SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

(Mark One)

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

                   For the Fiscal Year-ended December 31, 1998

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

        For the transition period from ______________ to _______________.

                         Commission File No. 33-18834-LA

                             OPAL TECHNOLOGIES, INC.
                 ----------------------------------------------
                 (Name of small business issuer in its charter)

           Nevada                                       87-0306463
--------------------------------         ---------------------------------------
(State or other jurisdiction of          (I.R.S. Employer Identification Number)
 incorporation or organization)

         Suite 4704, Central Plaza, 18 Harbour Road, Wanchai, Hong Kong
        -----------------------------------------------------------------
               (Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, Include Area Code: 011-852-2541-1999

Securities Registered Pursuant to Section 12(b) of the Act:

       Title of Each Class             Name of Each Exchange on Which Registered
       -------------------             -----------------------------------------
            None                                         None

Securities Registered Pursuant to Section 12(g) of the Act:

                                      None
                              --------------------
                                (Title of Class)

     Check  whether  the issuer (1) filed all  reports  required  to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past twelve (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 ninety (90)
days. Yes   No X
         ---  ---

     Check  if  disclosure  of  delinquent  filers  in  response  to Item 405 of
Regulation S-B is not contained in this form, and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB. [X]

     The issuer's revenues for its most recent fiscal year were $840,000.

     As of  September  10,  1999,  35,911,954  shares  of  common  stock  of the
Registrant were outstanding.  As of such date, the aggregate market value of the
common stock held by non-affiliates,  based on the closing bid price on the NASD
Bulletin Board, was approximately $8,977,989.

                       DOCUMENTS INCORPORATED BY REFERENCE

     No annual reports to security holders, proxy or information statements,  or
prospectuses  filed  pursuant  to Rule 424(b) or (c) have been  incorporated  by
reference in this report.

     Transitional Small Business Disclosure Format: Yes    No  X
                                                       ---    ---
<PAGE>

                                TABLE OF CONTENTS

                                                                           Page
                                                                          ------
PART I

       ITEM 1.  DESCRIPTION OF BUSINESS...................................   3
       ITEM 2.  DESCRIPTION OF PROPERTIES.................................   7
       ITEM 3.  LEGAL PROCEEDINGS.........................................   7
       ITEM 4.  SUBMISSION OF MATTERS TO A VOTE
                OF SECURITY HOLDERS.......................................   7

PART II

       ITEM 5.  MARKET FOR COMMON EQUITY AND
                RELATED STOCKHOLDER MATTERS...............................   7
       ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS......................   8
       ITEM 7.  FINANCIAL STATEMENTS......................................  13
       ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
                ON ACCOUNTING AND FINANCIAL DISCLOSURE....................  13

PART III

       ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
                AND CONTROL PERSONS; COMPLIANCE WITH
                SECTION 16(a) OF THE EXCHANGE ACT.........................  13
       ITEM 10. EXECUTIVE COMPENSATION....................................  14
       ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
                OWNERS AND MANAGEMENT.....................................  14
       ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............  15
       ITEM 13. EXHIBITS AND REPORTS OF FORM 8-K..........................  15

                SIGNATURES................................................  16

                FINANCIAL STATEMENTS...................................... F-1

<PAGE>
                                     PART I


ITEM 1. DESCRIPTION OF BUSINESS

     This Form 10-KSB contains forward-looking  statements within the meaning of
Section 27A of the  Securities  Act of 1933 and  Section  21E of the  Securities
Exchange Act of 1934. The Company's actual results could differ  materially from
those set forth in the  forward-looking  statements.  Certain factors that might
cause such a difference are discussed in the section  entitled  "Certain Factors
Affecting Future Operating Results" beginning on page 10 of this Form 10-KSB.

Background

     Opal  Technologies,  Inc.  ("Opal") was incorporated in the State of Nevada
May 14, 1987 under the name of  Sportsland,  Inc.  Following the  acquisition of
Enpak Medical Corporation and its subsidiary,  Enpak Surgical Products,  Inc. in
1994, the Opal changed its name to Med-Tex Corporation. The Enpak companies were
engaged in assembling  and marketing  custom and standard  surgical kits used in
diagnostic and surgical  procedures.  On October 31, 1996,  Opal disposed of its
entire interest in the Enpak companies and remained dormant from that time until
May  1997.  On  May  14,  1997,  in  anticipation  of  an  acquisition,  Med-Tex
Corporation changed its name to Opal Technologies,  Inc. and affected an one for
ten  reverse  stock  split,   re-classified  its  authorized  share  capital  of
50,000,000  shares of Common Stock, par value $.001 each into 49,000,000  shares
of Common Stock par value $.001 each and  1,000,000  shares of Preferred  Stock,
par value $.001 each.

     On June 6, 1997, Opal entered into an agreement with Bestalong Group,  Inc.
("Bestalong";  a company  incorporated in the British Virgin Islands) to acquire
from Bestalong a 100% interest in Triple Star Holdings Limited ("TSH"; a company
incorporated  in the  British  Virgin  Islands)  and a  100%  interest  in  Opal
Agriculture  Development  Limited ("OAD"; a company  incorporated in the British
Virgin  Islands) by (i) issuing to  Bestalong  8,452,768  shares of post reverse
common stock and 100,000 shares of Series A preferred  stock,  and (ii) assuming
Bestalong's liabilities in the form of a promissory note of US$2,100,000,  which
was  subsequently  canceled by the issuance of 4,200,000  shares of common stock
(after  the  one-for-ten   reverse  stock  split).   Bestalong  is  beneficially
controlled by Mr. John K.C.  Koon, the Chairman and Chief  Executive  Officer of
the Company.

The TSH Group

     TSH and its  wholly-owned  subsidiary,  Triple Star Group Limited ("TSG"; a
company  incorporated  in the British  Virgin  Islands) are  investment  holding
companies.  On August 6, 1996,  TSG  acquired  a 55%  interest  in Beijing  Opal
Agriculture  Biochemistry  Co., Ltd.  ("Beijing  Opal"), an equity joint venture
established  in the  People's  Republic of China ("the  PRC").  Beijing  Opal is
engaged in the manufacturing and sale of organic agricultural fertilizers.

     Beijing Opal was originally established as a PRC equity joint venture for a
period of 20 years from  February  8, 1995 to  February  7, 2015  between  Ideit
Enterprise  Co., Ltd.  ("IECL";  a company  incorporated in Taiwan) having a 40%
interest  and Beijing  Opal  Biochemistry  Factory  ("BOBF"); a PRC  state-owned
enterprise)  having a 60%  interest.  Pursuant to a sale and purchase  agreement
dated August 6, 1996,  TSG acquired from IECL a 40% interest in Beijing Opal and
acquired from BOBF a 15% interest in Beijing Opal for an aggregate consideration
of approximately  US$140,000.  A revised joint venture agreement between TSG and
BOBF was  executed on August 6, 1996,  which was  approved by the  relevant  PRC
authorities on March 24, 1997.  Under the revised joint venture  agreement,  the
joint  venture  period has been  extended  to 30 years from  February 8, 1995 to
February 7, 2025,  and the total  investment to be made by Beijing Opal has been
increased  from  US$350,000  to   US$10,000,000   (equivalent  to  approximately
Rmb82,900,000),  of which US$6,000,000  (equivalent to Rmb49,920,000) must be in
the form of registered capital to be invested within one year after Beijing Opal
obtains its revised business  license from the PRC authorities.  By December 31,
1997, all of the registered capital  requirement of Beijing Opal  (US$6,000,000)
was paid and  verified  by  certified  public  accountants  in the PRC under PRC
regulations.

The other key provisions of the revised joint venture agreement are:


                                       3
<PAGE>

     the profit and loss sharing ratio is the same as the respective  percentage
     of equity interest;

     upon early  termination  or  liquidation of Beijing Opal, the net assets of
     Beijing  Opal  will  be  distributed  in  accordance  with  the  respective
     percentage of equity interest; and

     the Board of Directors of Beijing Opal will consist of seven members,  four
     designated by TSG and three designated by BOBF.

OAD

     OAD was incorporated in the British Virgin Islands on December 15, 1995. On
January 2, 1996,  OAD issued 50,000 shares of common stock to Asian  Connections
Limited (a company incorporated in the British Virgin Islands),  which was owned
by independent investors,  for a total cash consideration of US$50,000. On March
22,  1997,  Bestalong  acquired  the entire  interest  in OAD for  approximately
US$19,405,000.

     OAD  is  principally  engaged  in  the  trading  of  organic   agricultural
fertilizer manufactured by Beijing Opal. On December 16, 1996, OAD was appointed
by  Beijing  Opal as its sole  agent  and was  granted  the  exclusive  right to
distribute and sell organic agriculture fertilizer  manufactured by Beijing Opal
in the PRC,  Hong Kong,  Taiwan and Macau for a period  from  January 1, 1997 to
February 7, 2015.

Business Operations

     The acquisition of Beijing Opal by TSG on August 6, 1996 has been accounted
for using the  purchase  method  of  accounting.  Accordingly,  the  assets  and
liabilities  assumed have been recorded at their estimated fair values,  and the
operations of Beijing Opal are included in the consolidated financial statements
of the Company from the date of acquisition.

Principal Products

     Opal (together with its subsidiaries  TSG and OAD is collectively  referred
to as "the Company") is engaged in the  manufacturing,  selling and distribution
of environment  friendly organic  fertilizers.  The Company's principle products
include a series of organic mineral  fertilizers  produced in both liquid ("Opal
Foliar") and granular forms. ("Opal Granules").

     Designed to be diluted  300-800  times with  water,  Opal Foliar is applied
directly onto crops as well as soil. thereby aiding photosynthesis and providing
necessary   nutrients  to  the  plant's  soil.   This  series  consists  of  one
general-purpose  fertilizer  used on a variety of crops,  and  several  specific
fertilizers,  each for a specified  crop.  Fertilizers  in the Opal Foliar group
contain a balance of key nutrients such as nitrogen,  phosphorous and potassium,
and trace elements, humic acids and organic colloidal matter derived from peat.

     The Opal  Granules are granular in form and release  nutrients  slowly into
the soil.  The  granular  process is slower  than the foliar  process  but has a
longer lasting effect.  Key nutrients  include nitrogen,  phosphoric  anhydride,
potassium  oxide,  calcium  oxide,   magnesium  oxide,  silicon  dioxide,  trace
material,  humic  acid  and  organic  matters.  These  fertilizers  can  replace
conventional  chemical  fertilizers,  like urea, and do not cause  environmental
problems for the soil.

     The  Company  also  manufactures  and sells  Opal Soil  Conditioner,  a key
ingredient of both the Opal Foliar and the Opal Granules which is  independently
used as a soil.

Manufacturing Division

     The Company  manufactures  its products in its  Sino-foreign  joint venture
factory located in Shunyi County,  Beijing,  China. The  joint-venture  company,
Beijing Opal  Agricultural and  Biochemistry  Company Limited ( "Beijing Opal"),
purchased the land use rights to a block of land consisting of approximately 206
acres for 50 years.  In August 1997,  Beijing  Opal opened the first  segment of
Phase I, a 53,000 square foot spray fertilizer facility. The plant is capable of
producing up to 7,500 metric tons of spray  fertilizers,  and can be expanded to
produce an  additional  7,500  metric tons.  This  facility is also used for the
production  of specially  formulated  catalyst,  an essential  ingredient in the
production of granular fertilizers and soil conditioners.

                                       4
<PAGE>

     In  November  1998,  the  Company  completed  the  second  segment  of  the
production  facility.  This  segment  adds  110,500  square feet to the existing
facility and is capable of producing 100,000 metric tons of granular fertilizers
per year.  This  facility  began  operation  in March  1999.  The  Company  also
constructed an administration  building,  green house, and staff quarters at the
site.

Sales Division

     The sale and  marketing of Opal  products is conducted by Opal  Agriculture
Development Limited (referred to as "OAD"). OAD has contracted with Beijing Opal
for the exclusive distribution of Beijing Opal's products through 2015. Although
OAD's marketing territory includes the People's Republic of China,  Taiwan, Hong
Kong and Macau, it has concentrated its sales and marketing efforts in China and
Taiwan.  Sales in China are made through several tiers of distributors -- from a
provincial  distributor to county/city  distributors to town/village agents. The
village  agents  sell  directly to the  farmers.  Most of the  distributors  are
agricultural  product companies  authorized by the government to sell fertilizer
and other agricultural chemicals, or government agencies which operate under the
agriculture  committees of provinces,  counties or villages.  In provinces where
there  are  no  provincial  distributors,  OAD  sells  directly  to  county/city
distributors.

     OAD also sells to major end users, such as large-scale  farms. In addition,
OAD  works  closely  with  agricultural  research  institutions  in tests of its
products.  Among these  institutions  is the China National Hybrid Rice Research
Centre of  Hunan,  which  has  signed an  agreement  to  promote  the  Company's
products.

     Over the last two years,  Opal Beijing has been conducting tests in over 20
state owned farms in Taiwan in an attempt to secure  government  approval of its
product.  In 1998, the Taiwanese  government  sponsored  agency  responsible for
agricultural  planning and coordination  signed an exclusive  five-year contract
with the Company for the purchase of organic mineral fertilizers to be funded by
irrevocable  letter of credit.  The trial  order for the first year  consists of
1,220 metric tons of Opal Foliar and 29,000  metric tons of Opal Granules with a
value of US$10 million. The contract will be updated annually.

Research and Development

     The Company employs 13 personnel whose  activities  relate primarily to the
improvement of the existing products.  The Company spent approximately  $400,000
and  $300,000  during 1998 and 1997  respectively  on research  and  development
activities.

Competition

     The  Company  has  traditionally  targeted  China and Taiwan  markets,  and
competes  primarily  with  locally  manufactured  spray  fertilizers  and  a few
imported spray  fertilizers.  Most of the competitors'  products are designed as
additives of trace elements and are for foliar use only; therefore, they are not
used as soil  conditioners.  On the  contrary,  Opal  Foliar can also be applied
directly to the soil, thus creating a healthier root system,  an environment for
microbiological   activities,   and  improved  soil  conditions.   Despite  this
fertilizer  conditioning  edge,  competition  in this  sector  of the  market is
strong.  The  Company  believes  that the  endorsement  of its  products  by the
National  Green Food Centre of China,  its new modern  production  facility  and
several years of field testing,  gives the Company a firm footing in the Chinese
market.

     Currently,  China uses  approximately  38 million  metric  tons of chemical
fertilizers,  10 million metric tons of which are imported. However, the Central
Government has publicized its policy decision to gradually replace chemical with
organic  mineralized  fertilizers.  Following the  inauguration  of its granular
facility in its Beijing  factory,  Opal will be the only producer of mineralized
organic  fertilizer in granular form in China.  This should position the Company
to compete in the market of traditional chemical fertilizers.

                                       5
<PAGE>

     In late  1998 the  Taiwanese  Commodities  Inspection  Bureau  granted  its
approval to the Company's samples, clearing the way for shipment pursuant to the
5 year contract  described above. This evidences  Taiwan's first attempt in over
25 years to import  fertilizers,  and the Company  believes  its  presence as an
initial supplier will give it a competitive edge in Taiwan.

Raw Materials

     The major  raw  material  utilized  in the  production  of  Beijing  Opal's
fertilizers  is peat.  This is available in abundance in China.  The Company has
historically  purchased  the  majority of its raw  materials  from  Beijing Opal
Biochemistry Factory ("BOBF"),  the PRC state owned enterprise which owns 45% of
Beijing Opal.  Other raw materials used in  production,  such as bone powder and
potassium chloride are generally available in sufficient  quantities to meet the
Company's requirements.

Employees

     As of December 31, 1998, the Company had 60 employees.

Federal, State and Local Regulations Regarding Environment

     Federal,  state  and  local  regulations  relating  to  protection  of  the
environment  have not had and are not expected to have a material adverse effect
upon the Company's capital  expenditures,  liquidity,  earnings,  or competitive
position.   The  Company's   manufacturing   facilities   comply  with  existing
environmental requirements of the Chinese government.

Trademarks, Patents and Licenses

     The Company has developed  proprietary  technology  relating to its organic
mineral fertilizers, but has no trademarks or patent registrations.  Through its
subsidiary  OAD, the Company has obtained a license for the  exclusive  right to
sell and distribute organic fertilizer manufactured by Beijing Opal for 18 years
up to February 7, 2015.  The Company  has  received  endorsement  from the China
Green Food Centre  certifying  that the Company's  products are  environmentally
friendly.

Future Accounting Requirements

     In June 1998,  the FASB  issued SFAS No. 133,  "Accounting  for  Derivative
Instruments and Hedging Activities". This statement requires that all derivative
instruments be recorded on the balance sheet at their fair market value. Changes
in the fair  value of  derivatives  will be  recorded  each  period  in  current
earnings or other  comprehensive  income,  depending on whether a derivative  is
designated  as part of a hedge  transaction  and,  if it is,  the  type of hedge
transaction.  The new rules will be  effective  the first  quarter of 2000.  The
Company does not believe that the new  standard  will have a material  impact on
the Company's financial statements.

Year 2000 Issue

     Until recently  computer  programs  generally were written using two digits
rather  then four to define  the  applicable  year.  Accordingly,  programs  may
recognize  a date  using "00" as the year 1900  instead  of the year 2000.  This
problem may affect the Company's  information  technology  systems (IT systems),
such as sales,  accounts  receivable,  inventory  management,  accounts payable,
general ledger,  payroll and forecasting  systems.  The Company has assessed its
year 2000 readiness with regard to critical IT systems and believes such systems
are Year 2000 compliant. However, despite the Company's evaluation, there can be
no  guarantee  that  the  Company  will  not  experience  Year  2000  compliance
difficulties  which  could  have a  material  adverse  effect  on the  Company's
business,  results of operations  and financial  condition.  Thus there could be
circumstances  in which the Company would be unable to process  customer orders,
or ship product,  invoice customers or receive customary  governmental approvals
or authorizations as they relate to the Company's business.

                                       6
<PAGE>

ITEM 2. DESCRIPTION OF PROPERTIES

     The Company leases  approximately  2,900 square feet of office in Hong Kong
for use as its  corporate  headquarters.  As  described  in Item 1, the  Company
manufactures its products in its  Sino-foreign  joint venture factory located in
Shunyi County,  Beijing,  China. Beijing Opal purchased the land use rights to a
block of land  consisting  of  approximately  206 acres for 50 years.  In August
1997,  Beijing  Opal opened the first  segment of Phase I, a 53,000  square foot
spray fertilizer  facility capable of producing up to 7,500 metric tons of spray
fertilizers.  In November 1998, the Company  completed the second segment of the
production  facility.  This  segment  adds  110,500  square feet to the existing
facility and is capable of producing 100,000 metric tons of granular fertilizers
per year.  This  facility  began  operation  in March  1999.  The  Company  also
constructed an administration  building,  green house, and staff quarters at the
site.  The Company  believes that these  properties are adequate for its present
needs.

ITEM 3. LEGAL PROCEEDINGS

     The Company is not  presently a party to, and  management  is not aware of,
any pending or threatened legal proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No  matters  were  submitted  to a vote of  security  holders  through  the
solicitation  of  proxies,  or  otherwise,  during  the  fourth  quarter  of the
Company's fiscal year-ended December 31, 1998.

                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

     The  Company's  common  stock is  currently  traded  on the OTC  Electronic
Bulletin  Board and is quoted under the symbol OPAL.  The trading  market in the
Company's  common stock is limited and sporadic.  The following table sets forth
the high and low bid price per share  for the  Company's  common  stock for each
quarterly period.

                              1998                                1997
                     ------------------------             ----------------------
                      High              Low                High            Low
                     ------            ------             ------         -------
First Quarter         2.75             0.50                0.50            0.50
Second Quarter        2.50             0.875               2.87            0.50
Third Quarter         1.25             0.375               3.00            1.25
Fourth Quarter        0.60             0.26                2.75            0.87

     The quotation  reflects the  inter-dealer  prices  without  retail  markup,
markdown or commissions and may not represent actual transactions.

     As of September 10, 1999, the bid price of the Common Stock was $.25.

Record Holders

     As of September 10, 1999, there were approximately 613 record owners of the
Common Stock of the Company.

Dividends

     The Company has never  declared  or paid any cash  dividends  on its Common
Stock and does not expect to declare or pay any such dividend in the foreseeable
future.

                                       7
<PAGE>

Sales of Unregistered Securities

     On June 6, 1997,  the Company  acquired  all of the issued and  outstanding
capital stock of Triple Star Holdings Limited and Opal  Agriculture  Development
Limited in exchange for 8,452,768  shares of the Company's  common stock,  $.001
par value,  100,000 shares of the Company's Series A Preferred Stock,  $.001 par
value and the issuance of 4,200,000 shares of the Company's common stock,  $.001
par value for the cancellation of the promissory note.

     On July 1, 1997,  the Company sold  11,400,000  shares of its common stock,
$.001 par value,  at $0.50 per share for a total of  $5,700,000  pursuant to the
exemption provision of Regulation S.

     On September 29, 1997, the Company issued  11,000,000  shares of its common
stock, $.001 par value for the cancellation of $5,500,000 in debt.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS

     This Form 10-KSB contains forward-looking  statements within the meaning of
Section 27A of the  Securities  Act of 1933 and  Section  21E of the  Securities
Exchange Act of 1934. The Company's actual results could differ  materially from
those set forth in the  forward-looking  statements.  Certain factors that might
cause such a difference are discussed in the section  entitled  "Certain Factors
Affecting Future Operating Results" beginning on page 10 of this Form 10-KSB.

Overview

     In June 1997,  the Company  acquired  the  operations  of Opal  Agriculture
Development Limited ("OAD") and Triple Star Holding Limited ("Triple Star"). For
the year prior to the  acquisition  of OAD and Triple  Star,  the Company had no
operations  other than the sale of its inactive  Enpak Medical  assets.  OAD and
Triple Star are primarily  engaged in the  production  and sale of fertilizer in
the People's Republic of China and both had limited  operations during 1996. The
financial  statements  of the Company and the following  discussion  include the
operations of OAD and Triple Star for all periods presented.

     The  Company's  focus over the past year has been to  complete  its organic
fertilizer production facilities. With Phase I of the Beijing Plant on line, the
Company  is  poised to meet  increased  demands  for its  products.  During  the
development  stage between 1997 and 1998,  the Company's  major product was Opal
Foliar,  which,  as previously  described,  is a supplement  of the  traditional
fertilizers.  With  the  completion  of  its  Beijing  facilities,  the  Company
introduced  Opal  Granules  into the market.  The  Company  plans to market Opal
Foliar and Granules together as a complete package, enabling farmers to use Opal
Granules as base fertilizers  replacing  traditional chemical  fertilizers,  and
Opal Foliar as  supplementary  supply of essential  nutrients  during the growth
cycle.

     Despite  having  completed  Phase I of its  Beijing  facility,  the Company
suffered  unexpected losses as a result of the devastating floods of the Yangtze
River in China in 1998.  Sales volume dropped  substantially;  and  distributors
failed  to timely  pay trade  debts to the  Company.  Additionally,  some of the
distributors  goods were  damaged by the flood.  As a result,  the  Company  has
increased its allowance for doubtful accounts for prudence purposes.

     In an effort to  diversify  its  market,  Management  explored  other Asian
countries with great demand of organic  fertilizers,  such as Taiwan,  Malaysia,
Philippines and Vietnam. As a result, the Taiwanese  government sponsored agency
responsible for  agricultural  planning and coordination has signed an exclusive
five-year  contract  with  the  Company  for the  purchase  of  organic  mineral
fertilizers  to be funded by irrevocable  letter of credit.  The trial order for
the first year  consists of 1,220  metric tons of Opal Foliar and 29,000  metric
tons of Opal  Granules  with a value  of US$10  million.  The  contract  will be
updated annually.

     To meet the  growing  market  demand  for Opal  Granules,  the  Company  is
considering   installing  a  second  granule  production  line  in  its  Beijing
facilities and another granule production line in Guizhou Province.  The Company
is negotiating  with  interested  investors for additional  funding.  Should the
financing  materialize  and demand  necessitate,  the Company  plans to increase
production capacity to 300,000 metric tons from 100,000 metric tons.


                                       8
<PAGE>

Results of Operations - Fiscal Year 1998 Compared to Fiscal Year 1997

     The  following  table sets forth  certain  items as a  percentage  of total
revenues from the Company's Statements of Operations during 1998 and 1997:

                                        1997                         1998

                                   Amount    %                 Amount    %
                                   ($000)  of Sales            ($000)   of Sales
                                  ------- ----------          -------- ---------
Sales Revenues                     4,532      100               840        100
Cost of Goods Sold                (3,097)    68.3              (716)      85.2
Gross Profit                       1,435     31.7               124       14.8
Loss from Sales Return                 -        -              (423)      50.3
Selling, General and
Administrative Expense            (1,474)    32.5            (3,379)     402.3
Other Expense, net                     4        0              (172)      20.5
Loss from continuing operations      (35)      .8            (3,850)     458.3
Net loss                             (73)     1.6            (3,583)     426.6

     Net Sales.  Net sales for the year ended  December  31, 1998  decreased  by
$3,692,000 or 81.5% to $840,000 from $4,532,000 for the year-ended  December 31,
1997. The 1998 amount includes $5,000 of sales to the Company's  holding company
at cost.  This compares with sales of $1,758,000 to  Sino-foreign  joint venture
partner at cost in 1997.  Sales to third  parties  decreased  by  $1,939,000  to
$835,000  for  the  year-ended   December  31,  1998  from  $2,774,000  for  the
corresponding  periods of the prior year.  These  decreases are  principally the
result  of  Yangtze  River  floods  in  China,  which  reduced  the  demand  for
fertilizers and the Company's lack of working capital  necessary to purchase raw
materials.

     Gross Profits.  Gross profits for the year-ended December 31, 998 decreased
by $1,311,000 or 91.4% to $124,000 from  $1,435,000 for the year-ended  December
31, 1997. Gross profit as percent of sales decreased to 14.8% for the year-ended
December  31,  1998 from 31.7% for the  corresponding  period of the prior year.
This decrease is attributable to reduced sales volume as a result of the Yangtze
Flood, and a provision for slow moving and obsolete inventory of $271,000.

     Selling and Administrative  Expenses.  Selling,  general and administrative
expenses for the year-ended  December 31, 1998 increased by $1,905,000 or 129.2%
to  $3,379,000  from  $1,474,000  for the  year-ended  December 31,  1997.  This
increase is mainly attributable to the booking of provision for bad and doubtful
accounts of $1,852,000 in 1998 as a result of losses from the flood, compared to
$266,000 in 1997 and additional  depreciation  for plant and machinery in use in
1998.

     Interest Expense,  Net. Interest,  expense, net for the year-ended December
31,  1998  increased  to  $165,000  from net  interest  income of $9,000 for the
corresponding  period  of the prior  year.  This  increase  is  attributable  to
increased borrowings by the Company.

     Income Taxes.  Income taxes for the year-ended December 31, 1998 totaled $0
compared  to $38,000 tax  liability  for the  corresponding  period of the prior
year.

     Net Loss.  The net loss for the  year-ended  December 31, 1998 increased by
$3,510,000 to $3,583,000 from $73,000 for the year-ended  December 31, 1997. The
increase  is due to  lower  sales  volume,  higher  interest  expense,  and high
provision for bad and doubtful accounts.

Changes in Financial Condition, Liquidity and Capital Resources

     For the past  twelve  months,  the  Company  has funded its  operating  and
capital  requirements  with  loans  from its  controlling  shareholder,  its PRC
joint-venture  partner and short term bank loans.  As of December 31, 1998,  the
Company had cash of $384,000 and a working capital deficit of ($1,586,000). This
compares  with cash of  $1,453,000  and  working  capital  of  $3,022,000  as of
December 31, 1997.

                                       9
<PAGE>

     Net cash used in  operating  activities  increased  to  $1,575,000  for the
year-ended  December  31,  1998  compared  to  $1,902,000  net cash  provided by
operating  activities for the year-ended December 31, 1997. This change resulted
from a decrease in  accounts  receivable,  an  increase in accounts  payable and
accrued  liabilities  which were partially offset by an increase in other assets
and inventories.

     Net cash used in  investing  activities  decreased  to  $2,437,000  for the
year-ended December 31, 1998 from $5,207,000 for the corresponding period of the
prior year. This decrease  resulted from less expenditure for the acquisition of
property,  machinery and equipment,  which was partially offset by the repayment
of a shareholder loan.

     Net cash provided by financing  activities  decreased to $2,943,000 for the
year-ended  December 31, 1998 from  $8,490,000 for the  year-ended  December 31,
1997.  The  decrease  is  attributable  to the  absence of share sales which was
partially offset by loans from shareholders, bank loans and other loans.

     Despite its negative cash flow from operating  activities,  the Company has
secured financing of $600,000 loan from a financial  institution in the People's
Republic of China in February  1999 and is in the process of  negotiating a loan
for working capital. While there is no assurance that additional funding will be
available to finance future operations,  the Company continues to negotiate with
interested  investors  and  lenders.   Without  additional  financing  there  is
insufficient  capital to support  the  Company's  requirements  for the  current
fiscal year.

Certain Factors Affecting Future Operating Results

     This Form 10-KSB contains forward-looking  statements within the meaning of
Section 27A of the  Securities  Act of 1933 and  Section  21E of the  Securities
Exchange Act of 1934. The Company's actual results could differ  materially from
those set forth in the  forward-looking  statements.  Certain factors that might
cause such a difference include the following:

Business Risks

Need for Additional Capital.  The Company requires additional capital or outside
financing  in order to meet its  financial  needs for the current  fiscal  year.
Although  management is negotiating  for such funds,  there is no assurance that
the Company will be able to secure necessary financing, as and when needed.

Limited operating history.  The Company reorganized and commenced its operations
in trading and manufacturing of organic agricultural fertilizers in August 1996,
and such  operations  were still in the  development  stages as of December  31,
1998. The Company  incurred losses from  continuing  operations (net of minority
interests)  for the years ended  December 31, 1997 and 1998,  and its operations
are subject to all the risks inherent in an emerging business enterprise.  These
include,   but  are  not  limited   to,   competition   from  other   fertilizer
manufacturers,  the  need  to  expand  production  and  distribution,  and  slow
settlement of billing to new customers.  Realization of the Company's investment
in assets is dependent on the success of its future operations.

Dependence  strategic  relationship.  The Company conducts its operations in the
PRC through an equity joint venture with Beijing Opal biochemical Factory, a PRC
government owned entity. Any deterioration of this strategic  relationship could
have an adverse effect on the operations and financial position of the Company.

Concentration  of credit risk. A substantial  portion of the Company's  sales is
made to a small number of customers  on an open account  basis and  generally no
collateral is required. Details of individual customers accounting for more than
5% of the Company's sales are as follows:

<TABLE>

                                                    1996         1997         1998
                                                 ----------   ----------   ----------
<S>                                              <C>          <C>          <C>

Agricultural and Production Information Company    81.3%         38.9%            -
Heng Yang Agricultural and Technology                  -         11.6%            -
Development Company
Yunnan Xing Long Agriculture and Trade              1.4%         11.4%        13.0%
Development Centre
Xin Jiang Agriculture and Science Institute            -          8.2%            -
Gansu Nong Ken Technological  Development           1.2%          5.2%            -
Company
Xiamen Station of Soil and Fertilizer Work             -             -        12.5%
Zhejiang Jiangshan Group                               -             -         8.4%
Hunan Dalong Group                                     -             -        15.5%
Hainan Global Industry Company Limited                 -             -        15.0%
Shaoguan Agricultural Association                      -             -         7.7%
Wulong Group                                           -             -         5.5%
                                                 ========    ==========    ==========
</TABLE>

                                       10
<PAGE>

Concentration  of accounts  receivable  as of  December  31, 1997 and 1998 is as
follows:

                                          1997            1998
                                       ------------    -----------
Five largest accounts receivable          68.6%           54.4%

The Company  performs  ongoing credit  evaluation of each  customer's  financial
condition.  It maintains reserves for potential credit losses and such losses in
aggregate have not exceeded management's  projections.  As of December 31, 1998,
the Company  maintained a specific  provision of approximately  US$227,300 and a
general provision of 51% of the remaining balance against its trade receivables.
The Directors, in their opinion, consider that the risk of recoverability of the
unprovided for receivable is minimal.

Concentration of suppliers.  The Company purchases raw material from a number of
suppliers.  Details of individual  suppliers  accounting for more than 5% of the
Company's purchases are as follows:

                                                     1996      1997       1998
                                                   --------- ---------  --------
Purchase from:                                         85.4%     15.9%     71.6%
Agriculture and Production Information Company
Shun Yi County Chemical Fertilizer                         -     63.7%        -
Shengli Plastic Factory                                    -        -      11.6%
Bestalong                                                  -      9.8%        -
                                                   ========== ========= ========

Factors Affecting  Fertilizer Demand and Prices.  With virtually of its sales in
China and Taiwan,  the Company's  operating  results are highly  dependent  upon
conditions  in the PRC and  Taiwanese  agricultural  industries.  A  variety  of
factors beyond the Company's control can materially affect fertilizer demand and
pricing.  These  factors  include  but  are not  limited  to:  planted  acreage;
government agricultural policies,  projected grain stocks, crop failure, weather
and  changes in  agricultural  production  methods  and  seasonality  based upon
weather related shifts in planting.

Permitting.   The  Company  holds  several   environmental   and  other  permits
authorizing  operations at its Beijing  facility.  A decision by a  governmental
agency  to deny an  application  for a new or  renewed  permit,  or to revoke or
substantially modify an existing permit, could have a material adverse effect on
the Company's ability to continue operations.

Dependence on Management. The operations of the Company have depended to a great
extent on  management  efforts of John Koon,  yet the Company has no  employment
agreement with either. The loss of the service of key personnel or the inability
to attract additional personnel as required could have a material adverse effect
on the Company's business, financial condition and results of operations.

                                       11
<PAGE>

Competition.  The  fertilizer  industry is highly  competitive in China and many
competitors,  both  domestic  and  international,   have  substantially  greater
technical, financial and marketing resources than the Company.

Currency  Exchange Rates.  The Company  transacts  business in Renminbi and U.S.
dollars.  In all trading  transactions  involving  more than one  currency,  the
Company  employs  strategies  to minimize or  eliminate  risks  associated  with
currency exchange rate fluctuations; however it is not possible to eliminate all
exchange  rate  risk,  and the  Company  may  experience  losses  as a result of
exchange rate fluctuations from time to time.

Inflation.  The Company has made its projections  assuming a stable economy, and
has not  considered  any  inflation  factors which would affect the value of the
products and the purchasing ability of its customers.

China and Other Foreign Operation Risks

Internal  Political  and  Other  Risks.   Substantially  all  of  the  Company's
operations are conducted in the PRC and, accordingly,  the Company is subject to
special  considerations  and  significant  risks not typically  associated  with
companies  operating in North  America and Western  Europe.  These include risks
associated with, among others,  the political,  economic and legal  environments
and foreign currency  exchange.  The Company's results may be affected by, among
other  things,  changes in the  political  and social  conditions in the PRC and
changes  in  governmental   policies  with  respect  to  laws  and  regulations,
anti-inflationary measures, currency conversion and remittance abroad, and rates
and methods of taxation. Changes in policies by the Chinese government resulting
in changes in laws,  regulations,  or the interpretation  thereof,  confiscatory
taxation,  restrictions on imports and sources of supply,  currency devaluations
or the expropriation of private enterprise could materially adversely affect the
Company. Under its current leadership,  the Chinese government has been pursuing
economic  reform  policies,  including  the  encouragement  of private  economic
activity  and  greater  economic  decentralization.  There can be no  assurance,
however, that the Chinese government will continue to pursue such policies, that
such  policies  will be  successful  if pursued,  that such policies will not be
significantly altered from time to time or that business operations in the China
would not become subject to the risk of  nationalization,  which could result in
the total loss of  investments  in that  country.  Economic  development  may be
limited as well by the  imposition  of  austerity  measures  intended  to reduce
inflation,  the inadequate  development of an  infrastructure  and the potential
unavailability   of   adequate   power  and  water   supplies,   transportation,
satisfactory roads and communications.

Uncertain  Legal  System  and  Application  of Laws.  The legal  system of China
relating  to  foreign  investments  is both new and  continually  evolving,  and
currently  there  can be no  certainty  as to the  application  of its  laws and
regulations in particular instances.  China does not have a comprehensive system
of  laws.  Enforcement  of  existing  laws or  agreements  may be  sporadic  and
implementation and interpretation of laws inconsistent. The Chinese judiciary is
relatively  inexperienced in enforcing the laws that exist,  leading to a higher
than usual degree of  uncertainty  as to the outcome of  litigation.  Even where
adequate  law  exists  in China,  it may not be  possible  to  obtain  swift and
equitable enforcement of that law.

Inflation  and  China's  Rapid  Economic  Growth.  In an attempt to control  the
country's  rapidly  growing  inflation  rate,  the  Chinese  government  imposed
measures  attempting to check  inflation but to date those methods have not been
effective.  Because  almost all of the  Company's  operations  are  conducted in
China, that country's inflation and austerity may adversely effect the Company's
business.

                                       12
<PAGE>


ITEM 7. FINANCIAL STATEMENTS

     The  consolidated  financial  statements of the Company,  together with the
independent  auditors' report thereon of Arthur Andersen & Co., appears on pages
F-2 through F-27 of this report.  See Index to Financial  Statements on page F-1
of this report.

ITEM 8.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURE

     On January 23, 1998, the Board of Directors  selected Arthur Andersen & Co.
of Hong Kong, as its certifying accountants for the year-ended December 31, 1998
replacing H.J. Swart & Co. of Kissimmee, Florida. During the preceding two years
and the subsequent interim periods preceding their dismissal, the Company had no
disagreements with the prior accountants on any matter of accounting  principals
or practices, financial statement disclosure, or auditing scope or procedure.

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTORS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTION 16(a) OF THE EXCHANGE ACT

Information Regarding Present Directors and Executive Officers

     The following table sets forth the names and ages of the present  executive
officers and directors of the Company and the positions held by each.

 Name                  Age       Title
-----                 ------ --------------

John Koon              51     Chairman of the Board, President, Chief Executive
                              Officer and Director
Kenneth C.W. Poon      40     Chief Financial Officer
Long Chen Chen         48     Vice President, Sales and Marketing and Director
Xing Hua Chen          50     General Manager of Beijing Opal
Michael W. Botts       51     Vice President of Research and Development and
                              Director
Raul F. Sanchez-Elia   45     Director
Agnes K.O. Koon        48     Director
James H. Shane         53     Director

Mr. John Koon,  Chairman of the Board,  President and Chief Executive Officer of
the  Company.  He is the founder and  Chairman of  Bestalong  Group,  Inc.,  the
controlling shareholder of the Company. He is also the principal and director of
several private  companies with  operations in China.  Mr. Koon is a graduate of
the  University  of Hong  Kong with a  Bachelor  of  Social  Services  degree in
Accounting  and  Economics.  He is a member of the  International  Institute  of
Management.

Mr.  Kenneth C.W.  Poon,  Chief  Financial  Officer of the Company.  He had held
senior financial management positions in a number of multinational  companies in
information technology,  banking and trading industries. He is also an executive
director of Bestalong  Group,  Inc. and is responsible for the management of its
investment  and  operations.  Mr.  Poon is a graduate  of the Hong Kong  Baptist
University  and  a  member  of  the  American   Institute  of  Certified  Public
Accountants and Certified General Accountants Association of Canada.

Mr. Long Chen Chen,  Director and Vice  President of Sales and  Marketing of the
Company. He has been involved in the fertilizer project since 1990. Before that,
he was  involved in the trials and tests of organic  fertilizers  in Vietnam for
the production of seeds for Taiwan.  In addition to sales and  marketing,  he is
also responsible for product  applications,  sourcing and quality  control.  Mr.
Chen is a graduate of the Taipei Technical University.

                                       13
<PAGE>

Mr. Xing Hua Chen, General Manager of Beijing Opal since 1995. He is responsible
for plant construction and production of organic fertilizers. From 1981 to 1997,
he served as General Manager of Beijing Shunyi County Agricultural  Supplies and
Provision  Corporation,  a Chinese Government  official agent for the supply and
distribution  of fertilizers  to farmers.  Mr. Chen is a graduate of the Beijing
Agricultural University, with a major in fertilizers.

Mr. Michael W. Botts, Director and Vice President of Research and Development of
the  Company.  He is a soil  scientist  who  developed  the OMS  technology  and
invented  the  chelating  agent  KOM.  He is also the  technical  advisor of the
procurement,  installation  and  testing of OPAL OMF  production  facilities  in
Beijing.  Mr. Botts holds a Bachelor of Science  degree in Soil Science from the
University of Oregon.

Mr. Raul F. Sanchez-Elia,  Director.  He is the principal of Condor Group, a New
York based  investment  banking firm  specializing  in emerging  markets  direct
investments.  He is also a director of Bestalong Group, Inc. and USA Capital,  a
Denver based mid-size leasing company. Mr. Sanchez-Elia holds a Bachelor of Arts
degree  from Brown  University  ('76) and a Master of  International  Management
degree from AGSIM (Thunderbird).

Mrs. Agnes K.O. Koon,  Director.  Mrs. Koon is a Chartered Insurer with 25 years
experience in insurance  and  marketing.  Mrs.  Koon holds a Bachelor  Degree of
Social  Science from the  University  of Hong Kong.  She is also a member of the
Hong Kong Institute of Human  Resources  Management,  Associate of the Chartered
Insurance   Institute,   member  of  the  Hong  Kong  Women   Professionals  and
Entrepreneurs   Association  and  member  of  the  Hong  Kong  Direct  Marketing
Association.

Mr.  James  H.  Shane,  independent  Director.  He is the  President  and  Chief
Executive Officer of Shane Associates  Limited, a diversified  operating company
in the United States. He has been developing and managing real estate properties
since 1969 and consulting US companies in the importing of products from Pacific
Rims countries.

ITEM 10. EXECUTIVE COMPENSATION

     The  following  officers  received  compensation  from the  Company for the
current and/or prior calendar year. Mr. John Koon, the Chief  Executive  Officer
of the Company, did not receive compensation for either year.

                                                          Total Compensation
                                                               (US000)
Kenneth Poon             1998                              $   90,000
                         1997                                  32,000

     Messrs. Botts and Chen each received management fees which are disclosed in
"Certain  Relationships  and  Related  Transactions".  No other  officer  of the
Company received compensation for either the year-ended December 1998 or 1997.

     Each  non-executive  director was compensated  with 50,000 shares of common
stock for their services as directors.  No additional  compensation  was paid to
non-executive directors.

     The Board of  Directors  of the  Company  annually  reviews  all  executive
positions and compensation.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The  following  table sets forth as of September  10,  1999,  the number of
shares of the Company's Common Stock known to be held by the executive  officers
and directors  individually and as a group and by beneficial owners of more than
five percent of the Company's Common Stock.

                                                   Amount and Nature of
                                          --------------------------------------
Name and Address of Beneficial Owner      Beneficial Owner      Percent of Class
----------------------------------------  ----------------    ------------------
John Koon                                             0                    0
Agnes K.O. Koon                              18,671,768                   52
Long Chen Chen                                  100,000                  0.3
Xing Hua Chen                                   100,000                  0.3
Michael W. Botts                                100,000                  0.3
Raul F. Sanchez-Elia                            100,000                  0.3
James H. Shane                                   50,000                  0.1
Total all officers and directors             19,121,768                 53.3
                                          ------------------    --------------

                                       14
<PAGE>

(1)  The persons names in the table have sole voting and  investment  power with
     respect to all shares of Common Stock shown as beneficially  owned by them,
     and the information contained in the footnotes to the table.

(2)  Address is Suite 4704, Central Plaza, 18 Harbour Road, Wanchai, Hong Kong.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The Company paid a management  fee to Mr.  Michael  Botts and Mr. Long Chen
Chen, for their services as directors during the year-ended December 31, 1998 in
the amounts of $22,000 and $109,000, respectively.

                                     PART IV

ITEM 13. EXHIBITS AND REPORTS OF FORM 8-K

(a)  Exhibits

       3.1    Articles of Incorporation(3)
       4.1    Certificate of designation of Preferred Stock, Series A (1)
       4.2    Warrant to Corinthian (2)
      23.1    Consent of Arthur Andersen (1)
      27.1    Financial Data Schedules (1)

       (1)    Filed herewith
       (2)    Incorporated by reference to the respective exhibits filed with
              the Company's Quarterly Report on Form 10-QSB for the quarter
              ended June 30, 1998
       (3)    Incorporated by reference to the respective exhibits filed with
              the Company's Report on Form 8-A filed on July 6, 1998.

(b)  Reports on Form 8-K

     The Company filed no reports on Form 8-K during the quarter ended  December
     31, 1998.

                                       15
<PAGE>

                                   SIGNATURES

     In accordance  with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


                                            OPAL TECHNOLOGIES, INC.



                                             By:
                                                --------------------------
                                                 John Koon, President


Dated: September ___, 1999

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

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

-------------------  Chairman of the Board, President,
John Koon            Chief Executive Officer and Director     September __, 1999

-------------------  Vice President, Sales and Marketing and
Long Chen Chen       Director                                 September __, 1999

-------------------  Vice President of Research and
Michael W. Botts     Development and Director                 September __, 1999

-------------------  Director
Raul Sanchez-Elia                                             September __, 1999

-------------------  Director
Agnes K.O. Koon                                               September __, 1999

-------------------  Director
James Shane                                                   September __, 1999


                                       16
<PAGE>
                             OPAL TECHNOLOGIES, INC.

                   Index to Consolidated Financial Statements


                                                                          Page
                                                                         ------

Independent Auditors Report                                               F-2

Consolidated Balance Sheet as of December 31, 1997 and 1998               F-3

Consolidated Statement of Operations for the Years Ended
December 31, 1996, 1997 and 1998                                          F-4

Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1997 and 1998                                          F-5

Consolidated Statements of Stockholders' Equity (Deficit)
for the Years Ended December 31, 1996, 1997 and 1998                      F-7

Notes to Consolidate Financial Statements                                 F-8

                                       17
<PAGE>


                     OPAL TECHNOLOGIES INC. AND SUBSIDIARIES
                     =======================================



                        CONSOLIDATED FINANCIAL STATEMENTS
                      AS OF DECEMBER 31, 1997 AND 1998 AND
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
                         TOGETHER WITH AUDITORS' REPORT






              Approved by the Board of Directors on August 31, 1999


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

<PAGE>


REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Shareholders and the Board of Directors of Opal Technologies Inc.:



We  have  audited  the   accompanying   consolidated   balance  sheets  of  Opal
Technologies Inc. (a company incorporated in the State of Nevada,  United States
of America;  the  "Company") and  Subsidiaries  (the "Group") as of December 31,
1997 and 1998, and the related consolidated statements of operations, cash flows
and changes in shareholders'  equity for the years ended December 31, 1996, 1997
and 1998. The accompanying financial statements give retroactive effect, for all
periods presented,  to the acquisition of Opal Agriculture  Development  Limited
and Triple Star Holdings Limited as a reverse acquisition as described in Note 2
to the accompanying  financial  statements.  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 generally accepted auditing standards
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audits 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 and the report of
other auditors provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial  position of Opal Technologies
Inc. and Subsidiaries as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for the years ended December 31, 1996,  1997 and
1998 after giving  retroactive  effect to the  acquisition  of Opal  Agriculture
Development Limited and Triple Star Holdings Limited as a reverse acquisition as
described in Note 2 to the financial  statements,  in conformity  with generally
accepted accounting principles in the United States of America.


                                       1
<PAGE>

The accompanying financial statements have been prepared assuming that the Group
will continue as a going concern.  As discussed in Note 26.a to the accompanying
financial statements,  the Group has suffered recurring net loss from continuing
operations  (net  of  minority   interests)  of  approximately   Rmb605,000  and
Rmb29,670,000 (equivalent to US$3,583,000) for the years ended December 31, 1997
and 1998, respectively.  The Group also has recurring net cash used in operating
activities of  approximately  Rmb15,810,000  and  Rmb13,046,000  (equivalent  to
US$1,575,000) for the years ended December 31, 1997 and 1998, respectively,  and
as of December 31, 1998, the Group's  current  liabilities  exceeded its current
assets  by  approximately  Rmb13,123,000  (equivalent  to  US$1,586,000).  These
matters raise substantial doubt about the Group's ability to continue as a going
concern.  Management's plans in regarding to these matters are described in Note
1. The  financial  statements  do not  include any  adjustments  relating to the
recoverability  and  classification of the Group's assets and  classification of
the Group's  liabilities  as of December 31, 1998 that might  result  should the
Group be unable to continue as a going concern.



ARTHUR ANDERSEN & CO
Certified Public Accountants
Hong Kong



Hong Kong,
August 31, 1999.


                                       2
<PAGE>
                     OPAL TECHNOLOGIES INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                        AS OF DECEMBER 31, 1997 AND 1998

<TABLE>

                                                  Note         1 9 9 7                   1 9 9 8
                                              -----------     ----------        -------------------------
                                                               Rmb'000          Rmb'000           US$'000
<S>                                           <C>             <C>               <C>               <C>

ASSETS

Current assets:
   Cash and bank deposits                                       12,078            3,182              384
   Accounts receivable, net                        5            21,525            2,391              289
   Due from a shareholder                          24            3,430                -                -
   Due from a director                             24               19                -                -
   Due from a related company                      24                -               45                5
   Prepayments and other current assets                            212            1,225              148
   Inventories, net                                6             5,330            9,636            1,164
                                                             ----------       ----------        ---------
         Total current assets                                   42,594           16,479            1,990

   Property, machinery and equipment, net          7            27,015           70,003            8,454
   Construction-in-progress                        8            85,460           63,912            7,719
   Licensing costs, net                            9             7,536            7,093              856
   Goodwill, net                                   10            1,540            1,458              176
                                                            ----------       ----------        ---------
         Total assets                                          164,145          158,945           19,195
                                                            ==========       ==========        =========
LIABILITIES, MINORITY INTERESTS AND

Current liabilities:
   Short-term borrowings                           11           10,300           20,470            2,473
   Accounts payable                                              5,190            6,312              762
   Accrued liabilities                             12            1,669            2,484              300
   Due to a director                               24                -               21                3
   Taxation payable                                13              315              315               38
                                                            ----------       ----------        ---------
         Total current liabilities                              17,474           29,602            3,576

Non-current payable                                14           22,135           20,635            2,491
Loan from PRC joint venture partner                15            5,315            5,627              680
Loans from a shareholder                         16, 24              -           15,378            1,856
                                                            ----------       ----------        ---------
         Total liabilities                                      44,924           71,242            8,603
                                                            ----------       ----------        ---------
Minority interests                                              22,005           19,796            2,391
                                                            ----------       ----------        ---------
Shareholders' equity:
   Common stock, par value US$0.001:
     - Authorized - 49,000,000 shares as of
     - Outstanding and fully paid 35,991,964
   Preferred stock, par value US$0.001:
     -  Authorized - 1,000,000 shares as of
     - Outstanding and fully paid - 100,000
   Additional paid-in capital                                  101,488          101,894           12,306
   Accumulated losses                                           (4,206)         (33,876)          (4,089)
   Cumulative translation adjustments                             (366)            (411)             (52)
                                                            ----------       ----------        ---------
         Total shareholders' equity                             97,216           67,907            8,201
                                                            ----------       ----------        ---------
         Total liabilities, minority                           164,145          158,945           19,195
                                                            ==========       ==========        =========

</TABLE>

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

----------------
Translation of amounts from Renminbi  ("Rmb") into United States dollars ("US$")
is for the  convenience  of readers and has been made at the noon buying rate in
New York City for cable transfers in foreign currencies as certified for customs
purposes by the Federal Reserve Bank of New York on December 31, 1998 of US$1.00
= Rmb8.28.  No representation is made that the Renminbi amounts could have been,
or could be,  converted  into United States dollars at that rate or at any other
rate.



                                       3
<PAGE>

                     OPAL TECHNOLOGIES INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

<TABLE>

                                   Note        1 9 9 6         1 9 9 7                 1 9 9 8
                               ----------    -----------     -----------       ------------------------

                                               Rmb'000         Rmb'000          Rmb'000         US$'000
<S>                             <C>           <C>            <C>               <C>              <C>

Net sales                           21        23,887           37,664            6,952             840
Cost of goods sold                  21       (20,475)         (25,736)          (5,927)           (716)
                                            ----------       ----------        ---------       ---------
       Gross profit                            3,412           11,928            1,025             124

Loss from sales return                             -                -           (3,504)           (423)
Selling, general and
Interest expense                                 (18)               -           (1,396)           (169)
Interest income                                   12               77               29               4
Other expenses, net                              (33)             (38)             (50)             (7)
                                            ----------       ----------        ---------       ---------
       Loss from continuing

Discontinued operations:
   - Loss from discontinued
      operations                     1        (1,944)               -                -               -
   - Net loss on disposal of
      discontinued operations        1        (1,696)               -                -               -
                                            ----------       ----------        ---------       ---------
       Loss from discontinued
        operations                            (3,640)               -                -               -
                                            ----------       ----------        ---------       ---------
       Loss before income taxes               (6,259)            (293)         (31,879)         (3,850)

Provision for income taxes          13             -             (315)               -               -
                                            ----------       ----------        ---------       ---------
       Loss before minority

Minority interests                              (982)               3            2,209             267
                                            ----------       ----------        ---------       ---------
       Net loss                               (7,241)            (605)         (29,670)         (3,583)
                                            ==========       ==========        =========       =========
Basic and diluted loss per share:
   - Loss from continuing operations            (0.26)          (0.03)           [(0.63)]        [(0.08)]

                                                (0.27)              -                 -               -
                                            ----------       ----------        ---------       ---------
   - Loss from discontinuing
          operations
                                                (0.53)           (0.03)           (0.82)         (0.10)
                                            ==========       ==========        =========       ==========

</TABLE>

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

----------------
Translation of amounts from Renminbi  ("Rmb") into United States dollars ("US$")
is for the  convenience  of readers and has been made at the noon buying rate in
New York City for cable transfers in foreign currencies as certified for customs
purposes by the Federal Reserve Bank of New York on December 31, 1998 of US$1.00
= Rmb8.28.  No representation is made that the Renminbi amounts could have been,
or could be,  converted  into United States dollars at that rate or at any other
rate.



                                       4
<PAGE>

                     OPAL TECHNOLOGIES INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998


<TABLE>

                                               1 9 9 6          1 9 9 7               1 9 9 8
                                             -----------      -----------   --------------------------
                                               Rmb'000          Rmb'000      Rmb'000          US$'000
<S>                                           <C>             <C>            <C>             <C>

Cash flows from operating activities:

Net loss                                       (7,241)          (605)        (29,670)         (3,583)
Adjustments to reconcile net loss to net
   Depreciation of property, machinery
   Amortization of licensing costs                  -            444             443              54
   Amortization of goodwill                        34             84              82              10
   Net loss on disposals of fixed assets            -              -              97              12
   Imputed interest on shareholder's                -              -             406              49
   Loss from discontinued operations            1,944              -               -               -
   Net loss on disposal of discontinued         1,696              -               -               -
   Charge in discontinued operations             (149)             -               -               -
   Minority interests                             982             (3)         (2,209)           (267)
(Increase) Decrease in operating assets -
   Accounts receivable, net                       374        (17,079)         19,134           2,311
   Prepayments and other current assets           (79)           (57)         (1,013)           (122)
   Inventories, net                            (2,629)         1,588          (4,306)           (520)
Increase (Decrease) in operating
   Accounts payable                            (1,246)        (1,560)          1,122             135
   Accrued liabilities                            371            103             815              98
   Taxation payable                                 -            315               -               -
                                             ----------      ---------       --------       ---------
         Net cash used in operating            (5,890)       (15,810)        (13,046)         (1,575)
                                             ----------      ---------       --------       ---------
Cash flows from investing activities:
   Acquisition of property, machinery
   Proceeds from disposals of fixed                 -              -              90              10
   Net cash outflow from acquisition of
   Acquisition of license right                (7,980)             -               -               -
   (Advance to) Repayment from a                    -         (3,430)          3,430             414
   (Advance to) Repayment from a director          (5)           (14)             40               4
   (Advance to) Repayment from a related         (749)           749             (45)             (5)
                                             ----------      ---------       --------       ---------
         Net cash used in investing           (19,902)       (43,274)        (20,165)         (2,437)
                                             ----------      ---------       --------       ---------
Cash flows from financing activities:
   Issuance of common stock                         -         47,567               -               -
   New short-term bank loan                         -         10,000           5,000             604
   Other loans                                      -            300           5,170             625
   Increase (Decrease) in non-current               -         22,135          (1,500)           (181)
   New loans from PRC joint venture                 -          3,046             312              38
   New loans from a shareholder                26,303         25,020          15,378           1,857
   Repayment of loans to a shareholder              -        (37,512)              -               -
   Others                                         312              -               -               -
                                             ----------      ---------       --------       ---------
         Net cash provided by financing        26,615         70,556          24,360           2,943
                                             ----------      ---------       --------       ---------
Effect of cumulative translation                 (412)            46             (45)             (5)
                                             ----------      ---------       --------       ---------
Net increase (decrease) in cash and bank          411         11,518          (8,896)         (1,074)
Cash and bank deposits, as of beginning           149            560          12,078           1,458
                                             ----------      ---------       --------       ---------
Cash and bank deposits, as of end of year         560         12,078           3,182             384
                                             ==========      =========       ========       =========
</TABLE>

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

-----------------
Translation of amounts from Renminbi  ("Rmb") into United States dollars ("US$")
is for the  convenience  of readers and has been made at the noon buying rate in
New York City for cable transfers in foreign currencies as certified for customs
purposes by the Federal Reserve Bank of New York on December 31, 1998 of US$1.00
= Rmb8.28.  No representation is made that the Renminbi amounts could have been,
or could be,  converted  into United States dollars at that rate or at any other
rate.



                                       5
<PAGE>
                     OPAL TECHNOLOGIES INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

<TABLE>

                                                                                                       Accumulated
                                                                                                          other
                                                                                                      comprehensive
                                  Common Stock         Preferred Stock                                   income-
                             ---------------------   --------------------    Addition                  cumulative
                             Number of               Number of                paid-in     Accumulated translation
                              shares       Amount     shares       Amount     capital       losses    adjustments
                             --------     --------   ---------    -------    ----------   ----------- -------------
<S>                          <C>          <C>         <C>         <C>        <C>          <C>          <C>
                              '000         Rmb'000     '000       Rmb'000     Rmb'000      Rmb'000      Rmb'000

Balance as of January 1,      12,653         105        100           1       28,933     (17,080)           -
Net loss                           -           -          -           -            -      (7,241)           -
Accumulated loss
Translation adjustments            -           -          -           -            -           -         (412)
                            ---------    --------   --------    --------     ----------  --------       --------
Balance as of January 1,      12,653         105        100           1        8,213      (3,601)        (412)
Issuance of common stock
Effect of the exchange
Issuance of common stock
Net loss                           -           -          -           -            -        (605)           -
Translation adjustments            -           -          -           -            -           -           46
                            ---------    --------   --------    --------     ----------  --------       --------
Balance as of December
Net loss                           -           -          -           -            -     (29,670)           -
Shareholder's
Translation adjustments            -           -          -           -            -           -          (45)
                            ---------    --------   --------    --------     ----------  --------       --------
Balance as of December 31,
     1998                     35,992         299        100           1      101,894     (33,876)        (411)
                            =========    ========   ========    ========     ==========  ========       ========

</TABLE>

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


                                       6
<PAGE>
                     OPAL TECHNOLOGIES INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1.   ORGANIZATION AND PRINCIPAL ACTIVITIES
     -------------------------------------

Opal  Technologies  Inc. (the "Company") was incorporated in the State of Nevada
in the United  States of America on September 9, 1987.  With effect from May 14,
1997, the Company changed its name from Med-Tex Corporation to Opal Technologies
Inc.

During the year ended December 31, 1996, the Company capitalized its accumulated
loss of approximately Rmb20,720,000 against additional paid-in capital.

During the period from  October 31, 1996 to June 6, 1997,  the Company  remained
dormant.

Acquisition of subsidiaries
---------------------------

On June 6, 1997, the Company entered into an agreement with Bestalong Group Inc.
("Bestalong";  a company  incorporated in the British Virgin Islands) to acquire
from Bestalong 100% interest in Triple Star Holdings  Limited ("TSH";  a company
incorporated   in  the  British  Virgin  Islands)  and  100%  interest  in  Opal
Agriculture  Development  Limited ("OAD"; a company  incorporated in the British
Virgin  Islands) by (i) issuing to  Bestalong  8,452,768  shares of common stock
(after the  one-for-ten  reverse  stock split  described in Note 18) and 100,000
shares of Series A preferred stock, and (ii) assuming Bestalong's liabilities in
the form of a promissory note of US$2,100,000,  which was subsequently cancelled
by the  issuance of  4,200,000  shares of common  stock  (after the  one-for-ten
reverse stock split described in Note 18). Bestalong is beneficially  controlled
by Mr. John K. C. Koon, a director of the Company.

TSH Group
---------

TSH and its wholly-owned subsidiary, Triple Star Group Limited ("TSG"; a company
incorporated in the British Virgin Islands) are investment holding companies. On
August 6,  1996,  TSG  acquired  a 55%  interest  in  Beijing  Opal  Agriculture
Biochemistry Co., Ltd. ("Beijing Opal"), an equity joint venture  established in
the People's Republic of China (the "PRC").  Beijing Opal is principally engaged
in the manufacturing and sales of organic agricultural fertilizers.


                                       7
<PAGE>

1.   ORGANIZATION AND PRINCIPAL ACTIVITIES (Cont'd)
     -------------------------------------

TSH Group  (Cont'd)
---------

Beijing Opal was originally  established  as a PRC equity joint venture  between
Ideit Enterprise Co., Ltd. ("IECL"; a company  incorporated in Taiwan) - 40% and
Beijing Opal Biochemistry Factory ("BOBF"; a PRC state-owned  enterprise) - 60%,
for a period of 20 years from February 8, 1995 to February 7, 2015.  Pursuant to
a sale and purchase agreement dated August 6, 1996, TSG acquired from IECL a 40%
interest in Beijing Opal and  acquired  from BOBF a 15% interest in Beijing Opal
for an aggregate  consideration of approximately  Rmb1,159,000.  A revised joint
venture agreement between TSG and BOBF was executed on August 6, 1996, which was
approved by the relevant PRC  authorities  on March 24, 1997.  Under the revised
joint venture agreement,  the joint venture period has been extended to 30 years
from February 8, 1995 to February 7, 2025,  and the total  investment of Beijing
Opal  has  been  increased  from  US$350,000  to  US$10,000,000  (equivalent  to
approximately Rmb82,900,000), of which US$6,000,000 (equivalent to approximately
Rmb49,920,000) has to be in the form of registered capital to be injected within
one year after  Beijing Opal obtains its revised  business  license from the PRC
authorities.  As of December 31, 1997, all of the registered  capital of Beijing
Opal of US$6,000,000 was paid-up and verified by a certified  public  accountant
in the PRC according to PRC regulations.

The other key provisions of the revised joint venture agreement are:

     the profit and loss sharing ratio is the same as the respective  percentage
     of equity interest.

     upon early  termination  or  liquidation of Beijing Opal, the net assets of
     Beijing  Opal  will  be  distributed  in  accordance  with  the  respective
     percentage of equity interest.

     the Board of Directors of Beijing Opal consists of seven members, with four
     designated by TSG and three designated by BOBF.

OAD
---

OAD was  incorporated  in the British  Virgin  Islands on December 15, 1995.  On
January 2, 1996,  OAD issued 50,000 shares of common stock to Asian  Connections
Limited (a company incorporated in the British Virgin Islands),  which was owned
by  independent  investors,  at par  value  for a total  cash  consideration  of
US$50,000.  On March 22, 1997, Bestalong acquired the entire interest in OAD for
a consideration of approximately US$19,405,000.

OAD is  principally  engaged in the trading of organic  agricultural  fertilizer
manufactured by Beijing Opal. On December 16, 1996, OAD was appointed by Beijing
Opal as its sole agent and was granted the  exclusive  right to  distribute  and
sell organic  fertilizer  manufactured  by Beijing  Opal in the PRC,  Hong Kong,
Taiwan and Macau for the period from January 1, 1997 to February 7, 2015.


                                       8
<PAGE>

1.   ORGANIZATION AND PRINCIPAL ACTIVITIES (Cont'd)
     -------------------------------------

Management Plan
---------------

During the years ended December 31, 1997 and 1998, the Group reported  recurring
net loss from continuing operations (net of minority interests) of approximately
Rmb605,000 and  Rmb29,670,000  (equivalent to  US$3,583,000),  respectively.  In
addition,  the Group has net cash used in operating  activities of approximately
Rmb15,810,000  and Rmb  13,046,000  (equivalent to  US$1,575,000)  for the years
ended  December 31, 1997 and 1998,  respectively.  As of December 31, 1998,  the
Group's   current   liabilities   exceeded   current  assets  by   approximately
Rmb13,123,000 (equivalent to US$1,586,000).

Despite its negative cash flow from operating activities,  the Group has secured
financing  of Rmb5  million  (equivalent  to  US$604,000)  loan from a financial
institution  in the  People's  Republic of China in February  1999 and is in the
process of  obtaining  a loan for  working  capital  purpose.  While there is no
assurance  that   additional   funding  will  be  available  to  finance  future
operations,  the  Group is  negotiating  with  other  interested  investors  and
lenders.   Management   believes  that  this  additional   financing  should  it
materialize,  along with its current  credit  facilities  will be  sufficient to
support the Group's liquidity requirement through the end of 1999.

While  there  is no  assurance  that the  Group's  cash  flow  will  improve  in
foreseeable  future,  the  Group has  completed  the  installation  of a granule
production  facility  and signed a five-year  exclusive  sales  contract  with a
Taiwanese  government owned company. The trial order for the first year consists
of 29,000  metric tons of Opal  Granules  and 1,220  metric tons of Opal Foliar.
This translates into  approximately  US$10 million sales.  The first shipment of
Opal  Foliar  was made on April 9,  1999.  All  export  sales will be covered by
letters of credit or telegraphic  transfer to be received prior to shipment.  In
the light of this new payment terms arrangement,  the cash flow situation of the
Group is expected to be improved in 1999.

Management  believes that, if the financing now being  negotiated  materializes,
the Group's operating results can be significantly  improved. The support of the
Group's vendors, customers,  lenders and shareholders will continue to be key to
the Group's future success.

                                       9
<PAGE>

2.   BASIS OF PRESENTATION
     ---------------------

The acquisitions of TSH and OAD by the Company on June 6, 1997 have been treated
as a reverse  acquisition  since TSH and OAD are the  continuing  entities  as a
result of the recapitalization and restructuring.  On this basis, the historical
financial  statements  prior to June 6, 1997  represent  the combined  financial
statements of TSH and OAD. The historical  shareholders'  equity accounts of the
Company as of December 31, 1996 have been retroactively  restated to reflect the
issuance of  8,452,768  shares of common  stock (after the effect of the reverse
stock  split - described  in Note 18) and  100,000  shares of Series A preferred
stock to Bestalong  and the issuance of 4,200,000  shares of common stock (after
the  effect  of the  reverse  stock  split  -  described  in  Note  18)  for the
cancellation of a promissory note (see Note 1).

The  acquisition of Beijing Opal by TSG on August 6, 1996 has been accounted for
using the purchase method of accounting. Accordingly, the assets and liabilities
assumed have been recorded at their estimated fair values, and the operations of
Beijing Opal are included in the consolidated  financial statements of the Group
from the date of acquisition.

3.   SUBSIDIARIES
     ------------

Details of the  Company's  subsidiaries  (which  together  with the  Company are
collectively  referred  to as the  "Group")  as of  December  31,  1998  were as
follows:
<TABLE>

                                                        Percentage of
                                   Place of            equity interest
     Name                        incorporation              held             Principal activities
   --------                    -----------------      ------------------   ------------------------
<S>                              <C>                    <C>                 <C>

Triple Star Holdings Limited     The British Virgin           100%           Investment holding
     ("TSH")                       Islands
Triple Star Group Limited        The British Virgin           100%           Investment holding
     ("TSG")                       Islands
Opal Agriculture Development     The British Virgin           100%           Trading of organic
     ("OAD")                       Islands
Beijing Opal Agriculture         The PRC                       55%           Manufacturing and sale of
     ("Beijing Opal")                                                          organic agricultural
                                                                               fertilizers
</TABLE>

                                       10
<PAGE>

4.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
     ------------------------------------------

a.   Basis of consolidation
     ----------------------

     The consolidated  financial  statements include the accounts of the Company
     and its subsidiaries.  All material  intra-group  balances and transactions
     have been eliminated on consolidation.

b.   Goodwill
     --------

     Goodwill, being the excess of cost over the fair value of the Group's share
     of the net assets of a subsidiary (Beijing Opal) acquired,  is amortized on
     a straight-line  basis over 20 years. The amortization  recorded during the
     years ended December 31, 1996, 1997 and 1998 was  approximately  Rmb34,000,
     Rmb84,000  and  Rmb82,000,  respectively.  Accumulated  amortization  as of
     December 31, 1997 and 1998 was  approximately  Rmb118,000  and  Rmb200,000,
     respectively.

     Management   reviews  and   evaluates   the   recoverability   of  goodwill
     periodically as part of its assessment of the recoverability of the Group's
     share of net assets of  subsidiary  to which it relates.  The  determinants
     used for this  evaluation  include  management's  estimate  of the  asset's
     ability to generate  positive income from operations and positive cash flow
     in future periods. In the opinion of the management, no material impairment
     existed as of December 31, 1998.

c.   Inventories
     -----------

     Inventories  are stated at the lower of cost, on a weighted  average basis,
     and market value. Costs of work-in-process  and finished goods are composed
     of direct materials, direct labor and an attributable portion of production
     overheads.

d.   Property, machinery and equipment
     ---------------------------------

     Property,  machinery and equipment are recorded at cost. Gains or losses on
     disposals are reflected in current  operations.  Depreciation for financial
     reporting  purposes is  provided  using the  straight-line  method over the
     estimated useful lives of the assets as follows: land - 27 years, buildings
     - 10 years,  machinery and equipment - 5 years,  motor  vehicles - 5 years,
     furniture  and  office  equipment  -  5  years.  All  ordinary  repair  and
     maintenance costs are expensed as incurred.

     The Group  recognizes  an impairment  loss on a fixed asset when  evidence,
     such as the sum of  expected  future cash flows  (undiscounted  and without
     interest  charges)  indicates  that  future  operations  will  not  produce
     sufficient   revenue  to  cover  the  related   future   costs,   including
     depreciation,  and when the carrying amount of the asset cannot be realized
     through sale. Measurement of the impairment loss is based on the fair value
     of the assets.


                                       11
<PAGE>

4.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
     ------------------------------------------

e.   Construction-in-progress
     ------------------------

     Construction-in-progress represents land costs as well as factories, office
     and machinery  under  construction.  It is the Group's policy to capitalize
     interest during the construction  phase of qualifying  assets in accordance
     with Statement of Financial  Accounting  Standards No. 34. During the years
     ended  December  31,  1996,  1997  and  1998,  Nil,  Nil and  approximately
     Rmb487,000 of interest were capitalized.

f.   Licensing costs
     ---------------

     Licensing  costs are costs  incurred  to  acquire  the  exclusive  right to
     distribute   and  sell  a  brand  of   organic   agricultural   fertilizer.
     Amortization  for  financial  reporting  purposes  is  provided  using  the
     straight-line  method over the license period of 18 years. The amortization
     recorded  during  the years  ended  December  31,  1996,  1997 and 1998 was
     approximately  Nil,  Rmb444,000 and Rmb443,000,  respectively.  Accumulated
     amortization as of December 31, 1997 and 1998 was approximately  Rmb444,000
     and Rmb887,000, respectively.

     Management  reviews and evaluates  the  recoverability  of licensing  costs
     periodically as part of its assessment of the recoverability of the Group's
     net assets. The determinants used for this evaluation include  management's
     estimate of the asset's ability to generate positive income from operations
     and positive cash flow in future periods. In the opinion of the management,
     no material impairment existed as of December 31, 1998.

g.   Net sales
     ---------

     Net sales represent the invoiced value of goods supplied to customers,  net
     of sales  returns and  allowances.  Sales are  recognized  upon delivery of
     goods and passage of title to customers.

h.   Income taxes
     ------------

     The Group  accounts for income taxes under the  provisions  of Statement of
     Financial  Accounting  Standards No. 109,  which  requires  recognition  of
     deferred  tax  assets  and   liabilities   for  the  expected   future  tax
     consequences of events that have been included in the financial  statements
     or tax returns.  Deferred  income taxes are  provided  using the  liability
     method.  Under the liability  method,  deferred income taxes are recognized
     for all  significant  temporary  differences  between the tax and financial
     statement bases of assets and liabilities.


                                       12
<PAGE>

4.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
     ------------------------------------------

i.   Operating leases
     ----------------

     Operating leases represent those leases under which  substantially  all the
     risks and  rewards  of  ownership  of the  leased  assets  remain  with the
     lessors.  Rental payments under operating  leases are charged to expense on
     the straight-line basis over the period of the relevant leases.

j.   Comprehensive income
     --------------------

     The Group has adopted Statement of Financial  Accounting  Standards No. 130
     ("SFAS No. 130"),  which requires the Group to report all changes in equity
     during a period,  except for those  resulting from investment by owners and
     distribution  to owners,  in financial  statements  for the period in which
     they are recognized.  The Group has disclosed  comprehensive  income, which
     encompasses  net  income  and  currency  translation  adjustments,  in  the
     consolidated  statements of changes in shareholders'  equity and Note 17 to
     the  financial  statements.  Prior  years  financial  statements  have been
     restated to conform to the SFAS No. 130 requirements.

k.   Foreign currency translation
     ----------------------------

     The Group considers  Reminbi ("Rmb") as its functional  currency as most of
     the Group's business activities are based in Reminbi.

     The translation of the financial statements of group companies into Reminbi
     is performed for balance sheet accounts using the closing  exchange rate in
     effect at the balance sheet date and for revenue and expense accounts using
     an average  exchange  rate during each  reporting  period.  Gains or losses
     resulting from translation are included in shareholders'  equity separately
     as  cumulative  translation  adjustments.  Aggregate  (losses)  gains  from
     foreign currency transactions included in the results of operations for the
     years  ended  December  31,  1996,  1997 and 1998 were  approximately  Nil,
     Rmb(38,000) and Rmb131,000, respectively.


                                       13
<PAGE>

4.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
     ------------------------------------------

l.   Loss per common share
     ---------------------

     Basic loss per common  share is computed in  accordance  with  Statement of
     Financial  Accounting  Standards No. 128 by dividing net loss for each year
     by the weighted average number of shares of common stock outstanding during
     the years, as if the common stock issued for the acquisition of OAD and TSH
     (see Note 1) and the  one-for-ten  reverse stock splits (see Note 18.a) had
     been consummated prior to the years presented.

     The  computation  of diluted loss per common share is similar to basic loss
     per common share,  except that the  denominator is increased to include the
     number of additional  common shares that would have been outstanding if all
     dilutive securities outstanding during the years were exercised.

     The basic and  diluted  loss per  common  share were the same for the years
     presented because there was no dilutive  securities  outstanding as of each
     year end.  The  numerator  in  calculating  both basic and diluted loss per
     share for each year is the reported net loss.  The  denominator is based on
     the following weighted-average number of common shares:

                         1 9 9 6               1 9 9 7              1 9 9 8
                        ---------             ---------            ---------
         Basic         13,592,000            22,172,000            35,991,964
         Diluted       13,592,000            22,172,000            35,991,964


m.   Use of estimates
     ----------------

     The  preparation  of financial  statements  in  conformity  with  generally
     accepted  accounting  principles in the United  States of America  requires
     management to make estimates and assumptions  that affect certain  reported
     amounts and  disclosures.  Accordingly,  actual  results  could differ from
     those estimates.

n.   Fair value of financial instruments
     -----------------------------------

     The following  methods and assumptions were used to estimate the fair value
     of each  class of  financial  instruments  for which it is  practicable  to
     estimate that value:

     Cash and bank  deposits and  short-term  borrowings  The  carrying  amounts
     approximate fair values because of the short maturity of those instruments.

     Non-current  payable The fair value of the Group's  non-current  payable is
     estimated based on the quoted market prices for the same or similar issues.


                                       14
<PAGE>

5.   ACCOUNTS RECEIVABLE
     -------------------

Accounts receivable comprised:

                                            1 9 9 7             1 9 9 8
                                            Rmb'000    Rmb'000         US$'000
                                           ---------  -------------------------
Trade receivables                           23,803     20,000           2,415

Less: Allowance for bad and doubtful
        debts                               (2,278)   (17,609)         (2,126)
                                           --------   --------        --------
Accounts receivable, net                    21,525      2,391             289
                                           ========   ========        ========

6.   INVENTORIES
     -----------

Inventories comprised:

                                          1 9 9 7               1 9 9 8
                                        ------------     -----------------------
                                          Rmb'000        Rmb'000        US$'000

Raw materials                             4,003           4,732            572

Work-in-process                             532             762             92

Finished goods                              849           6,442            778

                                          5,384          11,936          1,442

Less: Allowance for slow-moving and
       obsolete inventories                 (54)         (2,300)         (278)
                                        --------       ---------      ---------
Inventories, net                          5,330           9,636          1,164
                                        ========       =========      =========

                                       15
<PAGE>

7.   PROPERTY, MACHINERY AND EQUIPMENT
     ---------------------------------

Property, machinery and equipment comprised:

                                           1 9 9 7                1 9 9 8
                                         -----------      ----------------------
                                           Rmb'000        Rmb'000       US$'000

Property, machinery and equipment:

    Land                                    9,377          9,377          1,132

    Buildings                               5,023          5,335            644

    Machinery and equipment                12,498         57,221          6,911

    Motor vehicles                          1,051          1,017            123

    Furniture and office equipment            121            121             15
                                         --------       ---------     ---------
Cost                                       28,070         73,071          8,825

Less: Accumulated depreciation             (1,055)        (3,068)          (371)
                                         --------       ---------     ---------
Property, machinery and equipment, net     27,015         70,003          8,454
                                         ========       =========     =========

Private  ownership of land is not allowed in the PRC;  rather,  entities acquire
the right to use land for a designated  term. The Group's  buildings are located
on land in  Beijing,  the PRC for a  period  of 50  years  commencing  from  the
issuance  date of land use right  certificate.  The Group is in the  process  of
completing  the legal  agreements  relating to the  acquisition  of the land use
right as of December 31, 1998 (see Note 8).

Certain  machinery and equipment  with net book value of  approximately  Nil and
Rmb9,240,000  as of December  31, 1997 and 1998,  respectively,  were pledged to
secure certain of the Group's short-term borrowings (see Notes 11 and 23).

8.   CONSTRUCTION-IN-PROGRESS
     ------------------------

Construction-in-progress represents land cost and factories and office buildings
and machinery under construction in the PRC, which comprised:

                                1 9 9 7                    1 9 9 8
                               ---------        ------------------------------
                                Rmb'000          Rmb'000              US$'000

Land cost                       41,458           41,458                 5,007

Construction costs              14,302           21,967                 2,653

Machinery                       29,700                -                     -

Interest cost capitalized            -              487                    59
                              --------         --------              --------
                                85,460           63,912                 7,719
                              ========         ========              ========

                                       16
<PAGE>

8.   CONSTRUCTION-IN-PROGRESS (Cont'd)
     ------------------------

Private  ownership of land is not allowed in the PRC;  rather,  entities acquire
the right to use the land for a designated  term. As of December 31, 1998,  land
cost  represented  the cost of acquiring the land use right to a plot of land of
approximately  206 acres (1997 - 206 acres) in Beijing,  the PRC for a period of
50 years  commencing  from the issuance date of the land use right  certificate.
The Group is in the process of completing the legal  agreements  relating to the
acquisition  of  the  land  use  right.  As  of  December  31,  1997  and  1998,
approximately  168  acres of land was  under  development  and was  recorded  as
construction-in-progress.  The  remaining  38  acres  of land  was  recorded  as
property, machinery and equipment as of December 31, 1997 and 1998.


9.   LICENSING COSTS
     ---------------

                                    1 9 9 7                  1 9 9 8
                                   ---------       -----------------------------
                                    Rmb'000          Rmb'000          US$'000

Licensing costs                      7,980            7,980               963
Less: Accumulated amortization        (444)            (887)             (107)
                                    -------          -------           -------
Licensing costs, net                 7,536            7,093               856
                                    =======          =======           =======
Licensing  costs  represent  fees paid to a third party to obtain the  exclusive
right to distribute  and sell organic  agriculture  fertilizer  manufactured  by
Beijing Opal in the PRC, Hong Kong, Taiwan and Macau for 18 years up to February
7, 2015.

10.  GOODWILL
     --------

                                     1 9 9 7                1 9 9 8
                                    ---------      --------------------------
                                     Rmb'000        Rmb'000           US$'000

Goodwill                              1,658          1,658                200

Less: Accumulated amortization         (118)          (200)               (24)
                                     -------        -------           --------
Goodwill, net                         1,540          1,458                176
                                     =======        =======           ========

                                       17
<PAGE>

11.  SHORT-TERM BORROWINGS
     ---------------------

Short-term borrowings comprised:

                                       1 9 9 7                1 9 9 8
                                      ---------      -------------------------
                                       Rmb'000        Rmb'000         US$'000

Short-term bank loan (a)               10,000         15,000            1,812
Other loans (b)                           300          5,470              661
                                      -------        -------          -------
                                       10,300         20,470            2,473
                                      =======        =======          =======
Notes -

a.   Short-term  bank loan was denominated in Renminbi and bore interest at 9.5%
     and 7.05% per annum as of December 31, 1997 and 1998  respectively.  It was
     guaranteed  by a third  party  in the PRC and is  collaterized  by  certain
     machinery and equipment of the Group (see Notes 7 and 23).

b.   Other  loans  include  a loan  from a  third  party  in the  PRC of Nil and
     Rmb4,720,000  as of  December  31, 1997 and 1998,  respectively,  which was
     unsecured  and  bore  interest  ranging  from  7.2% to 12% per  annum as of
     December 31,  1998.  It was drawn for  financing  the  construction  of the
     Group's factories and office buildings and is repayable within one year. In
     addition,  there was a loan from a third party in the PRC of Rmb300,000 and
     Rmb750,000  as of  December  31,  1997 and  1998,  respectively,  which was
     unsecured, non-interest bearing and without pre-determined repayment terms.
     It was used to finance the construction of the Group's factories and office
     buildings.

Supplemental information with respect to the short-term bank loan and other loan
for the year ended December 31, 1998 is as follows:

<TABLE>

                                                                             Weighted
                                       Maximum amount    Average amount  average interest        Weighted
                                        outstanding       outstanding     rate at the end     average interest
                                      during the year   during the year     of the year       rate during the
                                     ----------------- ----------------- ------------------ -------------------
                                          Rmb'000           Rmb'000
<S>                                   <C>              <C>               <C>                <C>

Year ended December 31, 1998:

    -  Short-term bank loan                15,000            10,417             7.05%             7.92%
    -  Other loans                          5,650             4,688             7.92%             9.74%
                                        =========         =========        ==========         =========

Year ended December 31, 1997:

    -  Short-term bank loan                10,000               833             9.5%              9.5%
    -  Other loans                            300               200             -                 -
                                        =========         =========        ==========         =========
</TABLE>

                                       18
<PAGE>

12.  ACCRUED LIABILITIES
     -------------------

Accrued liabilities comprised:

                                        1 9 9 7               1 9 9 8
                                       ---------     ---------------------------
                                        Rmb'000       Rmb'000           US$'000
Accruals for operating expenses

    -  salary and bonus                   108           385                 46

    -  professional fees                1,086         1,098                133

    -  interest expense                     -           247                 30

Provision for welfare fund (a)            114           190                 23

Provision for pension fund (a)            109           183                 22

Others                                    252           381                 46
                                       -------      -------             -------
                                        1,669         2,484                300
                                       =======      =======             =======

Note -

a.   Welfare  fund is  provided  at 19% of  total  salary  and  pension  fund is
     provided at 17% of total salary.  The welfare fund is for welfare  expenses
     of  employees  (see  Note 19) and the  pension  fund is for the  employees'
     retirement benefit (see Note 20).



13.  INCOME TAXES
     ------------

The Company and its  subsidiaries are subject to income taxes on an entity basis
on  income  arising  in or  derived  from the tax  jurisdictions  in which  they
operate. The British Virgin Islands entities (TSH, TSG and OAD) are incorporated
under the  International  Business  Companies Act of the British  Virgin Islands
and, accordingly, are exempted from payment of the British Virgin Islands income
taxes.   OAD  carries  on  business  in  the  PRC  through   Beijing  Opal  and,
consequently,  is  subject  to PRC  enterprise  income tax at a rate of 33% (30%
state tax and 3% local tax).  Beijing  Opal also  carries on business in the PRC
and is subject to PRC enterprise  income tax at a rate of 33% (30% state tax and
3% local tax). However, Beijing Opal is exempted from the state and local income
taxes for two years  starting from the first year of profitable  operations  and
then is subject to a 50% reduction for the next ten years.  The first profitable
year for Beijing Opal was the year ended  December 31, 1996.  If the tax holiday
for Beijing Opal did not exist, the Group's income tax expenses (net of minority
interests) would have been increased by approximately Rmb396,000, Rmb263,000 and
Nil for the years ended December 31, 1996, 1997 and 1998, respectively.


                                       19
<PAGE>


13.  INCOME TAXES (Cont'd)
     ------------

The  reconciliation of the statutory income tax rate in the PRC to the effective
income tax rate based on loss before income taxes as stated in the  consolidated
statements  of operations  for the years ended  December 31, 1997 and 1998 is as
follows:

                                                        1 9 9 7         1 9 9 8
                                                       ---------       ---------
PRC statutory income tax rate                            (33%)           (33%)

Non-taxable activities                                     9%              -

Effect of tax exemption for the PRC joint venture       (158%)             5%

Establishment of valuation allowance                     289%             28%
                                                       -------         -------
                                                         107%              -
                                                       =======         =======
Deferred taxation comprised:

                                             1 9 9 7            1 9 9 8
                                            ---------    ---------------------
                                             Rmb'000      Rmb'000     US$'000

Temporary difference arising from:

    -  net operating loss carryforwards         660         4,188        506

    -  provision for doubtful accounts          752         5,811        702

    -  provision for obsolete and
          slow-moving inventories                 -           290         35
                                              ------       ------     ------
Deferred tax assets, gross                     1,412       10,289      1,243

Valuation allowance                           (1,412)     (10,289)    (1,243)
                                              ------       ------     -------
Deferred tax assets, net                           -            -          -
                                              ======       ======     =======

The change in valuation  allowance  from December 31, 1997 to December 31, 1998,
is  primarily   related  to  the  tax  effect  of  the  net  operating  loss  of
approximately  Rmb10,688,000,  provision for doubtful  accounts of approximately
Rmb15,331,000  and  provision  for  obsolete  and  slow  moving  inventories  of
approximately  Rmb879,000.  Management  believes it is more likely than not that
the results of future  operations  will generate  sufficient  taxable  income to
realize the deferred tax assets as reduced by the valuation allowance.


                                       20
<PAGE>

14.  NON-CURRENT PAYABLE
     -------------------

Non-current  payable  represents the  liabilities for the balance of acquisition
costs of the land for construction of factories and office buildings, the amount
is non-interest bearing and is wholly repayable in January 2000.

15.  LOAN FROM PRC JOINT VENTURE PARTNER
     -----------------------------------

This represented a loan from the PRC joint venture partner - BOBF, for financing
the operations of the Group,  which is  denominated  in Renminbi,  unsecured and
non-interest  bearing.  BOBF has agreed  not to demand  the Group for  repayment
until the Group is financially capable to do so.

16.  LOANS FROM A SHAREHOLDER
     ------------------------

During the year ended  December 31,  1997,  approximately  Rmb45,902,000  of the
loans from Bestalong were capitalized by issuance of 11,000,000 shares of common
stock, par value US$0.001, at US$0.50 per share.

As of December 31, 1998, loans from Bestalong, a major shareholder,  amounted to
approximately  Rmb15,378,000  (equivalent  of  US$1,856,000)  were unsecured and
Bestalong has agreed not to demand the Group for repayment  before  December 31,
2000. For financial  reporting,  interest expense of approximately  Nil, Nil and
Rmb406,000  for the year ended December 31, 1996,  1997 and 1998,  respectively,
were imputed  according to cost of  borrowings  in the PRC and were  recorded as
interest expenses and shareholder's contribution.

17.  COMPREHENSIVE INCOME
     --------------------

Comprehensive income and its components, net of tax, comprised:

                                  1 9 9 6     1 9 9 7             1 9 9 8
                                 ---------   ---------   -----------------------
                                  Rmb'000     Rmb'000     Rmb'000        US$'000

Net loss                          (7,241)       (605)    (29,670)        (3,583)

Other comprehensive income

    -  Translation adjustments      (412)         46         (45)            (5)
                                  -------      ------    --------       --------
Comprehensive income              (7,653)       (559)    (29,715)        (3,588)
                                  =======      ======    ========       ========

                                       21
<PAGE>

18.  SHARE CAPITAL
     -------------

a.   Common stock
     ------------

     During the period from  January 1, 1996 (the  earliest  date covered by the
     report)  to June 5, 1997,  the  Company  had  authorized  share  capital of
     50,000,000 shares of common stock, par value US$0.001 each, and outstanding
     share capital of 9,391,964 shares of common stock, par value US$0.001 each.
     On June 6, 1997, the Company  reclassified  its authorized share capital of
     50,000,000 shares of common stock, par value US$0.001 each, into 49,000,000
     shares of common stock,  par value US$0.001  each, and 1,000,000  shares of
     preferred  stock,  par value US$0.001 each. Also, it effected a one-for-ten
     reverse stock split and,  resulting in 939,196 shares of common stock,  par
     value  US$0.001  each,  being  outstanding.  This  reverse  split  has been
     reflected  retroactively in the accompanying  financial  statements and all
     loss per common share computations.

     On June 6, 1997, in connection  with the  acquisitions  of TSH and OAD (see
     Note 1), the Company  issued  8,452,768  shares of common stock,  par value
     $0.001 each (after the one-for-ten  reverse stock split).  On July 1, 1997,
     the Company  issued  4,200,000  shares of common stock,  par value US$0.001
     each (after the one-for-ten  reverse stock split),  for a consideration  of
     US$0.5 per share,  in return for the  cancellation  of a promissory note of
     US$2,100,000 (equivalent to Rmb17,451,000) (see Note 1).

     On July 1, 1997, the Company issued  11,400,000 shares of common stock, par
     value US$0.001 each, for cash consideration of US$0.5 per share, and raised
     US$5,700,000 (equivalent to Rmb47,567,000).

     On  September  29, 1997,  the Company  issued  11,000,000  shares of common
     stock,  par value  US$0.001  each, at US$0.5 per share to capitalize a loan
     from a shareholder amounting to US$5,500,000  (equivalent to Rmb45,902,000,
     see Note 16).

b.   Preferred stock
     ---------------

     On June 6, 1997, the Company authorized the creation of 1,000,000 shares of
     preferred  stock,  par value  US$0.001  each,  and  authorized its board of
     directors to assign these  preferred  stock to different  series and to fix
     the related designation, powers, preference and rights of the shares.

     On June 6, 1997, in connection  with the  acquisitions  of TSH and OAD (see
     Note 1), the Company issued 100,000 shares of Series A preferred stock, par
     value  US$0.001  each.  The Series A preferred  stock carries  preferential
     rights to  dividends,  is not  subject to  redemption  and has  liquidation
     preference  of US$0.001  per share.  Also,  the 100,000  shares of Series A
     preferred  stock carry voting  rights of 30% of the total voting  rights on
     all corporate matters.


                                       22
<PAGE>

19.  DISTRIBUTION OF INCOME
     ----------------------

     At present, a major portion of the Group's income is contributed by Beijing
     Opal.  Income  of  Beijing  Opal as  determined  under  generally  accepted
     accounting  principles  in the PRC is  distributable  to its joint  venture
     partners after transfer to (i) contributory  dedicated  capital as required
     under PRC  government  regulations  and the  joint  venture's  articles  of
     association,  and (ii)  discretionary  dedicated  capital as  determined by
     Beijing Opal's board of directors.  Discretionary capital includes a salary
     fund and a staff welfare fund.  Contributory dedicated capital is a form of
     legal reserve fund. Contributory and discretionary dedicated capital is not
     distributable  in  the  form  of  dividends.  In the  financial  statements
     prepared under US GAAP,  amounts designated for payments of employee salary
     and welfare of  approximately  Rmb81,000  and Rmb86,000 for the years ended
     December  31,  1997 and 1998 have been  charged to income  and the  related
     provisions are reflected as accrued liabilities in the balance sheets as of
     December 31, 1997 and 1998.

A reconciliation of the consolidated  accumulated loss reported under US GAAP to
that reported under PRC GAAP as of December 31, 1997 and 1998 is as follows:

                                          1 9 9 7               1 9 9 8
                                         ---------     ------------------------
                                          Rmb'000       Rmb'000        US$'000

Accumulated loss, under PRC GAAP          (2,610)       (16,217)       (1,957)

Increase in allowance for doubtful
     accounts                             (1,458)       (15,331)       (1,852)

Increase in allowance for obsolete
     inventories                             (54)        (2,246)         (271)

Amortization of goodwill                     (84)           (82)           (9)
                                         --------      ---------      --------
Accumulated loss, under US GAAP           (4,206)       (33,876)       (4,089)
                                         ========      =========      ========

                                       23
<PAGE>

20.  RETIREMENT PLAN
     ---------------

The Group's employees in the PRC are all employed by Beijing Opal. As stipulated
by PRC  regulations,  Beijing Opal maintains a defined  contribution  retirement
plan for all of its employees.  All retired  employees are entitled to an annual
pension  equal to their  basic  annual  salary  upon  retirement.  Beijing  Opal
contributes to a state sponsored  retirement plan approximately 17% of the basic
salary of its employees,  and has no further  obligations for the actual pension
payments or post-retirement benefits beyond the annual contributions.  The state
sponsored  retirement  plan is responsible  for the entire  pension  obligations
payable to retired  employees.  Beijing Opal's  contribution  was  approximately
Rmb36,000,  Rmb73,000 and Rmb76,000 for the years ended December 31, 1996,  1997
and 1998, respectively.

The Group has no other retirement plan for its employees outside the PRC.

21.  NET SALES AND COST OF GOODS SOLD
     --------------------------------

Net sales and cost of goods sold comprised:

                                 1 9 9 6       1 9 9 7           1 9 9 8
                                ---------    ----------    ---------------------
                                 Rmb'000       Rmb'000      Rmb'000     US$'000

Net sales to related companies
(Note 24)                        20,045        14,609          40           5

Cost of goods sold (Note 24)    (19,531)      (14,609)        (40)         (5)
                               ---------     ---------     -------      -------
                                    514             -           -           -

Net sales to third parties        3,842        23,055       6,912         835

Cost of goods sold (Note 24)       (944)      (11,127)     (5,887)       (711)
                               ---------     ---------     -------      -------
                                   2,898        11,928      1,025         124
                               ---------     ---------     -------      -------
         Gross profit              3,412        11,928      1,025         124
                               =========     =========     =======      =======

                                       24
<PAGE>

22.  COMMITMENTS
     -----------

The Group had capital  commitments  amounting to approximately  Rmb5,065,000 and
Rmb143,000 as of December 31, 1997 and 1998,  respectively,  for construction of
factories and office  buildings in the PRC, and  approximately  Rmb3,300,000 and
Nil as of December 31, 1997 and 1998,  respectively,  for purchases of machinery
and equipment.

The  Group  had  operating   commitments  amounting  to  approximately  Nil  and
Rmb1,500,000 as of December 31, 1997 and 1998, respectively,  for sponsorship of
an exhibition in the PRC.

23.  BANKING FACILITIES
     ------------------

The Group had banking  facilities of approximately  Rmb15,000,000 as of December
31, 1998 for  short-term  bank loans.  The  facilities  was fully utilized as of
December 31, 1997 and 1998. These facilities were secured by:

a.   Pledges  of  the  Group's   machinery   and   equipment  of   approximately
     Rmb9,240,000 as of December 31, 1998 (Note 7 and 11); and

b.   A guarantee given by a third party in the PRC.

24.  RELATED PARTY TRANSACTIONS
     --------------------------

Name and relationship of related parties:
                                                    Relationships with the
Name of related parties                             Company
------------------------------                     -------------------------
Bestalong Group Inc. ("Bestalong")                   Parent company
Oriental Alliance Limited                            Subsidiary of Bestalong
Anshun Opal Company Limited ("Anshun Opal")          Subsidiary of Bestalong
Agriculture and Production Information Company
("APIC")                                             Holding company of BOBF
Beijing Komix Vigour Property Liquid Fertilizer
Co. Ltd. ("BKVPL")                                   Affiliated company of BOBF
Komix Asia Pacific Company Limited ("KAP")           Common directors
Fuzhou Opal Company Limited ("Fuzhou Opal")          Common director


                                       25
<PAGE>

24.  RELATED PARTY TRANSACTIONS (Cont'd)
     --------------------------

Summary of related party balances and transactions is as follows:

<TABLE>

                                          1 9 9 6       1 9 9 7              1 9 9 8
                                        -----------   -----------     ----------------------
                                          Rmb'000       Rmb'000       Rmb'000       US$'000
<S>                                     <C>           <C>             <C>           <C>

Due from a shareholder (a)
   - Bestalong                                -          3,430            -            -
Due from (to) a director (b)
   - Mr. Chen Long Chen                       5             19          (21)          (3)
Due from a related company (b)
   - Oriental Alliance Limited              749              -            -            -
   - Anshun Opal                              -              -           45            5
Loan from a shareholder
   - Bestalong (Note 16)                      -              -       15,378        1,856
Accounts payable to related companies
   - APIC                                 1,260          4,072        4,001          483
   - KAP                                    356              -            -            -
   - BKVPL                                4,435              -            -            -
Sales to related companies (d)
   - APIC                                19,423         14,609            -            -
   - Fuzhou Opal                            622              -            -            -
   - Bestalong                                -              -           40            5
Purchases from related companies (e)
   -  APIC                                    -          3,648        4,331          523
   -  KAP                                 2,164              -            -            -
   -  Bestalong                               -          2,568            -            -
Rental expenses paid to
   - APIC                                     -             29           55            7
   - Bestalong                              290            831          578           70
Management fees paid to directors (f)
   - Mr. Michael William Botts              348            357          183           22
   - Mr. Chen Long Chen                     522            897          904          109
</TABLE>

Notes -

a.   This   represented   advances  to  Bestalong   which  were   unsecured  and
     non-interest  bearing. The advances were settled subsequent to December 31,
     1997.

b.   The balances due from (to) a related company and a director were unsecured,
     non-interest bearing and without pre-determined repayment terms.

c.   These  represented  payables on  purchases  of raw  materials  from related
     companies in the ordinary course of business.

d.   Sales to APIC were at a mark-up  of 0.5% for the year  ended  December  31,
     1996 and at cost for the year ended December 31, 1997. Sales to Fuzhou Opal
     were made in the ordinary  course of business.  Sales to Bestalong  were at
     cost for the year ended December 31, 1998.

                                       26
<PAGE>

24.  RELATED PARTY TRANSACTIONS (Cont'd)
     --------------------------

Notes -  (Cont'd)

e.   Purchases  from related  companies  were made at the original  cost with no
     mark-up being charged.

a.   f. These  represent  management  fees paid to Mr. Michael William Botts and
     Mr. Chen Long Chen for the provision of executive services.

In addition,  the Group reimbursed  Bestalong for expenditures (both capital and
operating  in  nature)  incurred  by  Bestalong  on  behalf of the  Group.  Such
reimbursements  amounted  to  approximately  Rmb58,394,000,   Rmb25,020,000  and
Rmb1,274,000 during the years ended December 31, 1996, 1997 and 1998.



25.  SUPPLEMENTAL DISCLOSURE OF CASHFLOW INFORMATION
     -----------------------------------------------

a.   On August 6, 1996,  TSG  acquired a 55%  interest in Beijing  Opal for cash
     consideration of approximately Rmb1,159,000. Details of assets acquired and
     liabilities assumed were as follows:

                                                                        Rmb'000
                                                                       ---------
       Cash and bank deposits                                              564
       Accounts receivable                                               4,820
       Prepayments and other current assets                                 76
       Inventories                                                       4,289
       Property, machinery and equipment                                 2,292
       Accounts payables                                                (7,996)
       Accrued expenses                                                 (1,195)
       Loans from Bestalong Group Inc.                                  (3,757)
                                                                      ---------
       Net liabilities assumed as of the date of acquisition              (907)
                                                                      =========
       Share of net liabilities as of the date of acquisition (55%)       (499)
       Goodwill                                                          1,658
                                                                      ---------
       Consideration satisfied in cash                                   1,159
                                                                      =========

       Net cash outflow:
       Cash paid                                                         1,159
       Cash and bank deposits acquired                                    (564)
                                                                      ---------
                                                                           595
                                                                      =========
                                       27
<PAGE>

25.  SUPPLEMENTAL DISCLOSURE OF CASHFLOW INFORMATION (Cont'd)
     -----------------------------------------------

b.   Cash paid for interest comprised:

                                 1 9 9 6     1 9 9 7             1 9 9 8
                                ---------   ---------     ----------------------
                                 Rmb'000     Rmb'000       Rmb'000      US$'000

          Interest expense          18           -          1,396          169
                                 =======     =======       =======      =======
Non-cash items:

During the year ended December 31, 1997, the Company issued 11,000,000 shares of
common stock by  capitalization  of a loan from a shareholder  of  approximately
Rmb45,902,000  (equivalent of US$5,500,000).  In addition, during the year ended
December 31, 1997,  the Company issued  4,200,000  shares of common stock by the
cancellation of a promissory note of approximately  Rmb17,451,000 (equivalent of
US$2,100,000) (See Note 18.a).

26.  OPERATING RISKS
     ---------------

a.   Limited operating history

     The  Group   reorganized  and  commenced  its  operations  in  trading  and
     manufacturing of organic agricultural  fertilizers in August 1996, and such
     operations were still in the development stage as of December 31, 1998. The
     Group  incurred  losses  from   continuing   operations  (net  of  minority
     interests) of  approximately  Rmb605,000  and  Rmb29,670,000  for the years
     ended December 31, 1997 and 1998, respectively,  and had accumulated losses
     amounting to approximately  Rmb4,206,000  and  Rmb33,876,000 as of December
     31, 1997 and 1998, respectively.  The Group's operations are subject to all
     the risks inherent in an emerging business  enterprise.  These include, but
     are not limited to,  competition from other fertilizer  manufacturers,  the
     need to expand production and distribution, and slow settlement of billings
     to new  customers.  Realization  of the  Group's  investment  in  assets is
     dependent on the success of its future operations.

b.   Dependence strategic relationship
     ---------------------------------

     The Group  conducts  its  operations  in the PRC  through  an equity  joint
     venture  with  BOBF  as  described  in Note 1.  Any  deterioration  of this
     strategic  relationship  could have an adverse effect on the operations and
     financial position of the Group.

                                       28
<PAGE>

26.  OPERATING RISKS (Cont'd)
     ---------------

c.   Concentration of credit risk
     ----------------------------

     A  substantial  portion of the Group's  sales is made to a small  number of
     customers on an open account basis and generally no collateral is required.
     Details of individual  customers accounting for more than 5% of the Group's
     sales are as follows:

<TABLE>

                                                       1996        1997        1998
                                                      ------      ------      ------
<S>                                                   <C>         <C>         <C>

     Agriculture and Production
     Information Company, a related
     party                                             81.3%       38.9%          -

     Heng Yang Agriculture and
     Technology Development Company                       -        11.6%          -

     Yunnan Xing Long Agriculture
     and Trade Development Centre                       1.4%       11.4%       13.0%

     Xin Jiang Agriculture and
     Science Institute                                    -         8.2%          -

     Gansu Nong Ken Technological
     Development Company                                1.2%        5.2%          -

     Xiamen Station of Soil and
     Fertilizer Work                                      -           -        12.5%

     Zhejiang Jiangshan Group                             -           -         8.4%

     Hunan Dalong Group                                   -           -        15.5%

     Hainan Global Industry Company Limited               -           -        15.0%

     Shaoguan Agricultural Association                    -           -         7.7%

     Wulong Group                                         -           -         5.5%
                                                   =========    =========   =========
</TABLE>

     Concentration of accounts receivable as of December 31, 1997 and 1998 is as
     follows:

                                                       1997               1998
                                                     --------          ---------

          Five largest accounts receivable             68.6%              54.4%
                                                    ========            ========

     The Group performs ongoing credit  evaluation of each customer's  financial
     condition.  It maintains  reserves  for  potential  credit  losses and such
     losses in  aggregate  have not  exceeded  management's  projections.  As of
     December  31,  1998,   the  Group   maintained  a  specific   provision  of
     Rmb1,882,000  and a  general  provision  of 87% of  the  remaining  balance
     against its trade receivables.  The Directors,  in their opinion,  consider
     that  the  risk of  recoverability  of the  unprovided  for  receivable  is
     minimal.

                                       29
<PAGE>

26.  OPERATING RISKS (Cont'd)
     ---------------

d.   Concentration of suppliers
     --------------------------

     The Group  purchases raw material  from a number of  suppliers.  Details of
     individual  suppliers  accounting for more than 5% of the Group's purchases
     are as follows:

                                                       1996      1997      1998
                                                      ------    ------    ------
         Purchases from:

         Agriculture and Production
         Information Company                           85.4%     15.9%     71.6%

         Shun Yi County Chemical
         Fertilizer factory                               -      63.7%        -

         Shengli Plastic Factory                          -         -      11.6%

         Bestalong                                        -       9.8%        -
                                                     =======   =======   =======

e.   Country risk
     ------------

     Substantially all of the Group's operations are conducted by its subsidiary
     Beijing Opal, in the PRC and, accordingly,  the Group is subject to special
     considerations   and  significant  risks  not  typically   associated  with
     companies  operating in North  America and Western  Europe.  These  include
     risks  associated  with,  among others,  the political,  economic and legal
     environments  and foreign  currency  exchange.  The Group's  results may be
     affected  by,  among  other  things,  changes in the  political  and social
     conditions in the PRC and changes in governmental  policies with respect to
     laws and regulations,  anti-inflationary  measures, currency conversion and
     remittance  abroad,  and rates and methods of taxation.  The PRC government
     has implemented economic reform policies in recent years, and these reforms
     may be  refined  or  changed  by the  government  at any  time.  It is also
     possible  that a change in the PRC  leadership  could  lead to  changes  in
     economic policy.

     In addition, a substantial portion of the Group's revenue is denominated in
     Renminbi  ("Rmb"),  which must be converted  into other  currencies  before
     remittance  outside the PRC.  Both the  conversion  of Renminbi  into other
     foreign  currencies and the remittance of foreign currencies abroad require
     approvals of the PRC government.

                                       30
<PAGE>

27.  OTHER SUPPLEMENTAL INFORMATION
     ------------------------------

     The  following  items  were  included  in the  consolidated  statements  of
     operations:

<TABLE>

                                        1996         1997                   1998
                                      ---------   -----------     ------------------------
                                       Rmb'000      Rmb'000       Rmb'000         US$'000
<S>                                   <C>         <C>             <C>             <C>

After debiting

Depreciation of property,

Amortization expense

    -  Licensing costs                     -           444          443             54

    -  Goodwill                           34            84           82             10

Advertising expenses                      50           668        1,391            168

Provision for bad and doubtful

Provision for slow-moving and

Direct write off of obsolete

Rental expenses                          290           860          633             76

Salary and employee benefits

Repair and maintenance expense

Foreign exchange loss                      -            44            -              -

Net loss on disposals of fixed

Inputed interest on

Loss on termination of purchase

Interest expenses                         18             -        1,396            169
                                      =======       =======     =======         =======
After crediting

Foreign exchange gain                      -             6          131             16

Interest income                           12            77           29              4
                                      =======       =======      =======        ========
</TABLE>