storage and delivery charges               (c)         56        436        541      1,232
     Equipment rental                           (d)         --         --         --         33
     Operating lease rental for land
         and buildings                          (e)         --         --         69        206
                                                        ------     ------     ------     ------

                                                            56        436      2,057      2,103
                                                        ======     ======     ======     ======
</TABLE>

         (a)      Sales of products

                  Prior to April 1, 1998, the Group sold products to Victorison
         Marketing Limited and Dransfield Pacific Limited, fellow subsidiaries
         of the Company at cost plus 3%. The Group also sold products to
         Dransfield Trading Limited ("DTL") at cost plus 18% for the years ended
         March 31, 1998 and 2000. Under this arrangement, DTL is responsible for
         the marketing and distribution of the Group's hygienic paper products.
         The mark-up is established based on the margins achieved by DTL on
         sales to ultimate customers after taking into account marketing and
         distribution costs incurred by DTL.


                                      F-17
<PAGE>   56


                    DF CHINA TECHNOLOGY INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               (Amounts in thousands, unless otherwise stated and
                   except number of shares and per share data)


15.      RELATED PARTY TRANSACTIONS AND ARRANGEMENTS (continued)

         (b)      Electronic data processing, accounting services and personnel
                  and administrative charges

                  In prior years, Dransfield Secretarial & Administrative
         Services Limited, a fellow subsidiary of the Company, provides various
         administrative services to the Group including electronic data
         processing, accounting, shipping, personnel, legal and general
         administrative services. The service fee charged by the fellow
         subsidiary was based on apportioned salary costs on the basis of
         estimated time incurred and cost of other resources consumed to provide
         these services to the Group. Since services were terminated in April
         1999, no such fee was charged in the current year.

         (c)      Storage and delivery charges

                  Prior to April 1, 1999, Victorison Logistics Limited, a fellow
         subsidiary of the Company, provided storage and delivery services to
         the Group. Commencing April 1, 1999, such services are provided to the
         Group by Dransfield Services Limited and Dransfield Food and Beverage
         Limited, fellow subsidiaries of the Company. The services are charged
         at agreed prices, which, in the opinion of the management, approximate
         prices negotiated with third parties on an arm's length basis.

         (d)      Equipment rental

                  The equipment rental was paid to A. Dransfield & Company,
         Limited, a fellow subsidiary of the Company, at the rate equivalent to
         the depreciation of the equipment over its estimated useful live.

         (e)      Operating lease rental for land and building

                  The rental under operating leases was paid to Well Assessed
         Limited ("WAL"), a fellow subsidiary of the Company based on the actual
         floor area occupied by the Group at agreed rates, which, in the opinion
         of the management, approximate rates negotiated with third parties on
         an arm's length basis. Commencing August 1, 1998, WAL ceased the
         operating leases with the Group.


16.      FINANCIAL INSTRUMENTS

                  The carrying amount of the Company's cash and bank balances
         approximate their fair value because of the short maturity of those
         instruments. The carrying amounts of the Company's borrowings
         approximate their fair value based on the borrowing rates currently
         available for borrowings with similar terms and average maturities,
         except for the loans from holding company, which, due to their nature,
         the fair value was not determinable.

                  The carrying amount reported in the balance sheet for accounts
         receivable and accounts payable approximate their fair value.


                                      F-18
<PAGE>   57


                    DF CHINA TECHNOLOGY INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               (Amounts in thousands, unless otherwise stated and
                   except number of shares and per share data)


17.      CONCENTRATION OF RISK

         Concentration of credit risk:

                  The Group's principal activities are manufacturing and
         distribution of paper products. The Group has long standing
         relationships with most of its customers. The Group performs ongoing
         credit evaluation of its customers' financial conditions and, generally
         does not require collateral.

                  The allowance for doubtful accounts the Group maintains is
         based upon the expected collectibility of all accounts receivable.

         Current vulnerability due to certain concentrations:

                  The Group has investments in the PRC. The value of the Group's
         investment may be adversely affected by significant political, economic
         and social uncertainties in the PRC. Although the PRC government has
         been pursuing economic reform policies for the past several years, no
         assurance can be given that the PRC government will continue to pursue
         such policies or that such policies may not be significantly altered,
         especially in the event of a change in leadership, social or political
         disruption or unforeseen circumstances affecting the PRC's political,
         economic and social life. There is also no guarantee that the PRC
         government's pursuit of economic reforms will be consistent or
         effective.


18.      PENSION SCHEME

                  The Group is a member of a defined contribution pension scheme
         of DHL (the "Scheme"). All the full time permanent staff in Hong Kong,
         after the completion of one year's service, are eligible to join the
         Scheme. The participants contribute 5% of their basic monthly salaries
         to the Scheme while the Group contributes 5% to 6.5% of the basic
         monthly salaries of the participants depending on the number of years
         of employment of individual participants and such contributions are
         charged to the statement of operations as they become payable in
         accordance with the rules of the Scheme. When an employee leaves the
         Scheme prior to his/her interest in the Group employer contributions
         vesting fully, the ongoing contributions payable by the Group may be
         reduced by the relevant amount of forfeited contributions. Pension
         scheme expenses, net of forfeited contributions, are HK$16 and HK$5,
         respectively, for the years ended March 31, 1998 and 1999. No pension
         scheme expense, net of forfeited contributions, is incurred for the
         year ended March 31, 2000.


19.      COMPENSATION FROM A SUPPLIER

                  The Group received a compensation of HK$1,195 (US$154) from a
         supplier during the year ended March 31, 1998 related to termination of
         distributorship of certain hygienic paper products.


                                      F-19
<PAGE>   58


                    DF CHINA TECHNOLOGY INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               (Amounts in thousands, unless otherwise stated and
                   except number of shares and per share data)


20.      SEGMENT REPORTING, MAJOR CUSTOMERS AND SUPPLIERS

                  The Group evaluates performance and allocates resources based
         on profit or loss from operations. The accounting polices of the
         reportable segments are the same as those described in the summary of
         significant accounting policies.

                  The Group's reportable segments are business units that offer
         different products. The reportable segments are each managed separately
         because they manufacture and/or distribute distinct products with
         different production processes.

                  The Group operates in three industry segments, paper
         distribution, paper merchanting and paper manufacturing. Operations in
         paper distribution include the distribution of hygienic paper products.
         Operations in paper merchanting include the buying and selling of paper
         both on an indent basis. As at March 31, 2000, the Group has three
         paper mills in the PRC. Except for the converting paper mill in
         Conghua, the other two paper mills are still under construction and
         operations have not commenced. There is no assurance that the
         operations, when commenced, will be successful. Prior to April 1, 1999,
         there was no turnover and operating results contributed from the
         segment of paper manufacturing because the paper mills were either
         under trial-run or under construction.

<TABLE>
<CAPTION>
                                             2000       2000       1999       1998
                                             US$        HK$        HK$        HK$
                                            ------     ------     ------     ------
<S>                                         <C>        <C>        <C>        <C>
REVENUE
Distribution of hygienic paper products
    - fellow subsidiaries                       --         --         --     14,992
Paper merchanting
    - third parties                             77        597      4,812     39,639
Paper manufacturing
    - third parties                             48        373         --         --
    - fellow subsidiaries                       68        532         --         --
                                            ------     ------     ------     ------
Total consolidated revenues                    193      1,502      4,812     54,631
                                            ======     ======     ======     ======


DEPRECIATION AND AMORTIZATION
    EXPENSE
Distribution of hygienic paper products         --         --         --         14
Paper merchanting                                1         10         17         17
Paper manufacturing                            300      2,336      2,783        559
                                            ------     ------     ------     ------
Total consolidated depreciation and
  amortization expense                         301      2,346      2,800        590
                                            ======     ======     ======     ======
</TABLE>


                                      F-20
<PAGE>   59


                    DF CHINA TECHNOLOGY INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               (Amounts in thousands, unless otherwise stated and
                   except number of shares and per share data)


20.      SEGMENT REPORTING, MAJOR CUSTOMERS AND SUPPLIERS (continued)


<TABLE>
<CAPTION>
                                                           2000          2000          1999          1998
                                                           US$           HK$           HK$           HK$
                                                         --------      --------      --------      --------
<S>                                                      <C>           <C>           <C>           <C>

PROVISION FOR INCOME TAXES
Distribution of hygienic paper products                        --            --            --            30
Paper merchanting                                              --            --             9          (447)
                                                         --------      --------      --------      --------
Total consolidated provision for income taxes                  --            --             9          (417)
                                                         ========      ========      ========      ========

SEGMENT LOSS
Distribution of hygienic paper products                        --            --            --            53
Paper merchanting                                            (106)         (827)       (3,957)         (832)
Paper manufacturing                                          (709)       (5,517)       (3,947)       (1,905)
                                                         --------      --------      --------      --------
Total segment loss                                           (815)       (6,344)       (7,904)       (2,684)

RECONCILING ITEMS
Corporate expenses                                            (80)         (624)         (939)       (1,095)
Interest expense                                               --            --          (254)         (537)
                                                         --------      --------      --------      --------
Total consolidated loss before income taxes                  (895)       (6,968)       (9,097)       (4,316)
                                                         ========      ========      ========      ========

SEGMENT ASSETS
Distribution of hygienic paper products                        37           292           211           208
Paper merchanting                                               3            20           351        13,326
Paper manufacturing                                        28,676       223,385       207,560       197,429
                                                         --------      --------      --------      --------
Total segment assets                                       28,716       223,697       208,122       210,963

RECONCILING ITEM
Corporate assets                                              165         1,286           216           314
Amount due from holding company                               492         3,835            --            --
                                                         --------      --------      --------      --------
Total consolidated assets                                  29,373       228,818       208,338       211,277
                                                         ========      ========      ========      ========

EXPENDITURE FOR ADDITIONS TO
  LONG-LIVED ASSETS
Distribution of hygienic paper products                        --            --            --            --
Paper merchanting                                              --            --            --            --
Paper manufacturing                                         2,133        16,613        11,008        56,320
                                                         --------      --------      --------      --------
Total expenditure for additions to long-lived assets        2,133        16,613        11,008        56,320
                                                         ========      ========      ========      ========
</TABLE>


                                      F-21
<PAGE>   60


                    DF CHINA TECHNOLOGY INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               (Amounts in thousands, unless otherwise stated and
                   except number of shares and per share data)


20.      SEGMENT REPORTING AND MAJOR SUPPLIERS (continued)

                  There is no inter-segment sales for the three years ended
         March 31, 2000.

                  The principal assets of the Group are located in the PRC. The
         assets located elsewhere are insignificant.

                  The Group's business is conducted in Hong Kong, Macau and the
         other parts of the PRC. The sales to Macau and the other parts of the
         PRC during the three years ended March 31, 2000 were insignificant.

         MAJOR CUSTOMERS AND SUPPLIERS

                  There is no single customer who accounted for more than 10% of
         net sales for the year ended March 31, 1998. In 1999 and 2000, the
         Group's top three customers, excluding fellow subsidiaries, accounted
         for approximately 26% and 39% of total sales, respectively.

                  In 1998, 1999 and 2000, the Group's top three suppliers
         accounted for approximately 58%, 42% and 38% of total purchases,
         respectively.


21.      COMMON STOCK OPTIONS

                  On November 20, 1996, the then sole director of the Company
         adopted a stock option plan (the "Plan") whereby nontransferable
         options may be granted by the directors to employees and executive
         officers of the Company. The options are for 4-year terms but are
         subject to earlier expiration on April 2, 2003 which is the last
         validity date of the Plan. All the options granted may not be exercised
         during the first year of the grant. The exercise price for each option
         shall be set by the directors but may not be less than 80 percent of
         the average of closing prices of the Company's common stock during the
         five trading days prior to the grant of the option. The total number of
         shares of common stock which can be subject to the options at any time,
         both under the Plan and otherwise, shall not exceed 10 percent of the
         number of shares of common stock then outstanding. No person can be
         granted options which, if fully exercised, would result in that person
         owning more than 25 percent of the outstanding shares of common stock
         after such exercise.


                                      F-22
<PAGE>   61


                    DF CHINA TECHNOLOGY INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               (Amounts in thousands, unless otherwise stated and
                   except number of shares and per share data)


21.  COMMON STOCK OPTIONS (continued)

     The status of the Company's stock options is summarized below as of March
     31:

<TABLE>
<CAPTION>
                                                                       Weighted
                                                                       average
                                            Number of                  exercise
                                             options                    price

<S>                                          <C>                       <C>
Outstanding at March 31, 1997                      --                       --
Granted                                       625,000                  US$2.80
Cancelled                                    (115,000)                 US$2.80
                                             --------
Outstanding at March 31, 1998 and 1999        510,000                  US$2.80
Granted                                       653,000                  US$3.94
Exercised                                    (248,850)                 US$2.80
Cancelled                                     (31,000)                 US$2.80
                                             --------

Outstanding at March 31, 2000                 883,150                  US$3.64
                                             ========                  =======

Options exercisable at:

March 31, 1998                                     --                       --
March 31, 1999                                255,000                  US$2.80
March 31, 2000                                112,650                  US$2.80
                                             ========                  =======
</TABLE>

     A summary of information about the Company's stock options outstanding at
     March 31, 2000 is as follows:

<TABLE>
<CAPTION>
                             No. of options           Weighted average
Range of exercise            Outstanding at               remaining                    Weighted average
     price                   March 31, 2000           contractual life                  exercise price

<S>                             <C>                       <C>                              <C>
  US$2.80-4.05                  883,150                   2.5 years                        US$3.64
</TABLE>

          The Company applies Accounting Principles Board Opinion No. 25,
     "Accounting for Stock Issued to Employees" in accounting for the Plan. The
     compensation expense related to the stock options outstanding at March 31,
     1999 and 2000, which represented the difference between the exercise price
     and the fair market value of the Company's common stock at the date of
     grant, should be recognized over the vesting period from the respective
     dates of grant. Accordingly, a compensation expense of HK$1,184 (US$153),
     HK$939 (US$121) and HK$624 (US$80) was recognized for the years ended March
     31, 1998, 1999 and 2000, respectively.

                                      F-23

<PAGE>   62


                    DF CHINA TECHNOLOGY INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               (Amounts in thousands, unless otherwise stated and
                   except number of shares and per share data)


21.  COMMON STOCK OPTIONS (continued)

          Pro-forma information regarding net income and earnings per share is
     required by Statement of Financial Accounting Standards No. 123,
     "Accounting for Stock-Based Compensation" ("FAS 123") and has been
     determined as if the Company had accounted for its stock options under the
     fair value method of that statement. The weighted-average fair value of
     options granted during 1998 and 2000 estimated on the date of grant using a
     Black-Scholes option pricing model was US$2.86 and US$3.94, respectively.
     The fair value for these options was estimated at the respective dates of
     grant using the following weighted-average assumptions for the respective
     dates of grant:

<TABLE>
<CAPTION>
                                             Options granted         Options granted       Options granted
                                            on April 24, 1997       on January 3, 2000     on March 4, 2000

<S>                                                <C>                    <C>                    <C>
Risk-free interest rate                            7.02%                  6.41%                  6.42%
Dividend yield                                      Nil                    Nil                    Nil
Volatility factor of the expected
     market price of the Company's
     common stock                                   130%                    45%                    65%
Weighted-average expected life
     of the options                             4 years                3 years                3 years
</TABLE>

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

          For the purposes of pro-forma disclosures, the estimated fair value of
     the options is amortized to expense over the options' vesting period. The
     Company's pro-forma information for the years ended March 31, 1998, 1999
     and 2000 is as follows:

<TABLE>
<CAPTION>
                                                      2000         2000         1999          1998
                                                       US$          HK$          HK$           HK$
                                                      -----        -----       ------         -----

<S>                                                   <C>          <C>         <C>            <C>
Pro-forma net loss                                    1,063        8,284       12,301         8,775
                                                      -----        -----       ------         -----

Basic and diluted net loss per share (cents)              7           52           79            70
                                                      -----        -----       ------         -----
</TABLE>

                                      F-24

<PAGE>   63


                    DF CHINA TECHNOLOGY INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               (Amounts in thousands, unless otherwise stated and
                   except number of shares and per share data)


22.  PREFERRED STOCK

          The holders of the Series A convertible preferred stock were entitled
     to receive, out of surplus, a cumulative dividend at the rate of US$0.15
     per share per annum and, after the payment of this dividend, they are
     entitled to participate in dividends set apart or paid on other capital
     stock of the Company on the same basis as the holders of the Company's
     common stock. In case of liquidation of the Company, these preferred stock
     holders shall be entitled to receive US$1.50 for each share of the Series A
     convertible preferred stock before any distribution of the assets of the
     Company to other capital stock holders, plus all accrued and unpaid
     dividends declared hereon and other considerations before the other capital
     stockholders share in the liquidation of the assets. This class of
     preferred stock is convertible at the option of the holders into one share
     of common stock of the Company and has equal voting rights with the common
     stockholders.

          The 2.3 million shares of the Series A convertible preferred stock
     were converted to 2.3 million shares of common stock on May 30, 1997.

          Up to May 30, 1997, the aggregate amount of the dividends in arrears
     for the year ended March 31, 1998 were HK$446 (US$58).

23.  CONTRIBUTED SURPLUS

          The amount represents a net compensation of HK$1,530 (US$198) from a
     minority shareholder, which was accounted for as a capital transaction in
     1998, and stock compensation expense of HK$1,184 (US$153), HK$939 (US$121)
     and HK$624 (US$80) recognized for the years ended March 31, 1998, 1999 and
     2000 (note 21).


24.  SUBSEQUENT EVENT (unaudited)

     (a) Subsequent to the balance sheet date, 3,000 stock options were
     cancelled upon the resignation of an employee. On May 29, 2000, 30,000
     stock options were granted by the Company to certain directors and
     employees of the Company. On June 20, 2000, the board of directors invited
     the grantees of share options issued between January to May 2000 to
     surrender their share options by June 30, 2000 in exchange for the same
     number of share options at an exercise price of US$1.75 per share, being
     the market closing price of the Company's shares on June 19, 2000. All
     share options were surrendered and exchanged for new share options on June
     30, 2000.

     (b) Subsequent to the balance sheet date, 191,211 shares were issued to
     third parties at fair market value.

     (c) Subsequent to the balance sheet date, on June 30, 2000, DHL distributed
     8,325,700 shares of the Company to its shareholders as dividend in specie
     and ceased to be the Company's holding company from that date onwards.

                                      F-25
<PAGE>   64

ITEM 18. FINANCIAL STATEMENTS.

         We have elected to provide the financial statements and relevant
information specified in Item 17 in lieu of those specified in Item 18.

ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS.

FINANCIAL STATEMENTS. See Item 17 for a list of all financial statements filed
as part of this annual report.

EXHIBITS. The following exhibits are filed as a part of this annual report:

     Exhibit No.

         1        Copies of all amendments or modifications, not previously
                  filed, to all exhibits previously filed.
                  None

         2        Agreement dated August 8, 2000 between DF China Technology
                  Inc., jointly and severely with Dransfield Cyber Inc. (Party
                  A) and Tianjin 3D Lab., jointly and severely with Tianjin 3D
                  Image Technique Co. Ltd., headed by Professor Li Chang (Party
                  B) relating to acquisition of 26% in Party B.

         2.1      Marketing Agreement dated August 8, 2000 between DF China
                  Technology Inc., jointly and severely with Dransfield Cyber
                  Inc. (Party A) and Tianjin 3D Lab., jointly and severely with
                  Tianjin 3D Image Technique Co. Ltd., headed by Professor Li
                  Chang (Party B) relating to worldwide marketing for Party B's
                  technology products.

         3        List of all parents or subsidiaries of the registrant.*

         *        Previously filed as Exhibit 1 to the Registrant's Form 20-F
                  for the Fiscal Year ended March 31, 1999 (SEC File No.
                  000-21919); incorporated herein.



                                       38
<PAGE>   65

                                   SIGNATURES

     Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this annual report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                       DRANSFIELD CHINA PAPER CORPORATION

Date:  September 12, 2000
                                       By /s/ Horace Yao Yee Cheong
                                          -------------------------
                                          Horace Yao Yee Cheong,
                                          Chief Executive Officer



                                       39
<PAGE>   66
                            DF CHINA TECHNOLOGY INC.
                 (Previously Dransfield China Paper Corporation)

                          Commission File No. 000-21919

                              EXHIBITS TO FORM 20-F
                        ANNUAL REPORT FYE MARCH 31, 2000


1        Copies of all amendments or modifications, not previously filed, to all
         exhibits previously filed. None

2        Agreement dated August 8, 2000 between DF China Technology Inc.,
         jointly and severely with Dransfield Cyber Inc. (Party A) and Tianjin
         3D Lab., jointly and severely with Tianjin 3D Image Technique Co. Ltd.,
         headed by Professor Li Chang (Party B) relating to acquisition of 26%
         in Party B.

2.1      Marketing Agreement dated August 8, 2000 between DF China Technology
         Inc., jointly and severely with Dransfield Cyber Inc. (Party A) and
         Tianjin 3D Lab., jointly and severely with Tianjin 3D Image Technique
         Co. Ltd., headed by Professor Li Chang (Party B) relating to worldwide
         marketing for Party B's technology products.

3        List of all parents or subsidiaries of the registrant.*

*        Previously filed as Exhibit 1 to the Registrant's Form 20-F for the
         Fiscal Year ended March 31, 1999 (SEC File No. 000-21919); incorporated
         herein.