SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

(Mark One)

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

                    For the Fiscal Year Ended March 31, 2000

[ ]  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. 0-22049

                                 S.W. LAM, INC.
                 -----------------------------------------------
                (Name of registrant as specified in its charter)

           Nevada                                            62-1563911
---------------------------------                -------------------------------
(State or other jurisdiction                     (I.R.S. Employer Identification
 of incorporation or organization)                Number)

 Unit 25-32, Second Floor, Block B, Focal Industrial Centre, 21 Man Lok Street,
                               Hunghom, Hong Kong
 -------------------------------------------------------------------------------
               (Address of principal executive offices)(Zip code)

Registrant's telephone number, including area code:  (852) 2766 3688

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:

                          Common Stock, $.001 par value
                         --------------------------------
                                (Title of Class)

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports);  and (2) has been subject to such
filing requirements for the past ninety (90) days. Yes X No

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, 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-K or any amendment to this
Form 10-K. [ ]

     As of July 1, 2000,  12,800,000  shares of common  stock of the  Registrant
were outstanding.  As of such date, the aggregate market value of the voting and
non-voting common equity held by non-affiliates, based on the closing price, was
approximately $3,600,000.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Registrant's  definitive annual proxy statement to be filed
within  120 days of the  Registrant's  fiscal  year  ended  March  31,  2000 are
incorporated by reference into Part III.

<PAGE>

                                TABLE OF CONTENTS

                                                                         Page
                                                                        ------

PART I

         ITEM 1. BUSINESS ................................................ 1
         ITEM 2. PROPERTIES...............................................14
         ITEM 3. LEGAL PROCEEDINGS........................................14
         ITEM 4. SUBMISSION OF MATTERS TO A VOTE
                 OF SECURITY HOLDERS......................................14

PART II

         ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
                 AND RELATED STOCKHOLDER MATTERS..........................14
         ITEM 6. SELECTED FINANCIAL DATA..................................15
         ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS............16
         ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES
                 ABOUT MARKET RISK........................................24
         ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..............24
         ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
                 ON ACCOUNTING AND FINANCIAL DISCLOSURE...................24

PART III

         ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS,
                  AND CONTROL PERSONS......................................25
         ITEM 11. EXECUTIVE
                  COMPENSATION.............................................25
         ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
                  OWNERS AND MANAGEMENT....................................25
         ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
                  TRANSACTIONS.............................................25

PART IV

         ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
                  REPORTS ON FORM 8-K......................................25

                  SIGNATURES...............................................27

<PAGE>

                                     PART I

     This Form 10-K 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  "Factors that May
Affect Future Results" beginning on page 20 of this Form 10-K.

     The Company  operates  through its various  subsidiaries,  all of which are
located outside of the United States.  Unless otherwise indicated or the context
otherwise  requires,  the term Company refers collectively to S.W. Lam, Inc. and
its  subsidiaries.  All  references  to  China  or the PRC  are to the  Peoples'
Republic of China.

     The Company's  functional  currency is Hong Kong Dollars  ("HK$").  For the
convenience of readers,  unless otherwise indicated,  all financial  information
contained herein is presented in United States Dollars  ("US$").  Translation of
amounts from HK$ into US$ 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 March 31, 2000 of US$1.00 = HK$7.79.  No
representation  is made  that the HK$  amounts  could  have  been,  or could be,
converted into US$ at that rate or at any other rate.

ITEM 1.  BUSINESS

     S.W.  Lam,  Inc.  (the  "Company"),  a  Nevada  corporation,   through  its
subsidiaries,  is engaged in the design,  manufacturing and marketing of a broad
range of gold products,  other  precious metal products and jewelry  products to
customers in Hong Kong,  the  People's  Republic of China (the "PRC" or "China")
and other parts of the world. The Company's  operations are located in Hong Kong
and the PRC.

History and Development of the Company

     The  Company's  business  began  with the  formation  in the  1980's  of an
unincorporated  sole  proprietorship  by Lam Sai Wing ("Mr. Lam") to manufacture
and market jewelry.  Subsequently,  in 1988, Hang Fung Jewellery Company, a sole
proprietorship formed by Mr. Lam, established a modern manufacturing facility in
Shenzhen,  the PRC (the  "Shenzhen  Facility").  In 1994,  Hang  Fung  Jewellery
Company  Limited,   a  limited  company  formed  by  Mr.  Lam,  entered  into  a
sino-foreign  joint venture to  manufacture  and market jewelry at facilities in
Beijing, the PRC (the "Beijing Facility").

     In April 1994, Mr. Lam  incorporated  Macadam Profits Limited  ("Macadam"),
Priestgill  Limited  ("Priestgill") and Soycue Limited ("Soycue") in the British
Virgin  Islands.   Whilst  Soycue  engaged  in  the  jewelry  manufacturing  and
distribution  business,  Macadam and Priestgill remained inactive since the date
of their  incorporation.  In  November  1994,  Mr.  Lam  incorporated  Hang Fung
Jewellery  Company Limited ("Hang Fung  Jewellery") in Hong Kong and transferred
operations  of the  Shenzhen  Facility  to Hang Fung  Jewellery.  Certain  other
operations  previously  conducted by Mr. Lam were also  transferred to Hang Fung
Jewellery  in  September  1995.   Effective  April  1996,  Mr.  Lam  transferred
operations  of Soycue to Hang Fung  Jewellery  and ceased  operations of Soycue,
which has since remained  dormant.  In December 1996, Mr. Lam and his wife, Chan
Yam Fai,  Jane  ("Ms.  Chan")  transferred  ownership  of Hang  Fung  Jewellery,
Macadam,  Priestgill,  Soycue and Kai Hang Jewellery  Company Limited ("Kai Hang
Jewellery"),  a Hong Kong corporation  engaged in jewelry marketing owned by Mr.
Lam and Ms.  Chan,  to Quality  Prince  Limited  ("Quality  Prince"),  a holding
company  organized in the British  Virgin  Islands and also owned by Mr. Lam and
Ms. Chan. In September 1998,  Quality Prince  transferred all of its interest in
Priestgill  to an  independent  third  party.  (Hang  Fung  Jewellery,  Kai Hang
Jewellery,  Macadam,  Quality  Prince and Soycue are  collectively  referred  to
herein as the "Hang Fung Group").


                                       1
<PAGE>

     In December of 1996, Quality Prince completed a "reverse  acquisition" with
S.W. Lam, Inc.  pursuant to which the companies  comprising the Hang Fung Group,
representing  all  of  the  jewelry   manufacturing  and  marketing   operations
controlled  by Mr. Lam and Ms. Chan,  became  wholly owned  subsidiaries  of the
Company.  S.W. Lam,  Inc. was  originally  incorporated  in April of 1994 in the
State of Tennessee  under the name New Wine,  Inc.  ("New  Wine").  New Wine was
originally engaged in, and later discontinued its efforts,  to develop,  finance
and produce  record  albums,  cassette tapes and compact discs and videotape and
television  productions  for domestic  distribution  and foreign  licensing;  to
operate a music  publishing  firm;  and, to engage  generally in the business of
providing personal business management  services for professional  entertainers.
Pursuant  to  discussions  with the  shareholders  of Quality  Prince,  New Wine
reincorporated  in the state of Nevada and changed its name to S.W. Lam, Inc. in
October of 1996. In December of 1996,  S.W. Lam, Inc.  entered into an agreement
with the  shareholders of Quality Prince pursuant to which S.W. Lam, Inc. agreed
to issue  10,500,000  shares of  common  stock  and  100,000  shares of Series A
Preferred  Stock in exchange  for 100% of the issued and  outstanding  shares of
Quality Prince (the "Exchange").  Following the Exchange, management of the Hang
Fung Group assumed control of management of the Company and the Company, through
its subsidiaries, the Hang Fung Group, continued the operations of the Hang Fung
Group.  In  December  of  1997,  Quality  Prince  incorporated  Hang  Fung  Gold
Technology  Limited  ("Hang  Fung  Gold") in  Bermuda.  Hang Fung Gold  remained
inactive until February 1999.

     In May of 1997,  Quality Prince  entered into an agreement with  Phenomenal
Limited   ("Phenomenal"),   an  unaffiliated  third  party,  pursuant  to  which
Phenomenal  loaned to Quality  Prince  $10,000,000  and Quality Prince issued to
Phenomenal a convertible promissory note (the "Note"). The Note bore interest at
3% per month,  and was repayable in a lump sum payment on March 20, 1998. As one
of the conditions for the lending,  the Company issued a non-detachable  warrant
(the "Warrant") to Phenomenal to subscribe for 5,263,158  shares of common stock
of the Company at an exercise price of $2.19 per share.  The Note was secured by
personal  guarantees  provided  by Mr.  Lam and Ms.  Chan and the  53.9%  equity
interest in the Company owned by Mr. Lam and Ms. Chan.  In  accordance  with the
term of the agreement, the Warrant expired in May 1998.

     On June 4, 1998,  Phenomenal agreed to extend the maturity date of the Note
from March 20,  1998 to June 4, 1998,  and waived its  entitlement  to  interest
accrued under the Note during the period from May 20, 1997 (date of issue of the
Note) to June 4, 1998.  Also, the Company and  Phenomenal  agreed to restructure
and capitalize the Note into redeemable  preferred stock of Hang Fung Jewellery.
As a result,  on June 30, 1998, Hang Fung Jewellery  issued  5,263,788 shares of
redeemable  preferred stock (the "Preferred  Stock") at approximately  $1.90 per
share to Phenomenal in  replacement  of the Note.  Under the revised  agreement,
Phenomenal  was  required to redeem the  Preferred  Stock and to  subscribe  for
common  stock  of Hang  Fung  Gold  upon  satisfaction  of  certain  conditions.
Alternatively, Phenomenal had an option to require Hang Fung Jewellery to redeem
the Preferred  Stock at a redemption  amount as determined in accordance  with a
pre-determined  formula,  or  require  Mr.  Lam and Ms.  Chan  to  purchase  the
Preferred  Stock held by  Phenomenal  in case Hang Fung  Jewellery  defaulted in
redeeming the Preferred Stock.

     Pursuant to the revised agreement with Phenomenal, in February of 1999, the
Hang Fung Group effected a corporate reorganization (the "Group Reorganization")
with Hang Fung Gold becoming a holding company,  excluding  Quality Prince,  for
the Hang Fung Group and  Phenomenal's  investment  being  converted  into common
stock in Hang Fung Gold.  Immediately prior to the conversion,  dividends on the
Preferred  Stock in the amount of $1,849,000 were paid. The dividend paid on the
Preferred  Stock  was  included,  in  whole,  in the  minority  interest  in the
Company's  consolidated  statement of  operations  for fiscal 1999.  Immediately
following the  restructuring of the Hang Fung Group, Hang Fung Gold completed an
offering of shares in Hong Kong raising  approximately  HK$59,000,000 (the "Hong
Kong  Offering")  and the  shares of Hang  Fung  Gold  were  listed on The Stock
Exchange of Hong Kong Limited (the "Hong Kong  Exchange").  Trading of shares of
Hang Fung Gold on the Hong Kong Exchange commenced on March 16, 1999.

     Following  the Group  Reorganization  and Hong Kong  Offering,  the Company
holds, through Quality Prince,  53.145% of the issued capital stock of Hang Fung
Gold,  whereas  Phenomenal  holds  21.855% of the issued  capital  stock and the
investing  public holds the  remaining  25% of the issued  capital stock of Hang
Fung Gold.

                                       2
<PAGE>


Company Structure

     The  following  chart sets forth the  organization  of the  Company and its
principal subsidiaries as of March 31, 2000:

                                 S.W. Lam, Inc.
                          (incorporated in Nevada, US)


                                      100%
                             Quality Prince Limited
                  (incorporated in the British Virgin Islands)


                                     53.145%
                        Hang Fung Gold Technology Limited
                            (incorporated in Bermuda)


                                      100%
                             Macadam Profits Limited
                  (incorporated in the British Virgin Islands)



                              (Investment holding)

                  100%                                            100%
                                              Kai Hang Jewellery Company Limited
                                                  (incorporated in Hong Kong)
        Hang Fung Jewellery Company Limited
          (incorporated in Hong Kong)

          (Manufacturing and selling                       (Property holding)
             of jewelry products)

                   100%

  Hang Fung Jewllery (Shenzhen) Co., Ltd.
        (established in the PRC)

          (Manufacturing of
          jewelry products)


                                       3
<PAGE>


Overview

     The  Company  is  principally  engaged  in  the  design,   manufacture  and
distribution  of a broad range of gold  products,  other precious metal products
and jewelry products.

     Manufacturing operations are carried on in Hong Kong and the PRC.

     The Company presently  markets its products  throughout the world including
Hong Kong,  the PRC,  the Middle  East,  Southeast  Asia,  Europe and the United
States.  The  Company  has  increased  its sales in recent  years as a result of
increased marketing.

Developments During Fiscal Year 2000

     Following the Group Reorganization and Hong Kong Offering during the fourth
quarter of fiscal 1999, the Company implemented a number of initiatives designed
to increase sales through (1) product  branding,  (2) establishment of strategic
marketing alliances, (3) expansion of wholesale and retail distribution channels
in the  PRC,  and (4)  implementation  of an  Internet  marketing  strategy.  In
connection with those  initiatives,  the Company began efforts to further expand
its production facilities and halted contract manufacturing for third parties in
order to devote its manufacturing capacity to production of its own products.

     In January 2000, the Company formed an alliance with The  Administration of
Shatoujiao  Free Trade Zone of  Shenzhen  (the "Free Trade  Administration")  to
expand its  marketing  and  distribution  channels  in China.  Pursuant  to that
alliance,  the  Company  established   relationships  with  approximately  1,000
additional  wholesale  customers in the PRC. At March 31,  2000,  The Free Trade
Administration sourced and operated eight retail counters, which carry the brand
name of Hang Fung Gold,  to sell Hang Fung  Gold's  "Hang Fung 3-D Gold" and "La
Milky Way 3-D Silver" branded products in Shenzhen and Hangzhou.

     Under the terms of our alliance, the Free Trade Administration is entitled,
and  responsible,  to source and sell the Company's  products at retail counters
carrying the Hang Fung brand name. The Company  expects to invest  approximately
$7.7 million to expand  distribution  channels and establish  retail networks in
the PRC and has  undertaken to invest  approximately  $2.6 million to expand its
Sha Tau Kok factory and to devote a portion of the production capacity from that
factory to supplying product to the PRC market.  The Company also hired Mr. Chow
Shou  Him as  Executive  Director  of its  China  Business  Division  to  manage
marketing and sales efforts in the PRC.

     As part of the Company's  commitment to expand distribution  channels,  the
Company's  subsidiary  will launch an Internet site in September 2000 to support
business-to-business sales of products as well as to promote the Company's brand
and support overall marketing efforts.

     As part of the Company's  Internet  strategy,  in June 2000, Hang Fung Gold
entered into a Sale and Purchase Agreement with New Epoch Holdings International
Limited. Under the terms of the Sale and Purchase Agreement, Hang Fung Gold will
acquire 49.9% of the stock of New Epoch  Information (BVI) Limited ("New Epoch")
in  exchange  for  shares  of  common  stock  of  Hang  Fung  Gold  representing
approximately  34.1%  of the  capital  stock of Hang  Fung  Gold  following  the
transaction.  Under the terms of the Sale and Purchase Agreement, Hang Fung Gold
has an option for a period of three years to acquire the remaining shares of New
Epoch. In conjunction with the proposed acquisition of New Epoch, Hang Fung Gold
entered  into a Facility  Agreement  pursuant  to which Hang Fung Gold agreed to
provide to New Epoch a credit facility of up to the higher of (1) HK$50 million,
or (2)  two-thirds of the net proceeds of equity or debt  issuances by Hang Fung
Gold from time to time after closing of the acquisition.

     New Epoch is engaged in  developing  and  facilitating  e-commerce  trading
facilities  between  the PRC and the rest of the world,  using  offline  trading
services to  complement  its internet B2B platform.  New Epoch,  through a joint
venture with Infoshare of the China International  Electronic Commerce Centre --
an  information  technology  arm of the  Ministry of Foreign  Trade and Economic
Co-operation   of  the  PRC,   operates   a  portal   under  the   domain   name
www.chinatradeworld.com  (the "ChinaTradeWorld  portal"), a B2B site designed to
facilitate  international  trade with the PRC. Linking with the  ChinaTradeWorld
portal  would  enhance the  operations  of, and  accelerate  deployment  of, the
jewelry  portal being  established  by Hang Fung Gold by providing  access to an
established   trading  portal  with  "Supply  Chain  Management"  and  "Customer
Relationship Management" capabilities.

                                       4
<PAGE>

     Closing of the  acquisition  of New Epoch is subject to  satisfaction  of a
number of conditions, including completion of due diligence, receipt of relevant
governmental  or  regulatory   authority's   approvals,   and  approval  of  the
acquisition and the loan by the  shareholders of Hang Fung Gold. There can be no
assurance  that  the  conditions  of  closing  will be  satisfied  and  that the
acquisition  of New Epoch will occur on the terms  described,  or at all. If the
acquisition  of New Epoch is completed as  described,  the  Company's  ownership
interest  in Hang  Fung  Gold  will  be  reduced  from  approximately  53.1%  to
approximately  35%  (32.8%  assuming  conversion  of all  share  options  of the
employees).  Further, if the acquisition of New Epoch is completed as described,
the scope of the Company's operations will expand beyond the jewelry industry to
include the trading and Internet activities currently conducted by New Epoch.

Products

     The Company's  products consist of a broad array of gold and silver jewelry
products,  gold and silver  decorative  items,  semi-precious  stone jewelry and
other decorative  products.  The Company's products include, but are not limited
to, bracelets, chains, charms, rings, earrings, ornamental plaques, serving sets
and decorative pieces.

     The  Company  classifies  its  products  in  the  following  four  distinct
segments:

Gold Products

     The principal product line of the Company consists of fine gold jewelry and
decorative  ornaments  which are  manufactured  using mainly fine gold and karat
gold. In order to cater to customer demands, gold products manufactured and sold
by the Company  cover a wide range of weight,  ranging  from  approximately  0.5
grammes to 3,000 grammes (3 kg) and are priced at a range of approximately HK$50
to  HK$300,000  per piece of which the prices for the most  popular  items range
from approximately HK$50 to HK$3,000 per piece.

     Fine gold jewelry items include  bracelets,  anklets,  bangles,  necklaces,
brooches,  pendants,  rings  and  earrings  that are made of fine gold and karat
gold. The fine gold jewelry items  manufactured  and sold by the Company include
contemporary and innovative designs that are worn as fashion accessories as well
as  traditional  oriental  designs  that are  commonly  presented as wedding and
birthday gifts in the Asian community.

     Gold ornaments,  including statuettes,  memento cards, key chains and other
decorative  items, are mainly made of fine gold. Gold ornaments may take various
different  forms and shapes such as cartoon  characters,  animals,  signs of the
zodiac as well as religious  figures and symbols.  The Company also manufactures
customized  gold memento cards and key chains for  corporations  as souvenirs in
their business promotions.

Other Precious Metal Products

     Other precious metal products  manufactured  by the Company include jewelry
and  decorative  ornaments  that are made of precious  metals such as silver and
platinum.  Depending on the weight and design of such  products,  these products
are sold in a price range of approximately HK$8 to HK$500,000 per piece of which
the prices for the most popular items range from approximately  HK$100 to HK$500
per piece.

Jewelry Products

     Jewelry products manufactured by the Company are made up of mainly precious
stones and gems.  Depending on the quality and weight of stones and gems jewelry
and  design  of such  products,  these  products  are  sold in a price  range of
approximately  HK$200 to  HK$200,000  per piece of which the prices for the most
popular items range from approximately HK$2,000 to HK$8,000 per piece.

                                       5
<PAGE>

Others

     "Others"  include  mainly  medals,  coins  and other  miscellaneous  items.
Depending  on the  weight,  design and  material  used in such  products,  these
products are sold in a price range of approximately  HK$50 to HK$4,000 per piece
of which the prices for the most popular items range from approximately HK$50 to
HK$300 per piece.

     In US  dollars,  the  Company's  products  range in  wholesale  price  from
approximately  $1 to over  $65,000.  The mean  selling  price  of the  Company's
products  is between  $200 and $280.  The  following  table  illustrates,  in US
dollars, the typical range and average wholesale price of the Company's products
by segment:

                                               Wholesale           Average
                                              Price Range     Wholesale Price
                                             -------------   ------------------
Fine gold products...................         $10 to $38,000        $200
Other precious metal products........          $1 to $65,000         $40
Jewelry products.....................         $25 to $26,000        $650
Others...............................           $6 to $100           $20


     For the two years ended March 31, 2000, sales by major product category and
as a percentage of sales (excluding subcontracting fees) were as follows:

                                            1999                  2000
                                    ---------------------   ------------------
                                     Amount      Amount
                                     $'000       Percent    $'000      Percent
                                    --------    ---------   ------     -------
Fine gold products................    49,927       58.8      71,133     57.8
Other precious metal products.....    21,625       25.4      30,753     25.0
Jewelry products..................    13,272       15.6      21,031     17.1
Others............................       181        0.2         198      0.1
                                     --------    -------   ---------  -------
                                      85,005      100.0     123,115    100.0
                                     ========    =======   =========  =======
Product Design and Development

     The Company  currently  maintains a team of  approximately 10 qualified and
experienced staff in its in-house product design and development division in its
Hong  Kong  office.  The  Company  has been a  pioneer  in the  introduction  of
innovative  product  designs  as well as in the  development  of new  production
technology  in the gold product  industry.  The product  design and  development
division  continuously  monitors  market  trends and  consumer  preferences  and
participates  in jewelry fairs,  exhibitions  and  competitions to stimulate new
ideas.  Employees are also encouraged to attend  relevant  courses and workshops
paid by the Company to strengthen  their knowledge of production  technology for
gold products.  The product design and development  division  currently  creates
over 2,000 new product designs on an annual basis.

     In order to maintain its  competitiveness  in the gold product market,  the
Company  constantly  introduces  new  products.  Beginning in 1991,  the Company
introduced  fine gold  ornaments  such as gold  memento  cards,  key  chains and
electroformed  products to the market.  Some of the  products of the Company are
also designed to suit  different  geographical  market needs.  For example,  the
Chinese  twelve signs of the zodiac  ornaments and buddha  figurines are in high
demand in the PRC and other  countries in the Asia Pacific  region while cartoon
characters and innovative jewelry items are in high demand in Europe and the US.

                                       6
<PAGE>


Purchasing

     The primary raw material in the  manufacture  and assembly of the Company's
products is gold  bullion.  For the year ended March 31, 2000,  the cost of gold
bullion accounted for approximately 80.9% of the Company's total purchases.

     The  Company  sources  gold  bullion  primarily  from  seven  suppliers  in
Australia,  England,  Germany and Hong Kong.  The Company  mainly  sources  gold
bullion from gold bullion traders.  Generally, the Company is able to maintain a
steady  supply of gold  bullion from its  suppliers,  with an average of one day
between  the  placing  of an order and the  receipt of the gold  bullion.  Other
materials,  including silver and color stones,  are purchased,  primarily,  from
suppliers in Hong Kong.

     For the year ended March 31,  2000,  purchases  of gold from the  Company's
five largest suppliers  accounted for approximately 78.9% of the Company's total
purchases.  The Company sources gold bullion  regularly from its seven suppliers
and has not experienced  any difficulty in obtaining the raw materials  required
in the past.  The  Company  has been  dealing  with its major  suppliers  for an
average  period  of  approximately  ten  years  and  maintains  a good  business
relationship with each of them.

     As the price of precious  metals,  in particular the price of gold bullion,
has  generally  been  decreasing  in recent  years and since there are  numerous
alternative sources of gold bullion such as banks and gold bullion dealers,  the
Company  does not  maintain  any  long-term  contractual  arrangements  with its
suppliers.  Management believes that the Company is in an advantageous  position
to negotiate for better terms when  sourcing  gold bullion,  as compared to gold
bullion suppliers, and that the absence of established contractual relationships
with any  principal  supplier  will not have a  material  adverse  effect on the
operations or the financial position of the Company.

     Based on the  prevailing  market  situation  with the price of gold bullion
remaining  relatively  steady  and given the  liquidity  of gold  bullion in the
market,  the Company does not engage in any hedging  activities  with respect to
possible  fluctuations  in gold prices.  The Company's  management  monitors the
fluctuation  of gold prices closely and should the need for hedging arise in the
future, the Company may engage in hedging  transactions.  Moreover,  the Company
has been able to fix the purchase  price of gold with its largest  supplier with
reference to the market gold price at the time the  Company's  gold products are
sold to customers.  By using this arrangement,  the price of gold payable to its
largest supplier will be the same as the price of gold charged by the Company to
its  customers,  thereby  minimizing the effect of fluctuation of gold prices on
the Company.

Manufacturing and Assembly

Production Facilities

     At March 31, 2000, the Company  operated  production  facilities  which are
located in Hunghom in Hong Kong (the "Hunghom Facility"),  and in Sha Tau Kok in
the PRC (the "Sha Tau Kok Facility"). The Company previously operated production
facilities in Beijing,  Shanxi and Shenzhen under processing agreements with PRC
entities holding requisite permits.


                                       7
<PAGE>

-- Production Facilities in the Hong Kong

   Hunghom Facility

     The  Hunghom  Facility  was  established  in 1988 and is  equipped  with 12
production  lines which are used  primarily for the  production  of molds,  gold
memento cards and medals and the  electroforming of fine gold and karat gold, as
well as the production of computer-scanned gold statuettes. The Hunghom Facility
is a  vertically  integrated  facility  capable of  handling  all aspects of the
production  process,  from  product  design to  mold-making  and from casting to
polishing as well as marketing to distribution.

     The premises at which the Hunghom  Facility are leased from an  independent
third party and have a total gross floor area of  approximately  31,500 sq. ft.,
which are used as the  Company's  office,  showroom,  and  warehouse  as well as
production facilities.

-- Production Facilities in the PRC

    Sha Tau Kok Facility

     The Sha Tau Kok  Facility is operated  by, and the premises at which its is
situated are leased by, Hang Fung Jewellery (Shenzhen) Co., Ltd., a wholly-owned
subsidiary of Hang Fung Jewellery.  The Sha Tau Kok Facility is located near the
Sha Tau Kok customs office in Shenzhen, the PRC.

     The Sha Tau Kok Facility was  developed in two phases.  Development  of the
first phase was completed,  and commercial production  commenced,  in July 1998.
Development  of the second phase was completed in November  1999, and commercial
production  commenced  in the same  month.  The Sha Tau Kok  Facility  houses 30
production  lines  primarily for the  production of fine and karat gold products
and other precious metal products.

Production Process

     The Company combines traditional  craftsmanship with advanced  computerized
technology such as the application of the  computerized  faceting machine and/or
electroforming  machine in the  manufacturing  process of gold  products.  While
faceting and  electroforming are automated  procedures,  the creation of product
designs, the making of master wax models and master rubber molds, the carving of
individual  wax models and the polishing of the finished  products are performed
by skilled  workers  manually  under the  supervision  of a team of  experienced
technicians.  The production cycle for gold products takes approximately 7 to 30
days to  complete,  depending  on  complexity  of product  design,  any specific
requirements of the product, and production volume.

-- Chain Jewelry

     Chain jewelry  manufacturing begins with the melting of gold or silver into
bars which are rolled and elongated on a press. The process is repeated a number
of times until the bar is reduced to wire of approximately 20mm in diameter. The
wire is then  stretched to produce a finer wire which is then cut and swirled to
form a spiral.  The spiral is then cut to rings,  which are sized and graded and
soldered together afterwards to form a chain.

                                       8
<PAGE>


-- Ornaments

     Manufacturing of other jewelry items, including gold ornaments which may be
attached to chains, typically involves some, or all, of the following processes:

     Design and Mold Making

     The  Company's  in-house  design  team  begins  drawing the design by using
computer-aided design software.  The data for the design are then electronically
transmitted  to a  computerized  mold  making  machine and a master wax model is
produced  automatically.  The  master  wax model is of prime  importance  as its
degree of perfection  determines the quality of the master rubber mold. A master
rubber mold is then constructed by pouring  liquified rubber over the master wax
model (the "lost wax  casting  method").  The master  rubber mold can be used to
produce numerous replica wax models.

     Waxing

     Wax is injected into a master rubber mold to obtain the required  number of
wax models. After final carving, trimming and filing the surfaces and details of
individual  wax  models,  the wax models are  attached to a metal stem to enable
them to be handled without  depositing  fingerprints  and grease on them,  which
would hinder metal deposition.

     Electroforming

     The wax models are then  submerged in an  electrolyte  solution  where gold
ions are deposited  onto the wax models by passing an electric  current  through
the electrolyte solution.  The entire process is controlled by computers and the
processing time can be adjusted to achieve different thickness of gold layers.

     Extraction of Wax Models

     The wax models  cast with a layer of gold are then heated in a furnace at a
pre-set  temperature.  The wax  model  underneath  the gold  layer  melts and is
extracted from the gold object.

     Filing and Tumbling

     The gold ornaments are then  individually  hand-filed by skilled workers to
ensure  smooth  contours and  surfaces.  The base of each gold  ornament is also
checked and flattened to ensure that the ornament can stand upright.

     Stone Setting

     Stones are set using a variety of methods, including the "claw", "channel",
"pave" or "bezel" setting  methods,  as determined by product design and setting
requirements.

     Polishing

     Jewelry items are again polished automatically by polishing machines.

     Final Design and Assembly

     Designs or  impressions  are  affixed  to  appropriate  component  parts by
stamping,  cutting or  grinding.  Component  parts are shaped and  assembled  to
specifications in accordance with the product design.


                                       9
<PAGE>

Manufacturing Technology and Development

     The  Company  continuously  seeks to  improve  and  modify  its  production
technology and facilities in order to achieve better product  quality and higher
profit margin.  Traditionally,  the  manufacture of gold products has been labor
intensive and, therefore,  product quality and production time may vary for each
production.   The  Company  has   successfully   combined   traditional   manual
craftsmanship with advanced computerized technology to mass produce quality gold
products in a cost efficient manner.

     Since 1993,  the Company has invested  significant  resources in developing
the  technology  for the  electroforming  method in the  production of fine gold
products  such as gold  decorative  ornaments.  As one of the first gold product
manufacturers to have successfully implemented this new technology,  the Company
is able to produce gold decorative  ornaments of the same size as those produced
using the traditional methods, but using less gold and therefore reducing costs.
By adopting this new technology in the production of gold products, gold is more
evenly  spread  on the wax model  resulting  in  smoother  contours  and  better
appearance.

     In September  1998, the Company was granted a short-term  patent of up to 8
years  in  Hong  Kong  in  relation  to  the   production   technology  for  the
computer-scanned gold statuette,  a newly-launched  product of the Company. Gold
statuettes are produced by scanning the object to be  reproduced,  such as human
features, by a computerized  scanner.  Details of the contours of the object are
scanned and are stored as codes on electronic  media. The codes can then be sent
electronically to one of the production facilities of the Company and finally to
the rapid prototyping  system for further production of gold statuettes with the
exact  features  of the  scanned  object.  Besides  offering  a high  degree  of
resemblance to the original object, the advantage of this production  technology
is  that  the  amount  of  manual  craftsmanship  and  production  time  can  be
significantly reduced.

     The  Company  has also  obtained  other  patents  in Hong  Kong  for  other
production methods.

Quality Control

     The Company's  quality control team consists of 12 persons and is committed
to ensure that the products meet the Company's quality standards.

     All incoming raw  materials,  such as gold  bullion,  are  inspected by the
quality  control team for purity  before being used in the  production  process.
Quality  control  checks are also  conducted at various  stages of production to
ensure that product specifications are met. In addition, the Company has trained
its production workers to closely inspect products during production.  Defective
products are either rejected or subject to refinements  before entering the next
stage  of the  production  process.  The  production  process  is  also  closely
monitored by trained  technicians.  All  finished  products are subject to final
inspection  before they are packed and  delivered to  customers.  The  Company's
marketing  staff also check the quality of  finished  products  upon  receipt of
products before distribution.  Moreover, the quality control workers who work at
the  facilities  made  available  to the  Company  in the PRC  under  processing
agreements  are also  trained  by the  Company  to adhere to  similar  stringent
quality control procedures.

     The Company intends to apply for ISO 9000  certification for its production
facilities in the near future.


                                       10
<PAGE>


Inventory Policy and Control

     For gold  bullion,  in general,  it is the  Company's  policy to maintain a
stock holding period of approximately 80 days. The Company generally has a stock
level of  approximately  1,000 kg of gold reserves for production use. The stock
level is  monitored by the senior  manager of the gold and jewelry  division who
coordinates  the  transfer  of raw  materials  and  finished  goods  between the
production  facilities and the sales and marketing  department.  Stock movements
from the safe or storeroom of each of the production  facilities are recorded in
the  respective  stock  ledgers and stock  movement  reports  are  examined on a
regular basis and are submitted to the accounts department of the Hong Kong head
offices for  consolidation  and  reconciliation.  All movements of stock must be
justified  by the person  making the stock  withdrawal.  Details,  such as stock
code,  quantity and weight, are completed by the person making the withdrawal on
the  withdrawal  note which will be passed to the senior manager of the gold and
jewelry  division  for approval  before the stock  withdrawal  takes place.  The
person making the withdrawal,  accompanied by another member of staff, must sign
the stock withdrawal note to acknowledge receipt of the stock. The person making
the withdrawal, the senior manager and the accounting division each respectively
keeps one copy of the  signed  withdrawal  note.  Goods are  stored in safes and
storerooms  that are installed with a wide range of anti-theft  devices.  At the
production line level,  the stock retrieved by a production line supervisor from
the  storeroom  at a  production  facility  is  distributed  to  workers  at the
production line. The supervisor keeps a record stating  particulars such as type
and weight of stock  distributed to each worker. At the end of each working day,
each worker  stores  his/her  stock in a safety box and the locked safety box is
returned to the  production  line  supervisor.  The  supervisor  then stores the
safety  boxes  collected  from the workers in a  subsection  designated  for the
production line in the storeroom master safe. At the end of a production  cycle,
the workers return the stock to the production  line  supervisors who will check
against  their  records  to ensure  that the  stock  returned  matches  with the
particulars  stated in the records.  Stock counts are performed on a monthly and
ad hoc basis by the accounting  division and the results of the stock counts are
checked against the stock ledger.

Sales and Marketing

     The Company's  marketing and sales  activities are carried out by a team of
approximately 90 staff members.  The Company's sales staff carries out sales and
marketing  activities under the guidance of senior management which oversees the
sales  staff and  overall  marketing  strategy.  The  Company's  sales  staff is
responsible for  establishing and maintaining  relations with independent  sales
representatives  and customers as well as marketing  the  Company's  products to
potential  customers.  The marketing and sales executives regularly attend trade
fairs,  seminars  and  exhibitions  in Hong Kong and  overseas  in order to keep
abreast of new product  developments  and market  trends,  to  maintain  regular
contact  with  existing  customers  and to  meet  potential  customers.  Through
participation  in  exhibitions,  the  Company is able to promote  its  corporate
image,  increase public awareness of its products and strengthen its competitive
position in the gold products market.

     The Company  currently  has a showroom at its head office in Hunghom,  Hong
Kong where its wide range of products are displayed and sold. Other  promotional
activities  undertaken by the Company include the placing of  advertisements  in
trade  magazines,  journals and other public media as well as direct  mailing of
product  catalogues to existing and potential  customers and  maintenance  of an
Internet web site which provides comprehensive product information.

     In the PRC,  potential  customers  have  historically  been referred to the
Company by the  respective  PRC parties to the  processing  agreements  or learn
about  the  Company's  products  from  other  sources  such  as  advertisements.
Customers  may place  orders to the  Company's  Hong Kong office by fax,  telex,
telephone or e-mail.  In any event, all deliveries  pursuant to confirmed orders
from  PRC  customers  are made in Hong  Kong to the  party  designed  by the PRC
customers  located  in Hong Kong.  The  Company  does not hold a PRC  license to
distribute  its products in the PRC to customers in the PRC. The  Company's  PRC
customers  (being  customers who have invoicing  addresses in the PRC, and which
are believed to be either  wholesale  distributors or retailers) are responsible
for arranging the importation of the products in the PRC.


                                       11
<PAGE>

     Through the  alliance  with the Free Trade  Administration,  the  Company's
products are sold through eight retail counters sources and operated by the Free
Trade Administration in Shenzhen and Hangzhou. Pursuant to the alliance with the
Free Trade  Administration,  the Company focused its sales and marketing efforts
in the PRC on  expansion  of its  distribution  channels  in the PRC,  including
accessing  wholesale  customers,  establishing  its own brands and  promotion of
sales through its Internet web site.

     The Company has established solid business relationships with its customers
and many of them have in turn  introduced  new  customers  to the  Company.  The
Company also  sponsors  selected  customers  to attend major gold jewelry  trade
shows so as to further promote market awareness of the Company's products.

     The principal  markets to which the Company's  products are distributed are
the PRC,  South East Asia,  Hong Kong,  the United  States,  the Middle East and
Europe.  Sales by region  (excluding  Subcontracting  fees) for the three  years
ended March 31, 2000 have been as follows:
<TABLE>

                                         1998                   1999                   2000
                                   Amount                 Amount                Amount
                                   $,000    Percent       $,000     Percent     $,000      Percent
                                  -------  ---------     --------  ---------   --------   ---------
<S>                               <C>      <C>           <C>       <C>         <C>        <C>


Southeast Asia.................    12,232     21.1        16,562      19.5       17,268     14.0
United States..................    10,211     17.6        13,920      16.4       19,179     15.6
PRC............................    10,000     17.2        15,827      18.6       32,659     26.5
Middle East....................     9,317     16.1        13,947      16.4       10,921      8.9
Europe.........................     5,886     10.2        17,661      20.8       24,142     19.6
Hong Kong......................    10,348     17.8         7,088       8.3       18,946     15.4
                                  --------  -------      --------   -------    ---------  -------
   Total.......................    57,994    100.0        85,005     100.0      123,115    100.0
                                  ========  =======      ========   =======    =========  =======
</TABLE>


     The Company  generally  adopts a tight credit policy and grants credit only
to selected customers depending on their business relationship with the Company.
Sales to  customers  in Hong Kong and  overseas,  other than the PRC, are mainly
settled on an open account basis, with credit periods ranging from seven days to
ninety  days.  All Hong  Kong and  overseas  customers  generally  settle  their
accounts on time and no material default has been encountered by the Company. As
for the PRC customers,  owing to the different business practices  prevailing in
the PRC,  customers  normally  settle their  accounts at a slower pace up to 180
days  after  sales.   Despite  the  slower  payment  pattern,  the  Company  has
experienced no significant  bad debt problems and management  believes there are
no material collectibility problems.

Customers

     Products  manufactured  by the Company are  principally  sold to  wholesale
distributors or retail chain operators of gold, other precious metal and jewelry
products.

     At March 31, 2000, the Company had approximately 190 regular customers. The
Company  estimates  that,  through  customers and their  extensive  distribution
networks,  the products  manufactured  by the Company are sold in  approximately
2000 retail outlets worldwide.

     For the year ended March 31,  2000,  the  Company  five  largest  customers
accounted for approximately  17.1% of sales. During fiscal 2000, the Company had
no customers  which  accounted for more than 5% of the Company's  revenues.  The
Company has no long term contracts  with any  customers.  The Company's top five
customers have each had a business  relationship  with the Company for over five
years.

                                       12
<PAGE>


Competition

     The jewelry industry is highly  fragmented,  with little  significant brand
name  recognition  or consumer  loyalty.  Selection  is  generally a function of
design appeal, perceived high value and quality in relation to price.

     While  many  competitors  in  the  wholesale   jewelry   manufacturing  and
distribution  business  may  have a  wider  selection  of  products  or  greater
financial  resources,  the Company believes its competitive position is enhanced
by the Company's  broad customer base,  experienced  management  team,  advanced
technology and capital investment in continuous product  development and product
design and the  Company's  close  relationship  with its  customers and vendors.
Therefore,  although the  competition is intense,  management  believes that the
Company is well positioned to compete in the jewelry industry.

Staff

     As of March  31,  2000,  the  Company  had  approximately  1050  employees,
including 10 executive officers,  25 other management  personnel,  25 persons in
administration,  900 persons in  manufacturing  and production and 90 persons in
sales and marketing. Of the Company's employees, approximately 190 staff members
are located in Hong Kong with the remaining  employees being located in the PRC.
None of the Company's employees is governed by collective  bargaining agreements
and the Company considers its relations with its employees to be satisfactory.

Certain Foreign Operation Considerations

     The  Company's  operations  are  conducted  in Hong Kong and the PRC.  As a
result, the Company's  business,  financial  condition and results of operations
may be influenced by the political, economic and legal environments in Hong Kong
and the PRC, and by the general state of the Hong Kong and the PRC economies.

     On July 1, 1997,  sovereignty  over Hong Kong  transferred  from the United
Kingdom to the PRC, and Hong Kong became a Special  Administrative Region of the
PRC (a "SAR").  As provided in the Sino-British  Joint  Declaration  relating to
Hong Kong and the  Basic  Law of the Hong Kong SAR,  the Hong Kong SAR will have
full economic  autonomy and its own legislative,  legal and judicial systems for
fifty  years.  The  Company's  management  does not believe that the transfer of
sovereignty  over  Hong  Kong  will  have an  adverse  impact  on the  Company's
financial and operating environments.  There can be no assurance,  however, that
changes  in  political  or other  conditions  will not result in such an adverse
impact.

     The Company's  operations in the PRC are 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 other,
the political,  economic and legal  environments and foreign currency  exchange.
The Company's results may be adversely  affected by changes in the political and
social  conditions  in the PRC,  and by changes in  governmental  policies  with
respect to laws and  regulation  on the import and export of gold,  inflationary
measures,  currency  conversion and remittance  abroad, and rates and methods of
taxation, among other things.  Additionally,  a portion of the Company'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 foreign
currencies and the remittance of foreign  currencies abroad require approvals of
the PRC government.

                                       13
<PAGE>

ITEM 2. PROPERTIES

     The Company's  executive  offices are located at Unit 25-32,  Second Floor,
Focal Industrial  Centre, 21 Man Lok Street,  Hunghom,  Hong Kong. This facility
consists of approximately 31,500 square feet of office space, and is leased from
an unaffiliated third party for approximately HK$2,289,000 (US$293,000) per year
pursuant to four leases which range in  expiration  from  November 1999 to March
2001. This office space also houses certain  marketing,  product design and high
quality gold production operations.

     The Company's principal  production  operations are conducted at facilities
located in Sha Tau Kok, the PRC. The Company's principal  production  facilities
are described in Item 1. Business under  Manufacturing and Assembly,  Production
Facilities.

     The  Company  believes  that its  existing  facilities  will be adequate to
support the Company's operations for the foreseeable future.

ITEM 3.  LEGAL PROCEEDINGS

     The  Company  is from time to time a party to  lawsuits  incidental  to its
business.  The Company and its management are not presently aware of any pending
or threatened proceedings which,  individually or in the aggregate, are believed
to be material.

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

     No matters were submitted to a vote of the Company's  shareholders  through
the  solicitation  of proxies,  or otherwise,  during the fourth  quarter of the
Company's fiscal year ended March 31, 2000.

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

     While the Company's  Common Stock is listed on the OTC Electronic  Bulletin
Board under the symbol "CHRM.OB",  there is no established trading market in the
Company's  Common Stock and trading  therein is sporadic.  The last reported bid
price of the Company's Common Stock, as of July 7, 2000, was $1.875.

Holders

     At July 7,  2000,  there  were  approximately  110  record  holders  of the
Company's Common Stock.

Dividends

     While the Hang Fung Group  paid a one-time  dividend  of  approximately  $5
million during fiscal 1996, prior to the Exchange,  the Company has not paid any
dividends since its inception and presently  anticipates  that all earnings,  if
any,  will be retained for  development  of the  Company's  business and that no
dividends  on the shares of Common  Stock will be  declared  in the  foreseeable
future.  Any future dividends will be subject to the discretion of the Company's
Board of Directors and will depend upon,  among other things,  future  earnings,
the operating and financial condition of the Company, its capital  requirements,
general business conditions and other pertinent facts.  Therefore,  there can be
no assurance that any dividends on the Common Stock will be paid in the future.


                                       14
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

     The following tables present  selected  historical  consolidated  financial
data derived from the  consolidated  financial  statements  of the Company which
appear elsewhere herein.  Quality Prince was acquired by the Company in December
of 1996 in a transaction  accounted for as a recapitalization  of Quality Prince
with Quality  Prince as the acquirer (a "reverse  acquisition").  On this basis,
the  historical  consolidated  financial  statements  of the  Company  prior  to
December  31,  1996 are those of  Quality  Prince and its  subsidiaries  and the
historical  shareholders'  equity of the  Company as of March  31,1996  has been
retroactively restated to reflect the equivalent number of shares of the Company
issued for such acquisition.  The acquisition of the various members of the Hang
Fung Group by Quality  Prince in  December of 1996 has been  accounted  for as a
reorganization  of  entities  under  common  control,  similar  to a pooling  of
interests.   The  following  data  should  be  read  in  conjunction   with  the
consolidated financial statements of the Company included elsewhere herein.
<TABLE>

                                                                    Year Ended March 31,
                                                1996           1997           1998           1999            2000
                                               ------         ------         ------         ------          ------
                                                       (amounts stated in US$,000, except per share data)
<S>                                            <C>            <C>            <C>            <C>             <C>

  Income Statement Data (1):
Net sales...............................       $22,903        $36,825       $57,994       $ 85,005       $ 123,115
Subcontracting fees.....................         3,965          4,133         4,308          2,195               -
                                               --------       --------      --------      ---------       ---------
  Total revenues........................        26,868         40,958        62,302         87,200         123,115
Gross profit............................         8,046         10,971        15,143         22,117          27,996
Operating income........................         4,402          6,190         8,207         11,341          13,312
Other income (expense), net.............          (329)         ( 741)         (636)        (1,570)         (2,130)
Income before taxes.....................         4,073          5,449         7,571          9,771          11,182
Minority interests......................            --             --            --         (2,013)         (5,997)
Net income..............................      $  3,393       $  4,475      $  6,285       $  5,856       $   6,781
                                              =========       =========     ========      =========       ==========
Net income per share (2)................      $   0.32       $   0.40      $   0.49       $   0.46       $    0.53
                                              =========       =========     ========      =========       ==========
 Weighted average shares
 outstanding (2)........................    10,500,000     11,075,000    12,800,000     12,800,000      12,800,000
                                            ===========    ============  ===========    ===========     ============
 Balance Sheet Data (1):
Working capital.........................      $    613       $  2,768      $ (1,170)      $ 19,555       $  24,960
Total assets............................        15,676         21,409        45,667         73,698          95,165
 Long-term debt, less
 current portion........................           879          1,834         4,405          3,363           3,422
Stockholders' equity (3)................         3,038          8,017        14,278         20,134          26,811

</TABLE>

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

(1)  The Company's functional currency is Hong Kong Dollars ("HK$"). Translation
     of amounts from HK$ into 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 March 31, 2000 of US$1.00 = HK$7.79.  No representation
     is made that the HK$ amounts could have been, or could be,  converted  into
     US$ at that rate or at any other rate.

(2)  Net income per share is computed  assuming (i) the 10,500,000 shares issued
     pursuant to the Exchange were outstanding for all periods  presented,  (ii)
     the 1,275,000  shares issued in  connection  with initial  formation of New
     Wine were issued  December 31, 1996 and (iii) the 225,000  shares issued by
     New Wine pursuant to a Rule 504 offering were issued December 31, 1996.

(3)  Stockholders'  equity at March 31, 1996  reflects the payment of a dividend
     in the amount of $5,000,000 by the Hang Fung Group prior to the acquisition
     of the Hang Fung Group by the Company.

                                       15
<PAGE>

ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     This Form 10-K 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  "Factors that May
Affect Future Results" beginning on page 20.

General

     The following  discussion  should be read in conjunction with the Company's
financial statements appearing elsewhere herein.

     On December 19, 1996, the Company acquired the Hang Fung Group, and entered
into the jewelry manufacturing and distribution business. The acquisition of the
Hang Fung Group has been  accounted for using the purchase  method of accounting
with the transaction being accounted for as a "reverse acquisition." The Company
does not consider the operations prior to the acquisition of the Hang Fung Group
to be material to an understanding of the Company.  Accordingly, this discussion
relates to the  operations  of the Hang Fung Group,  for all periods  presented,
excluding the former operations of New Wine, Inc.

     In May of 1997,  Quality Prince, a wholly-owned  subsidiary of the Company,
entered into an agreement with Phenomenal, an unaffiliated third party, pursuant
to which  Phenomenal  loaned to Quality  Prince  $10,000,000  and Quality Prince
issued to Phenomenal a convertible  promissory note (the "Note").  The Note bore
interest at 3% per month,  and was  repayable in a lump sum payment on March 20,
1998.  As  one  of  the  conditions  for  the  lending,  the  Company  issued  a
non-detachable  warrant (the "Warrant") to Phenomenal to subscribe for 5,263,158
shares of common  stock of the Company at an exercise  price of $2.19 per share.
The Note was secured by personal guarantees provided by Mr. Lam and Ms. Chan and
the 53.9%  equity  interest in the  Company  owned by Mr. Lam and Ms.  Chan.  In
accordance with the term of the agreement, the Warrant expired in May 1998.

     On June 4, 1998,  Phenomenal agreed to extend the maturity date of the Note
from  March 20,  1998 to June 4, 1998,  and waive its  entitlement  to  interest
accrued under the Note during the period from May 20, 1997 (date of issue of the
Note) to June 4, 1998.  Also, the Company and  Phenomenal  agreed to restructure
and capitalize the Note into  redeemable  preferred stock of Hang Fung Jewellery
Company, a wholly owned intermediate  subsidiary of the Company. As a result, on
June 30,  1998,  Hang Fung  Jewellery  issued  5,263,788  shares  of  redeemable
preferred  stock (the  "Preferred  Stock") at  approximately  $1.90 per share to
Phenomenal in replacement of the Note. Under the revised  agreement,  Phenomenal
was required to redeem its interest in the Preferred  Stock and to subscribe for
the common stock of Hang Fung Gold,  upon  satisfaction  of certain  conditions.
Alternatively, Phenomenal had an option to require Hang Fung Jewellery to redeem
the Preferred  Stock at a redemption  amount as determined in accordance  with a
pre-determined  formula,  or  require  Mr.  Lam and Ms.  Chan  to  purchase  the
Preferred  Stock held by  Phenomenal  in case Hang Fung  Jewellery  defaulted in
redeeming the Preferred Stock.

     Pursuant to the revised agreement with Phenomenal, in February of 1999, the
Hang Fung Group effected a corporate reorganization (the "Group Reorganization")
with  Hang Fung  Gold  becoming  a  holding  company  for the Hang  Fung  Group,
excluding Quality Prince, and Phenomenal  redeemed its interest in the Preferred
Stock  and  subscribed  for the  common  stock in Hang  Fung  Gold.  Immediately
following the  restructuring of the Hang Fung Group, Hang Fung Gold completed an
offering of securities  in Hong Kong raising  approximately  HK$59,000,000  (the
"Hong Kong  Offering") and the shares of Hang Fung Gold were listed on The Stock
Exchange of Hong Kong Limited (the "Hong Kong  Exchange").  Trading of shares of
Hang Fung Gold on the Hong Kong Exchange commenced on March 16, 1999.

     Following  the Group  Reorganization  and Hong Kong  Offering,  the Company
holds, through Quality Prince,  53.145% of the issued capital stock of Hang Fung
Gold,  whereas  Phenomenal  holds  21.855% of the issued  capital  stock and the
investing  public holds the  remaining  25% of the issued  capital stock of Hang
Fung Gold.

                                       16
<PAGE>

     Hang Fung  Group's  operations  consist  of  designing,  manufacturing  and
distributing  a full  line  of  gold  and  silver  jewelry  products  and  other
ornamental  products  on a wholesale  basis to  customers  in Hong Kong,  China,
Europe,  the Middle East,  Southeast Asia, and the United States.  Revenues from
such operations are generated  through the  manufacturing and wholesaling of the
Company's  jewelry  products,  and,  beginning from May 1999,  retail sales from
showrooms.  Prior to fiscal 2000, Hang Fung Gold conducted  subcontract  jewelry
manufacturing  for selected  customers and received fees in connection  with the
subcontract manufacturing ("Subcontracting fees").

     The primary cost of operating  the  Company's  jewelry  business is the raw
material  cost of jewelry.  The Company  assembles  or  manufactures  all of the
jewelry  which it sells,  other than sales  made as agent for  certain  business
partners.  The  Company  constantly  compares  costs and  quality of jewelry raw
materials to assure that it is  obtaining  the best  purchase  price and quality
available.  The cost of such raw  materials  and products  varies with  currency
fluctuations  and  other  factors  beyond  the  Company's  control.   While  any
fluctuations  in cost of  acquiring  raw  materials  may  adversely  affect  the
Company's profit margins,  the Company has  historically  been able to pass such
cost fluctuations on to its customers. See "Business - Purchasing."

     The Company's other  significant  operating  expenses are marketing  costs,
including participation in advertising programs, customer support, inventory and
quality control, jewelry design and general corporate overhead.

Results of Operations

     The following table sets forth,  for the periods  indicated,  certain items
from the  Consolidated  Statements  of  Operations  expressed as a percentage of
total revenues.

                                                      Year Ended March 31,
                                                --------------------------------
                                                 1998        1999          2000
                                                ------      ------        ------
Net sales.............................           93.1%       97.5%        100.0%
Subcontracting fees...................            6.9         2.5           0.0
  Total revenues......................          100.0       100.0         100.0
Cost of sales.........................           75.7        74.6          77.3
Gross profit..........................           24.3        25.4          22.7
Operating expenses....................           11.1        12.4          11.9
Income from operations................           13.2        13.0          10.8
Other income (expense)................           (1.0)       (1.8)         (1.7)
Income before income taxes............           12.2        11.2           9.1
Income taxes..........................           (2.1)       (2.2)          1.3
Minority interest.....................            0.0        (2.3)         (4.9)
Net income............................           10.1         6.7           5.5

Year Ended March 31, 2000 Compared to Year Ended March 31, 1999

     Revenues and Gross Profit.  Operating revenues increased by 41.2% to $123.1
million  for the year ended  March 31,  2000 as  compared  to $87.2  million for
fiscal 1999.  Sales of Company  products were up 44.8% to $123.1  million during
fiscal 2000 as compared to $85.0 million during fiscal 1999. Subcontracting fees
decreased from $2.2 million during fiscal 1999 to nil during fiscal 2000.

     The  increase in sales  during  fiscal 2000 was  attributable  to increased
product  volumes  resulting  from  an  increase  in  production  capacity,   the
introduction  of new  products  and  investments  in  marketing  efforts  across
geographical regions. As part of our commitment to expand distribution channels,
our Hang Fung  group  plans to launch an  Internet  site in Hong Kong to support
business-to-business  sales of our  products as well as to promote our brand and
support our overall marketing efforts.

     The decrease in Subcontracting  fees was attributable to a determination to
concentrate on the  manufacturing of products designed by the Company as opposed
to products  manufactured on a subcontract basis in order to raise the Company's
brand name recognition.

                                       17
<PAGE>


     Geographically, within Southeast Asia (including Hong Kong and the PRC) the
Company's  sales  increased  74.4% to $68.9  million  in fiscal  2000 from $39.5
million in fiscal 1999. Sales within Southeast Asia accounted for 55.9% of total
sales  during  fiscal 2000 as compared to 46.4% in fiscal  1999.  Percentage  of
total sales of the region were favorably  impacted by renewed economic  strength
in Southeast  Asia during  fiscal 2000 and  increased  marketing  efforts in the
region.  Sales in Hong Kong increased 166.2% to $18.9 million during fiscal 2000
from $7.1 million  during  fiscal 1999.  Sales in the PRC were up during  fiscal
2000 due to a  substantial  increase  in our  marketing  efforts in the  region,
increasing  107% to $32.7  million  from  $15.8  during  fiscal  1999.  Sales in
Southeast  Asia (not including Hong Kong and the PRC) during fiscal 2000 were up
due to strong  regional demand  accompanying  renewed  economic  strength in the
region, increasing 4.2% to $17.3 million from $16.6 million during fiscal 1999.

     Outside of Asia (in the United  States,  Europe and the Middle  East),  the
Company  experienced a 19.1%  increase in sales with these sales  accounting for
44.1% of total  sales in  fiscal  2000 as  compared  to 53.6% of total  sales in
fiscal  1999.  The  increase  in sales  outside of Asia was driven by  increased
marketing  efforts and strong product demand which  accompanied  strong economic
conditions in those regions.  Sales in Europe increased  approximately  36.2% to
$24.1  million in fiscal 2000 from $17.7  million in fiscal  1999.  Sales in the
Middle East were down during  fiscal 2000,  due to  concentration  of efforts on
expansion of the Company's  market in Southeast Asia,  decreasing  approximately
21.6% to $10.9  million from $13.9  million in fiscal 1999.  Sales in the United
States  increased  approximately  38.1% to $19.2 million during fiscal 2000 from
$13.9 million in fiscal 1999.

     Gross  profits  increased by 26.7% to $28 million in fiscal 2000 from $22.1
million   during  fiscal  1999.   The  increase  in  gross  profits  was  mainly
attributable to increased sales across  geographic  regions which were partially
offset by a reduction  in gross  margins.  Gross  margins  decreased to 22.7% in
fiscal 2000 from 25.4% in fiscal 1999.  The decrease in gross profit  percentage
during fiscal 2000 was primarily  attributable to adoption of a more competitive
pricing strategy to enhance competitiveness and revenue.

     Operating Expenses.  Operating expenses totaled $14.7 million during fiscal
2000,  an increase of 36.1% from $10.8  million in fiscal 1999.  The increase in
operating  expenses  during the period was primarily  attributable  to increased
marketing  expenses  associated  with the expanded  selling  efforts,  increased
corporate  overhead and  depreciation  expense on  investment  in machinery  and
equipment to support the increase in sales volumes.

     Other Income (Expense), Net. Other income(expense),  net during fiscal 2000
and 1999  consisted of a loss on  reduction  in equity  interest in a subsidiary
associated  with the Group  Reorganization  and Hong Kong  Offering of Hang Fung
Gold during fiscal 1999, bank charges, and interest income and interest expense.
Net other expenses increased  approximately  31.2% to $2.1 million during fiscal
2000  from  $1.6  million   during  fiscal  1999.  The  increase  was  primarily
attributable to (1) an increase in interest expense during the fiscal year of $1
million  which  resulted  from an increase in banking  facilities to support the
business  expansion  during  fiscal  2000,  and (2) an  adverse  swing  in other
expenses of $205,000 which resulted mainly from increases in bank charges during
fiscal  2000;  which was  partially  offset by a $383,000  increase  in interest
income during fiscal 2000 attributable to increased cash generated by operations
and a $271,000  loss during  fiscal  1999  attributable  to the  dilution of the
Company's  ownership  interest in Hang Fung Gold from 100% to 53.15% as a result
of the Group Reorganization and Hong Kong Offering.

     Minority  Interest.  Minority  interest of $6.0 million was reported during
fiscal 2000 and $2.0 million was reported during fiscal 1999.  Minority interest
reflects  the Group  Reorganization,  including  the  conversion  of the Note of
Phenomenal into shares in the Company's previously wholly-owned subsidiary, Hang
Fung Gold (including a dividend of $1,849,000 paid to Phenomenal with respect to
the Preferred  Stock),  and the Hong Kong Offering  pursuant to which additional
shares of Hang Fung Gold were sold in fiscal 1999.  Minority  interest  reflects
the  proportionate  interest in the earnings of the Hang Fung Group not owned by
the Company from February 27, 1999, the date of the Group Reorganization.

     Income Taxes.  The Company reported a tax benefit of $1.6 million in fiscal
2000  compared to income tax  expense of $1.9  million in fiscal  1999.  The tax
benefit reported during fiscal 2000 was attributable to the favorable settlement
of a "50:50 offshore claim" in Hong Kong pursuant to which the Company recovered
a $2.7 million tax provision previously recorded for Hong Kong profits tax after
resolution of the Company's claim.

                                       18
<PAGE>

Year Ended March 31, 1999 Compared to Year Ended March 31, 1998

     Revenues and Gross Profit.  Operating  revenues increased by 40.0% to $87.2
million  for the year ended  March 31,  1999 as  compared  to $62.3  million for
fiscal 1998.  Sales of Company  products were up 46.6% to $85.0  million  during
fiscal 1999 as compared to $58.0 million during fiscal 1998. Subcontracting fees
decreased by 49.0% to $2.2 million  during fiscal 1999 from $4.3 million  during
fiscal 1998.

     The  increase in sales  during  fiscal 1999 was  attributable  to increased
product  volumes  resulting  from  an  increase  in  production  capacity,   the
introduction  of new  products  and  investments  in  marketing  efforts  across
geographical  regions.  The decrease in Subcontracting  fees was attributable to
increased concentration on the manufacturing of products designed by the Company
as opposed to products manufactured on a subcontract basis in order to raise the
Company's brand name recognition.

     Geographically, within Southeast Asia (including Hong Kong and the PRC) the
Company's  sales  increased  21.2% to $39.5  million  in fiscal  1999 from $32.6
million in fiscal 1998. Sales within Southeast Asia accounted for 46.4% of total
sales  during  fiscal 1999 as compared to 56.2% in fiscal  1998.  Percentage  of
total  sales of the  region  were  adversely  impacted  by  continuing  economic
weakness  in  Southeast  Asia  during the second  half of fiscal 1998 and all of
fiscal 1999, which weakness was offset by increased marketing efforts.  Sales in
Hong Kong declined  31.4% to $7.1 million  during fiscal 1999 from $10.3 million
during  fiscal 1998.  Sales in the PRC were up during  fiscal 1999 due to stable
economic  conditions  relative to the region,  increasing 58.2% to $15.8 million
from $10.0 during fiscal 1998.  Sales in Southeast Asia (not including Hong Kong
and the PRC)  during  fiscal  1999  were up due to strong  demand in the  Taiwan
market, increasing 35.5% to $16.6 million from $12.2 million during fiscal 1998.

     Outside of Asia (in the United  States,  Europe and the Middle  East),  the
Company  experienced a 79.2%  increase in sales with these sales  accounting for
53.6% of total  sales in  fiscal  1999 as  compared  to 43.8% of total  sales in
fiscal  1998.  The  increase  in sales  outside of Asia was driven by  increased
marketing  efforts and strong product demand which  accompanied  strong economic
conditions in those regions.  Sales in Europe  increased  approximately  200% to
$17.7  million in fiscal  1999 from $5.9  million in fiscal  1998.  Sales in the
Middle East were up during fiscal 1999, increasing  approximately 49.8% to $13.9
million from $9.3 million in fiscal 1998.  Sales in the United States  increased
approximately  36.3% to $13.9  million  during fiscal 1999 from $10.2 million in
fiscal 1998.

     Gross profits increased by 46.1% to $22.1 million in fiscal 1999 from $15.1
million   during  fiscal  1998.   The  increase  in  gross  profits  was  mainly
attributable  to increased  sales,  and expansion  into the United States market
which were  partially  offset by a reduction  in gross  margins.  Gross  margins
increased  to 25.4% in fiscal 1999 from 24.3% in fiscal  1998.  The  increase in
gross profit  percentage  during fiscal 1999 was primarily  attributable to cost
control measures implemented by management.

     Operating Expenses.  Operating expenses totaled $10.8 million during fiscal
1999,  an  increase of 56% from $6.9  million in fiscal  1998.  The  increase in
operating  expenses  during the period was primarily  attributable  to increased
marketing  expenses  associated  with the expanded  selling  efforts,  increased
corporate  overhead and  depreciation  expense on  investment  in machinery  and
equipment to support the increase in sales volumes.

     Other Income (Expense), Net. Other income(expense),  net during fiscal 1999
and 1998  consisted of a loss on  reduction  in equity  interest in a subsidiary
associated  with the Group  Reorganization  and Hong Kong  Offering of Hang Fung
Gold during fiscal 1999, bank charges, and interest income and interest expense.
Net other expenses increased  approximately 146.9% to $1.6 million during fiscal
1999  from  $0.6  million   during  fiscal  1998.  The  increase  was  primarily
attributable  to (1) an increase in interest  expense  during the fiscal year of
$784,000  which  resulted from an increase in banking  facilities to support the
business expansion during fiscal 1999, (2) an adverse swing in other expenses of
$159,000  which  resulted from  increases in bank charges during fiscal 1999 and
the recognition of the  nonrecurring  gain from an insurance claim during fiscal
1998, and (3) a $271,000 loss during fiscal 1999 attributable to the dilution of
the  Company's  ownership  interest  in Hang  Fung Gold from 100% to 53.15% as a
result of the Group  Reorganization and Hong Kong Offering;  which was partially
offset by a $280,000 increase in interest income during fiscal 1999 attributable
to increased cash generated by operations.

                                       19
<PAGE>

     Minority  Interest.  Minority  interest of $2.0 million was reported during
fiscal 1999.  No minority  interest was reported  during  fiscal 1998.  Minority
interest reflects the Group Reorganization, including the conversion of the Note
of Phenomenal into shares in the Company's previously  wholly-owned  subsidiary,
Hang Fung Gold  (including  a dividend of  $1,849,000  paid to  Phenomenal  with
respect to the Preferred  Stock),  and the Hong Kong Offering  pursuant to which
additional  shares of Hang Fung Gold were sold.  Minority  interest reflects the
proportionate  interest in the  earnings of the Hang Fung Group not owned by the
Company from February 27, 1999,  the date of the Group  Reorganization,  through
March 31, 1999.

     Income  Taxes.  Income  taxes  increased by 48.0% from  approximately  $1.3
million in fiscal 1998 to $1.9  million in fiscal  1999.  The increase in income
taxes during the period was  primarily  attributable  to the increase in taxable
earnings of the Company.

Factors that May Affect Future Results

     The Company's  quarterly and annual  operating  results have been, and will
continue to be, affected by a wide variety of factors that could have a material
adverse  effect on revenues  and  profitability  during any  particular  period,
including  the  level of orders  which  are  received  and can be  shipped  in a
quarter,   the   rescheduling  or  cancellation  of  orders  by  its  customers,
competitive  pressures on selling  prices,  changes in product or customer  mix,
availability and cost of raw materials, loss of any strategic relationships, the
Company's  ability to  introduce  new  products  and  implement  new or expanded
manufacturing  technologies on a timely basis, new product  introductions by the
Company's  competitors,  fluctuations  in  exchange  rates,  changes in consumer
tastes and spending patterns and general economic conditions, among others.

     The Company's  future  operating  results are  particularly  dependent upon
several  specific  factors,  in  addition to the general  factors  noted  above,
including  (1)  substantial  dependence  upon  manufacturing  and,  to a certain
extent,  marketing  arrangements  in the PRC,  (2)  ability  to secure  adequate
financing to support planned  increases in production and marketing of products,
(3) the  Company's  ability to sell  adequate  volumes of product at  sufficient
profit margins in the PRC to recoup the Company's substantial investment plan in
expanding  distribution  channels  in the PRC and (4) the  Company's  ability to
manage projected revenue growth.

     Management  believes  that the  Company's  ability to sustain  its  current
margins and level of  profitability  is due,  to a  significant  degree,  to its
establishment of favorable  manufacturing  arrangements in the PRC and marketing
arrangements  in the PRC with PRC government  authorized  entities.  If, for any
reason,  the Company were to be unable to continue  its  existing  manufacturing
activities  in the PRC or  contractual  relationships  in the PRC, or to replace
those relationships with similar arrangements, it is possible that the Company's
operating  costs  could  increase   reducing  both  the  Company's  margins  and
profitability.

     Management  believes  that the Company's  recent  growth,  and  anticipated
future growth, is a result of investments,  and planned investments,  in new and
expanded  production  capacity and expanded marketing  efforts.  The Company has
invested substantial amounts in new machinery and the opening of the Sha Tau Kok
Facility.  The Company has also invested substantial amounts to expand marketing
efforts in the PRC, the United States,  the Middle East and Europe.  In order to
continue  to grow  revenues  and  profitability,  the  Company  plans to  invest
substantial  additional  funds to  expand  production  capacity  further  and to
support  further  increases in marketing  efforts,  particularly in the PRC. The
Company  previously  secured $10 million of funding through the sale of the Note
to Phenomenal and subsequent Group Reorganization and secured an additional $7.6
million of funding  through the Hong Kong  Offering.  While  funding  from those
sources was  adequate  to support  planned  facility  expansions  and  increased
marketing  efforts,  there can be no assurance that the Company will not require
additional  funding to support future planned  expansion.  See "-- Liquidity and
Capital Resources."

     As a result  of the  Group  Reorganization  and  Hong  Kong  Offering,  the
Company's ownership interest in the Hang Fung Group (where  substantially all of
the Company's  operations  are conducted and revenues  generated)  has decreased
from  100%  to   approximately   53%.  For  periods   subsequent  to  the  Group
Reorganization  and Hong Kong  Offering,  the Company's  operating  results will
reflect  minority  interest  relating to the interest in the Hang Fung Group not
owned by the  Company.  Thus,  while the  Company's  consolidated  revenues  may
continue to grow at a rapid rate, the minority interest will effectively  remove
approximately  47% of the  future  earnings  of the  Hang  Fung  Group  from the
Company's future net income.  Accordingly,  in order for the Company to maintain
its current level of net earnings, the Hang Fung Group must approximately double
its existing earnings.

                                       20
<PAGE>


     The  Company  has formed an  alliance  with the Free  Trade  Administration
pursuant to which the Company has committed to devote substantial  resources and
efforts to increasing  distribution  channels in the PRC.  Countries in the Asia
Pacific region experienced significant weaknesses in their currency, banking and
equity markets in 1996 through 1998. While those economies have since recovered,
because  those  economies  are less mature than western  economies,  they remain
subject to higher risk than  western  economies  and any future  weakness in the
region, and the PRC in particular,  could adversely affect,  among other things,
consumer demand for luxury goods in the region (perhaps  including the Company's
products which may be considered  luxury  consumer  goods),  and the U.S. dollar
value of the Company's  foreign  currency  denominated  sales. In addition,  the
Company's  interest  income and  expense is  sensitive  to  fluctuations  in the
general level of Hong Kong interest rates. Any regional  weakness,  particularly
in the PRC,  could  adversely  impact the  results of the  Company's  efforts to
increase  distribution  channels in the PRC and could lead to our  inability  to
recoup the investment in that regard.

     The Company has  invested  heavily in  increasing  production  capacity and
distribution  channels  in an effort to  rapidly  grow its  revenues.  While the
anticipated revenue growth is subject to various risks discussed herein, even if
the Company is  successful in growing its revenues as  anticipated,  there is no
assurance that the Company has adequate management and other resources to manage
that growth. Failure to satisfactorily manage the revenue growth could result in
poor  customer  service and low levels of retention of customers  which could in
turn depress future revenues.

     In addition, the Company's policy is to denominate all its sales and assets
in U.S. dollars or Hong Kong dollars.  The Hong Kong Government has,  throughout
fiscal  1998 and since the  beginning  of fiscal  1999,  repeatedly  assured the
public that the "peg" of Hong Kong dollar to the U.S. dollar will not be changed
and the Hong Kong dollar will not be  devalued.  Similarly,  the governor of the
PRC's  central  bank has  reassured  the public  that the  Renminbi  will not be
devalued.  Therefore, based on information available to management at this time,
management  does not anticipate  significant  fluctuations  in the exchange rate
between the U.S. dollar and the Hong Kong dollar in the foreseeable  future.  As
the Company makes its purchases of raw materials in local currencies,  and those
currencies have generally exhibited weakness since mid-1997 when compared to the
U.S. dollar,  management does not believe the Company is exposed to undue amount
of risk arising from fluctuations of the exchange rates between those currencies
and the U.S. dollar.

     The Company  does not enter into  foreign  exchange  forward  contracts  or
currency options to hedge against foreign exchange fluctuations or interest rate
swaps,  interest rate forward  contracts and other  derivatives to hedge against
interest  rate  exposures.  The Company  monitors its exchange and interest rate
risks on a continuous basis, both on a stand-alone basis and in conjunction with
each  other,  from both an  accounting  and an economic  perspective.  Given the
horizons  of the  Company's  risk  management  activities,  there may be adverse
financial  impacts  resulting  from  unfavorable  movements  in  either  foreign
exchange or interest rates.

     Overall,  the Company  believes it is well positioned to minimize  material
adverse impact that the recent economic  developments in the Asia Pacific region
may have on the Company.

Potential Acquisition of New Epoch

     As part of the Company's  Internet  strategy,  in June 2000, Hang Fung Gold
entered into a Sale and Purchase Agreement with New Epoch Holdings International
Limited. Under the terms of the Sale and Purchase Agreement, Hang Fung Gold will
acquire 49.9% of the stock of New Epoch  Information (BVI) Limited ("New Epoch")
in  exchange  for  shares  of  common  stock  of  Hang  Fung  Gold  representing
approximately  34.1%  of the  capital  stock of Hang  Fung  Gold  following  the
transaction.  Under the terms of the Sale and Purchase Agreement, Hang Fung Gold
has an option for a period of three years to acquire the remaining shares of New
Epoch. In conjunction with the proposed acquisition of New Epoch, Hang Fung Gold
entered  into a Facility  Agreement  pursuant  to which Hang Fung Gold agreed to
provide to New Epoch a credit facility of up to the higher of (1) HK$50 million,
or (2)  two-thirds of the net proceeds of equity or debt  issuances by Hang Fung
Gold from time to time after closing of the acquisition.

                                       21
<PAGE>

     New Epoch is engaged in  developing  and  facilitating  e-commerce  trading
facilities  between  the PRC and the rest of the world,  using  offline  trading
services to  complement  its internet B2B platform.  New Epoch,  through a joint
venture with Infoshare of the China International  Electronic Commerce Centre --
an  information  technology  arm of the Chinese  Ministry  of Foreign  Trade and
Economic  Co-operation of the PRC,  operates the  ChinaTradeWorld  portal, a B2B
site designed to facilitate  international  trade with the PRC. Linking with the
ChinaTradeWorld   portal  would  enhance  the   operations  of,  and  accelerate
deployment  of,  the  jewelry  portal  being  established  by Hang  Fung Gold by
providing access to an established trading portal with "Supply Chain Management"
and "Customer Relationship Management" capabilities.

     Closing of the  acquisition  of New Epoch is subject to  satisfaction  of a
number of conditions, including completion of due diligence, receipt of relevant
governmental  or  regulatory   authority's   approvals,   and  approval  of  the
acquisition and the loan by the  shareholders of Hang Fung Gold. There can be no
assurance  that  the  conditions  of  closing  will be  satisfied  and  that the
acquisition  of New Epoch will occur on the terms  described,  or at all. If the
acquisition  of New Epoch is completed as  described,  the  Company's  ownership
interest  in Hang  Fung  Gold  will  be  reduced  from  approximately  53.1%  to
approximately 35% (32.8% assuming  conversion of all share options to emloyees).
Further, if the acquisition of New Epoch is completed as described, the scope of
the Company's  operations will expand beyond the jewelry industry to include the
trading and Internet activities currently conducted by New Epoch.

     With the potential  acquisition of New Epoch, the Company would add revenue
streams from the trading and distribution operations of New Epoch outside of the
Company's  traditional revenues from jewelry operations.  The Company would also
add operating expenses  associated with New Epoch. It is possible that New Epoch
will incur substantial  operating losses which could materially offset operating
profits from the Company's jewelry operations.

     In addition to the  potential  adverse  impact on the  Company's  operating
results from the proposed acquisition of New Epoch, as a result of the reduction
in the Company's  ownership interest in Hang Fung Gold following the acquisition
of New Epoch,  following the acquisition,  the Company's  financial results will
reflect a larger  minority  interest  which will reduce  reported net  operating
results in future periods.

     There  can be no  assurance  that  the  acquisition  of New  Epoch  will be
completed as contemplated.

Year 2000 Issue

     The Company experienced no material failures or expenses as a result of the
Year 2000 Issue and does not expect to incur any  material  failures or expenses
in that regard in the future.

Liquidity and Capital Resources

     At March 31, 2000, the Company had cash balances totaling $19.6 million and
working  capital of $24.9  million.  This  compares  to a cash  balance of $16.7
million and a working  capital  balance of $19.6 million at March 31, 1999.  The
increase in cash and in working  capital were primarily  attributable to the net
income for the year.

     Cash  provided by operations  decreased to $5.4 million  during fiscal 2000
from  $6.0  million  during  fiscal  1999.  The  decrease  in cash  provided  by
operations was primarily due to (1) a substantial  increase in inventories,  and
(2) a decrease in taxation payable.  The Company's accounts receivable increased
to $19.5 million, or approximately 15.8% of fiscal 2000 revenues, as compared to
$15.7 million, or approximately  18.0% of fiscal 1999 revenues.  The increase in
accounts receivable during fiscal 2000 was attributable to increased sales. Days
sales  outstanding in receivables  decreased to 54 days for fiscal 2000, from 57
days for fiscal 1999.  Inventories  increased to $26.6 million at March 31, 2000
from $16.9 million at March 31, 1999. The increase in year end  inventories  was
required to support growing sales.

     The  Company  used  $10.7  million,  $8.7  million  and $11.9  million  for
investing activities  respectively in fiscal 2000, 1999 and 1998. The investment
of cash in each of those periods related  primarily to acquisitions of machinery
and equipment to increase the Company's  production capacity in order to support
growing sales.

                                       22
<PAGE>

     Financing  activities  provided  $8.2 million in fiscal 2000 as compared to
$17.3 million in fiscal 1999. Cash generated from financing activities in fiscal
2000 consisted  primarily of increased bank borrowing which was partially offset
by  repayments  of  obligations  and payment of  preferred  stock  dividends  to
Phenomenal.  Cash generated  from financing  activities in fiscal 1999 consisted
primarily  of the  proceeds  from the Hong Kong  Offering  pursuant to which the
Company's  subsidiary,  Hang Fung Gold, sold common equity in an amount equal to
25% of the post-offering shares outstanding for net proceeds of $7.6 million.

     The Company's primary  liquidity needs are to fund accounts  receivable and
inventories  as well as to fund periodic  purchases of machinery,  equipment and
expansion of production  facilities.  Prior to  Phenomenal's  investment in Hang
Fung Group and receipt of proceeds from the Hong Kong Offering,  the Company had
historically funded its operations through a combination of internally generated
cash,  short-term  borrowings  under  bank  lines of  credit  and hire  purchase
financing.

     At March  31,  2000,  the  Company  had no  material  capital  commitments.
However,  the Company intends to use available funds as needed to (1) expand its
production  capacity and jewelry  distribution  operations in Europe, the Middle
East and the United  States,  (2) invest up to $7.7 million in the  expansion of
distribution  channels  and  establishment  of retail  networks in the PRC,  (3)
invest  approximately  $2.6 million to expand the Sha Tau Kok Facility,  and (4)
establish a credit facility for New Epoch, discussed below.

     At March 31, 2000,  the Company's  capital  resources  consisted of various
bank credit facilities and certain capital leases, in addition to funds on hand.
The Company's  bank credit  facilities  consist of a combination  of term loans,
lines of credit,  letters of credit, bank guarantees,  overdraft,  revolving and
similar  credit  facilities  generally  utilized  in the jewelry  industry.  The
Company's bank credit facilities are used to fund purchases of raw materials and
inventory and to finance accounts receivable and overdrafts. Such facilities are
consistent  with credit  facilities  generally  available  to  operators  in the
jewelry  industry in terms of  interest  rates and fees,  collateral,  repayment
terms,  and renewal.  The Company's  total  available bank credit  facilities at
March 31, 2000 were  approximately  $35.9 million of which  approximately  $31.0
million had been used at such date.

     At March 31,  2000,  the  Company  also had a number of capital  leases and
operating  leases  pursuant to which the Company  holds various  facilities  and
equipment.  At March 31, 2000, the Company's capital lease  obligations  totaled
$2.5  million  of  which  $1.6  million  was   attributable   to  current  lease
obligations.  Obligations  under operating  leases require minimum annual rental
payments by the Company of approximately $303,000 in fiscal 2001.

     The  Company  believes  that  the  available  trade  credit,   bank  credit
facilities,  funds  on  hand  and  funds  generated  from  operations,  will  be
sufficient to satisfy the Company's  bank credit needs and  anticipated  working
capital requirements for at least the next 12 months.

     In addition to its normal financing requirements, the Company's subsidiary,
Hang Fung Gold, has undertaken to establish a credit  facility for New Epoch, in
connection with Hang Fung Gold's  agreement to acquire New Epoch, of the greater
of (1) HK$50  million,  or (2)  two-thirds of all net proceeds of equity or debt
issuances  by  Hang  Fung  Gold  from  time  to time  following  closing  of the
acquisition  of the shares of New Epoch.  There is no  assurance  that Hang Fung
Gold will be able to establish and maintain the required credit facility for New
Epoch or that the  establishment  of such a credit  facility  will not adversely
impact the ability of Hang Fung Gold to finance,  and grow, its existing jewelry
operations.

Seasonality

     The jewelry business is highly seasonal, with the third and fourth calendar
quarters  (second and third  fiscal  quarters),  which  includes  the  Christmas
shopping season, historically contributing the highest sales. Seasonality cannot
be  predicted  or counted  upon,  and the results of any interim  period are not
necessarily  indicative  of the  results  that might be  expected  during a full
fiscal year.

                                       23
<PAGE>

     The following  table sets forth the  Company's  unaudited net sales for the
periods indicated:
<TABLE>

                                             Fiscal Year Ended March 31,
                              ---------------------------------------------------------
                                       1998                   1999             2000
                              (US$,000)             (US$,000)         (US$,000)
                               Amount       %        Amount      %      Amount       %
                              ----------  ------    ---------  -----  ----------  ------
<S>                           <C>         <C>       <C>        <C>    <C>         <C>

1st Quarter (4/1-6/30)        $13,926      22.4    $ 16,482    18.9    $24,398     19.8
2nd Quarter (7/1-9/30)         15,458      24.8      16,177    18.6     28,892     23.5
3rd Quarter (10/1-12/31)       17,706      28.4      28,331    32.5     31,098     25.3
4th Quarter (1/1-3/31)         15,212      24.4      26,210    30.0     38,727     31.4
                               -------    -----     -------   ------   --------   -----
    Total                    $ 62,302     100.0    $ 87,200   100.0   $123,115    100.0
                               =======    =====     =======   ======   ========   =====
</TABLE>

Inflation

     Inflation  has  historically  not had a  material  effect on the  Company's
operations.  When the price of gold or other raw materials has increased,  these
costs  historically  have been passed on to the  customer.  Furthermore,  as the
Company does not have either long-term  supply contracts or long-term  contracts
with  customers,   prices  are  quoted  based  on  the  prevailing   prices  for
semi-precious gemstones or metals.  Accordingly,  the Company believes inflation
will not have a material effect on its future operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company's sales are denominated in Renminbi (the "Rmb"),  U.S.  dollars
or Hong Kong dollars. Any material fluctuation in the value of the Rmb, the Hong
Kong dollars relative to the U.S.  dollars would have significant  impact on the
Company's operating results.

     In order to minimize the Company's exposure to fluctuations in the exchange
rate of Rmb,  the  Company  utilities  its Rmb  revenue to settle  the  expenses
denominated  in Rmb incurred in the purchase of raw materials and its production
facilities in the PRC. Only the unused Rmb may be subjected to exchange risk. In
addition,  the Company's currency risk in fiscal 2000 was immaterial as a result
of the  "peg"  of Hong  Kong  dollars  to the  U.S.  dollars  and  therefore  no
derivative  contracts  such as forward  contracts  and options to hedge  against
foreign exchange fluctuations was considered or made.

     The Company's  interest expense is subject to the fluctuations of Hong Kong
interest rates. The interest rates on the bank installment loans of the Company,
in the principal  amount of  approximately  $2.6 million,  ranged from Hong Kong
prime  lending  rate plus 0.25% to 3.25% in fiscal  2000.  The Company  does not
currently  hedge its interest rate  exposure as the Company  believes that there
are (i) no significant  changes in Hong Kong interest  rates in the  foreseeable
future, and (ii) no adversely effects on its operation and cash flow even if the
applicable interest rate is increased by 1% in Hong Kong prime lending rate.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The  consolidated  financial  statements of the Company,  together with the
independent   auditors'   report  thereon  of  Arthur  Andersen  &  Co  ("Arthur
Andersen"),  Certified Public Accountants, appears on pages F-1 through F-24 of
this report. See Index to Financial Statements on page 28 of this report.

ITEM 9.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURE

          Not applicable


                                       24
<PAGE>
                                    PART III

ITEM 10.  DIRECTORS,   EXECUTIVE   OFFICERS,   PROMOTERS  AND  CONTROL  PERSONS;
          COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

     The  information  required by this Item will be  included  in a  definitive
proxy statement, pursuant to Regulation 14A, to be filed not later than 120 days
after the close of the Company's  fiscal year. Such  information is incorporated
herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

     The  information  required by this Item will be  included  in a  definitive
proxy statement, pursuant to Regulation 14A, to be filed not later than 120 days
after the close of the Company's  fiscal year. Such  information is incorporated
herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The  information  required by this Item will be  included  in a  definitive
proxy statement, pursuant to Regulation 14A, to be filed not later than 120 days
after the close of the Company's  fiscal year. Such  information is incorporated
herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The  information  required by this Item will be  included  in a  definitive
proxy statement, pursuant to Regulation 14A, to be filed not later than 120 days
after the close of the Company's  fiscal year. Such  information is incorporated
herein by reference.

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)  The following documents are filed as a part of this Report:

     (1)  Consolidated  Financial Statements:  See Index to Financial Statements
          on page 28 of this report for financial  statements and supplementary
          data filed as part of this report.

     (2)  Financial Statement Schedules

          None

     (3)  Exhibits

 Exhibit                     Number Description of Exhibit
----------                  -------------------------------

     2.1      Acquisition  Agreement  between S.W. Lam, Inc. and the
              shareholders of Hang Fung Jewellery  Company  Limited and Kai
              Hang  Jewellery  Company Limited (1)

     3.1      Articles of Incorporation (1)

     3.2      Bylaws (1)

     4.1      Certificate of Designation for Series A Preferred Stock (1)

     10.1++   Employment Agreement with Lam Sai Wing dated January 1, 1994 (1)

     10.2++   Employment Agreement with Chan Yam Fai, Jane dated January 1, 1994
              (1)

     10.3     Sales Agency Agreement between Hang Fung Jewellery Co., Ltd. and
              China Jewellery Import & Export Co. (1)

     10.4     Agreement for Jewellery  Assembling  between Hang Fung  Jewellery
              Co., Ltd. and China Jewellery Import & Export Co. (1)

                                       25
<PAGE>


     10.5     Sales Cooperation  Agreement between Hang Fung Jewellery Co., Ltd.
              and China Jewellery Import & Export Co. (1)

     10.6     Confirmation Agreement between Hang Fung Jewellery Co., Ltd. and
              China Jewellery Import & Export Co. (1)

     10.7     Lease  Agreement  between Chan Yam Fai,  Jane and Hang Fung
              Jewellery Co., Ltd. re: executive offices (1)

     10.8++   Supplementary Employment Contract with Lam Sai Wing and Lam Chan
              Yam Fai (2)

     10.9     Warrant Agreement with Phenomenal Limited (3)

     10.10    Convertible Note with Phenomenal Limited (3)

     10.11    Deed Amendment (3)

     10.12++  Employment Agreement between Hang Fung Gold and Lam Sai Wing dated
              February 27, 1999 (4)

     10.13++  Employment Agreement between Hang Fung Gold and Chan Yam Fai, Jane
              dated February 27, 1999 (4)

     10.14++  Employment  Agreement  between Hang Fung Gold and Ng Yee Mei dated
              February 27, 1999 (4)

     10.15*   Agreement between  Hang Fung Gold  Technology  Limited,  New Epoch
              Holdings International Limited, and Quality Prince Limited dated
              June 24, 2000

     10.16*   Facility Agreement between Hang Fung Gold Technology Limited and
              New Epoch Information (BVI) Limited dated June 24, 2000

     27.1*    Financial Data Schedule

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

++   Compensatory plan or management agreement.

* Filed herewith

(1)  Incorporated   by  reference  to  the   respective   exhibits   filed  with
     Registrant's  Registration  Statement  on  Form  10  (Commission  File  No.
     0-22049)

(2)  Incorporated  by  reference  to the  respective  exhibits  filed  with  the
     Registrant's Annual Report on Form 10-K for the year ended March 31, 1997

(3)  Incorporated  by  reference  to the  respective  exhibits  filed  with  the
     Registrant's  Quarterly  Report on Form 10-Q for the period  ended June 30,
     1997

(4)  Incorporated  by  reference  to the  respective  exhibits  filed  with  the
     Registrant's Annual Report on Form 10-K for the year ended March 31, 1999

(b)  Reports on Form 8-K

     No reports on Form 8-K were filed during the quarter ended March 31, 2000.


                                       26
<PAGE>

                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                               S.W. LAM, INC.




                                     By: /s/ Lam Sai Wing
                                         -------------------------------------
                                         Lam Sai Wing
                                         President and Chief Executive Officer

     Dated: July 14, 2000

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

/s/ Lam Sai Wing
-----------------------      President, Chief Executive Officer    July 14, 2000
Lam Sai Wing                 (Principal Executive Officer) and
                              Chairman of the Board
/s/ Chan Yam Fai
-----------------------      Vice President, Chief Financial       July 14, 2000
Chan Yam Fai, Jane           Officer (Principal Accounting
                             and Financial Officer) and Director
/s/ Ng Yee Mei
-----------------------      Vice President and Director           July 14, 2000
Ng Yee Mei

/s/ Cheng Wa On
-----------------------      Director                              July 14, 2000
Cheng Wa On


                                       27
<PAGE>

                                 S.W. LAM, INC.

                   Index to Consolidated Financial Statements


                                                                           Page
                                                                          ------

  Report of Independent Public Accountants............................      F-1

  Consolidated Balance Sheets as of March 31, 1999 and 2000...........      F-2

  Consolidated Statements of Operations for the Years ended March
     31, 1998, 1999 and 2000..........................................      F-3

  Consolidated Statements of Cash Flows for the Years ended March
     31, 1998, 1999 and 2000..........................................      F-4

  Consolidated Statements of Changes in Shareholders' Equity for
     the Years ended March 31, 1998, 1999 and 2000....................      F-5

  Notes to Consolidated Financial Statements..........................      F-6



                                       28
<PAGE>


REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Shareholders and the Board of Directors of S. W. Lam, Inc.:


We have audited the accompanying  consolidated balance sheets of S. W. Lam, Inc.
(incorporated  in the  State of  Nevada,  the  United  States of  America;  "the
Company") and Subsidiaries  ("the Group") as of March 31, 1999 and 2000, and the
related  consolidated  statements  of  operations,  cash  flows and  changes  in
shareholders'  equity for the years ended March 31, 1998,  1999 and 2000.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We conducted our audits in accordance with 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  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 S. W. Lam, Inc. and
Subsidiaries as of March 31, 1999 and 2000, and the results of their  operations
and their cash  flows for the years  ended  March 31,  1998,  1999 and 2000,  in
conformity with generally accepted accounting principles in the United States of
America.



ARTHUR ANDERSEN & CO
Certified Public Accountants
Hong Kong



Hong Kong,
July 14, 2000.


                                      F-1
<PAGE>

                                 S. W. LAM, INC.

                           CONSOLIDATED BALANCE SHEETS
                          AS OF MARCH 31, 1999 AND 2000
<TABLE>


                                              Note     1 9 9 9           2 0 0 0
                                             ------   ---------   ---------------------
                                                       HK$'000     HK $'000    US $'000
<S>                                          <C>       <C>         <C>         <C>

ASSETS

Current assets:
     Cash and bank deposits                     17      129,444     152,385     19,562
     Accounts receivable, net                    5      121,328     151,517     19,450
     Prepayments and deposits                    6        4,644       3,048        391
     Inventories, net                            7      131,513     207,249     26,604
                                                       ---------   ---------   --------
         Total current assets                           386,929     514,199     66,007

Property, machinery and equipment and            8      184,227     227,137     29,158
     capital leases, net                               ---------   ---------   --------

         Total assets                                   571,156     741,336     95,165
                                                       =========   =========   ========
LIABILITIES AND SHAREHOLDERS'
     EQUITY

     Current liabilities:
         Short-term bank borrowings              9      128,066     221,898     28,485
     Long-term bank loans, current portion      10        2,812       2,123        273
     Capital lease obligations, current portion 11        9,487      12,747      1,636
     Accounts payable                                    26,639      28,579      3,668
     Accrued liabilities                        12        6,672       9,657      1,240
     Due to a director                          18        3,101       4,426        568
     Taxation payable                           13       58,604      40,326       5,177
                                                       ---------   ---------   --------
         Total current liabilities                      235,381     319,756     41,047

Long-term bank loans, non-current portion       10        8,390       6,272        805
Capital lease obligations, non-current portion  11        7,727       6,993        898
Deferred taxation                               13        9,945      13,394      1,719
                                                       ---------   ---------   --------
         Total liabilities                              261,443     346,415     44,469
                                                       ---------   ---------   --------
Minority interests                                      153,672     186,060     23,885
                                                       ---------   ---------   --------
Shareholders' equity:
     Common stock, par value US$0.001 each:
     -   authorized - 25,000,000 shares

     -   outstanding and fully paid - 12,800,000            101        101          13
             shares
Preferred stock, par value US$0.001 each:
     -   authorized - 25,000,000 shares
     -   outstanding and fully paid - Series A                -          -          -
             preferred stock - 100,000 shares
     Additional paid-in capital                           3,960      3,960        508
     Retained earnings                                  151,980    204,800     26,290
                                                       ---------  ---------   --------
Total shareholders' equity                              156,041    208,861     26,811
                                                       ---------  ---------   --------
Total liabilities and shareholders' equity              571,156    741,336     95,165
                                                       =========  =========   ========
</TABLE>

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

Translation of amounts from Hong Kong dollars ("HK$") into United States dollars
("US$") 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 March 31, 2000 of
US$1.00 = HK$7.79.  No representation is made that the Hong Kong dollars amounts
could have been, or could be,  converted into United States dollars at that rate
or at any other rate. S. W. LAM, INC.

                                      F-2
<PAGE>

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

<TABLE>

                                         Note      1 9 9 8       1 9 9 9             2 0 0 0
                                        ------    ----------    ----------    ----------------------
                                                   HK$'000       HK$'000       HK $'000    US $'000
<S>                                     <C>       <C>           <C>           <C>          <C>



Revenues
     Net sales                            19.a     449,236       658,790       959,070      123,115
     Contract processing fees                       33,360        17,012             -            -
                                                  ---------     ---------     ---------    ---------

Total revenues                                     482,596       675,802       959,070      123,115

Cost of sales and services                        (365,249)     (504,391)     (740,978)     (95,119)
                                                  ---------     ---------     ---------    ---------
     Gross profit                                  117,347       171,411       218,092       27,996

Selling, general and                               (53,540)      (83,508)     (114,390)     (14,684)
     administrative expenses
Interest expense                                    (5,513)      (11,588)      (19,492)      (2,502)
Interest income                                      1,065         3,234         6,216          798
Other income (expenses), net                          (480)       (1,716)       (3,322)        (426)
Loss on reduction in equity                              -        (2,100)            -            -
      interest in a subsidiary14                   ---------     ---------     ---------    ---------


         Income before income                       58,879        75,733        87,104       11,182
               taxes

Provision for income taxes                 13       (9,963)      (14,747)       12,432        1,596
                                                  ---------     ---------     ---------    ---------
         Income before                              48,916        60,986        99,536       12,778
              minority interests

Minority interests                                       -       (15,601)      (46,716)      (5,997)
                                                  ---------     ---------     ---------    ---------
         Net income and                             48,916        45,385        52,820        6,781
              comprehensive                       =========     =========     =========    =========
              income

Earnings per common stock                       HK$  3.82      HK$  3.55     HK$  4.13    US$  0.53
                                                ===========    ==========    ==========   ==========
Weighted average number of                     12,800,000     12,800,000    12,800,000   12,800,000
     common stocks                             ============   ===========   ===========  ===========

</TABLE>


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

Translation of amounts from Hong Kong dollars ("HK$") into United States dollars
("US$") 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 March 31, 2000 of
US$1.00 = HK$7.79.  No representation is made that the Hong Kong dollars amounts
could have been, or could be,  converted into United States dollars at that rate
or at any other rate.

                                      F-3
<PAGE>


                                 S. W. LAM, INC.

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

                                                1 9 9 8    1 9 9 9               2 0 0 0
                                               ---------  ---------    -----------------------------
                                                HK$'000    HK$'000     HK $'000      US $'000
<S>                                            <C>        <C>          <C>           <C>


Cash flows from operating activities:
Net income                                       48,916    45,385      52,820         6,781
Adjustments to reconcile net income to net
     cash provided by operating activities -
     Depreciation of property, machinery and     23,147    39,605      55,580         7,135
         equipment
Loss on disposal of fixed assets                      -        49           -             -
     Loss on reduction in equity interest in a        -     2,100           -             -
         subsidiary
Minority interests                                    -    15,601      46,716         5,997

(Increase) Decrease in operating assets -
     Accounts receivable, net                   (39,851)  (41,907)    (30,189)       (3,876)
     Prepayments and deposits                    (1,961)   (1,580)      1,596           205
     Inventories, net                           (35,402)  (30,368)    (75,736)       (9,722)
     Due from a director                          3,681         -           -             -
Increase (Decrease) in operating liabilities -
     Accounts payable                             9,773     4,318       1,940           249
     Deposits from customers                     (9,107)        -           -             -
     Accrued liabilities                            977     3,764       2,985           383
     Due to a director                            8,014    (4,909)      1,325           170
     Taxation payable                            (1,442)   14,600     (18,278)       (2,346)
     Deferred taxation                            7,742         -       3,449           443
                                                --------  --------   ----------     ---------
Net cash provided by operating activities        14,487    46,658      42,208         5,419
                                                --------  --------   ----------     ---------
Cash flows from investing activities:
Additions to property, machinery and            (92,465)  (67,781)    (83,420)      (10,709)
     equipment                                  --------  --------   ----------     ---------

Cash flows from financing activities:
Dividend paid to a minority shareholder of a          -         -     (14,328)       (1,839)
     subsidiary
Net proceeds from issuance of convertible note   77,500         -           -             -
Cash proceeds received from minority interests        -    58,671           -             -
(Decrease) Increase in bank overdrafts             (434)    1,538      (1,953)         (251)
Increase in trust receipts bank loans            26,342    80,988      85,785        11,012
New short-term bank loans                             -     2,000      12,000         1,540
Repayment of short-term bank loans                    -         -      (2,000)         (257)
New long-term bank loans                          2,155     2,000           -             -
Repayment of long-term bank loans                (2,193)   (2,288)     (2,807)         (360)
Repayment of capital element of capital lease    (9,881)   (8,559)    (12,544)       (1,610)
     obligations                                --------  --------   ----------     ---------

Net cash provided by financing activities        93,489   134,350      64,153         8,235
                                                --------  --------   ----------     ---------
Net increase in cash and bank deposits           15,511   113,227      22,941         2,945
Cash and bank deposits, as of beginning of year     706    16,217     129,444        16,617
                                                --------  --------   ----------     ---------
Cash and bank deposits, as of end of year        16,217   129,444     152,385        19,562
                                                ========  ========   ==========     =========
</TABLE>

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

Translation of amounts from Hong Kong dollars ("HK$") into United States dollars
("US$") 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 March 31, 2000 of
US$1.00 = HK$7.79.  No representation is made that the Hong Kong dollars amounts
could have been, or could be,  converted into United States dollars at that rate
or at any other rate. S. W. LAM, INC.

                                      F-4
<PAGE>

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

<TABLE>

                                Common Stock          Series A Preferred Stock
                                Number of             Number of                    Additional     Retained
                                 shares     Amount    Shares       Amount       paid-in-capital   earnings
                                 '000       HK$'000   '000         HK$'000          HK$'000        HK$'000
                               ----------- --------  ----------   ---------     ---------------  ----------
<S>                             <C>        <C>        <C>         <C>           <C>              <C>

Balance as of March 31, 1997     12,800       101     100           -                3,960         57,679

Net income                            -         -       -           -                    -         48,916
                                --------     -----   -----       ------             -------      ---------
Balance as of March 31, 1998     12,800       101     100           -                3,960        106,595

Net income                            -         -       -           -                    -         45,385
                                --------     -----   -----       ------             -------      ---------
Balance as of March 31, 1999     12,800       101     100           -                3,960        151,980

Net income                            -         -       -           -                    -         52,820
                                --------     -----   -----       ------             -------      ---------
Balance as of March 31, 2000     12,800       101     100                            3,960        204,800
                                ========     =====   =====       ======             =======      =========
</TABLE>



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

                                      F-5
<PAGE>


                                 S. W. LAM, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                -------------------------------------------------




1.   ORGANIZATION AND OPERATIONS
     ---------------------------

S.  W.  Lam,  Inc.  ("the  Company"),  formerly  known  as New  Wine  Inc.,  was
incorporated  on April 12, 1994 in the State of Tennessee,  the United States of
America.  On October  10,  1996,  the  Company  effected a change of domicile by
reincorporating  in the State of  Nevada,  the  United  States of  America,  and
changed its name from New Wine Inc. to S.W.  Lam,  Inc. The  Directors  consider
Good Day Holdings Limited, a company incorporated in the British Virgin Islands,
to be the ultimate holding company.

The Company and its  subsidiaries  ("the Group") are principally  engaged in the
production  and selling of jewellery  products to  customers  in Hong Kong,  the
People's  Republic of China ("the PRC") and other parts of the world.  The Group
maintains  its head  office  in Hong  Kong  where  it  coordinates  the  Group's
marketing and selling functions.  Its production  facilities are located in Hong
Kong and the PRC.

Prior  to  April  1,  1999,  the  Group's  business  activities  in the PRC were
conducted  through a series  of  contract  processing  arrangements  with  China
National  Pearl,  Diamond,  Gem and  Jewellery  Import  and  Export  Corporation
("CNPIEC"),  Tai Yuan  Jewellery  Crafts  Factory  ("TYJCF") and Shenzhen Jia Yi
Jewellery Co., Ltd.  ("SJYJC"),  which are among the few entities  authorized to
engage in the  production  and  trading of gold and silver  products in the PRC.
Pursuant to the contract processing  agreements with CNPIEC and TYJCF, the Group
operated  production  plants  in  Beijing  and Tai  Yuan,  the PRC,  to  produce
jewellery  products.  The Beijing and Tai Yuan  plants  also  provided  contract
processing  services to PRC customers at the instruction and on behalf of CNPIEC
and TYJCF,  and shared a portion of the  contract  processing  fees  received by
them. In accordance with the contract  processing  agreements,  CNPIEC and TYJCF
have  undertaken  to pay for all of the  Group's  PRC tax  liabilities,  if any,
relating to the Group's  operations  under the  above-mentioned  activities.  In
addition,  the Group entered into an agreement  with SJYJC for the production of
gold and silver  products in Shenzhen,  the PRC. During the year ended March 31,
2000,  the Group ceased to conduct  business  activities  in the PRC through the
contract processing agreements with CNPIEC, TYJCF and SJYJC.

On May 28, 1998, the Group  established  its own production  facility in Sha Tau
Kok,  Shenzhen,  the PRC ("the Sha Tau Kok Facility").  The Sha Tau Kok Facility
was operated by Hang Fung Fung  Jewellery  (Shenzhen)  Co.,  Ltd.  ("HFJSC"),  a
wholly  owned  subsidiary  of the Company.  The Sha Tau Kok  Facility  commenced
commercial production in July 1998.

On  December  4,  1997,  Hang  Fung  Gold  Technology   Limited   ("HFGTL")  was
incorporated as an exempted  company under the Companies Act 1981 of Bermuda (as
amended) and became a wholly owned  subsidiary  of the Company.  On February 27,
1999,  HFGTL  became the holding  company of the  subsidiaries  of the  Company,
except for Quality Prince  Limited,  pursuant to a group  reorganization  scheme
which included  exchanges of shares.  On March 16, 1999, HFGTL was listed on The
Stock Exchange of Hong Kong Limited.

                                      F-6
<PAGE>

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

Since  HFGTL  and  the  subsidiaries  of the  Company  were  owned  by the  same
shareholders  immediately  before  and  after  the  reorganization,  it has been
accounted as a  reorganization  of entities  under common  control  similar to a
pooling of interest.

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

Details of the  Company's  subsidiaries  (which  together  with the  Company are
collectively referred to as "the Group") as of March 31, 2000 were as follows:

<TABLE>

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

Quality Prince Limited       British Virgin         100%            Investment
                                 Islands                              holding

Hang Fung Gold Technology        Bermuda           53.145%          Investment
  Limited                                                             holding

Hang Fung Jewellery Company     Hong Kong          53.145%        Production and
  Limited                                                      selling of jewellery
                                                                     products

Hang Fung Jewellery              The PRC           53.145%         Processing of
  (Shenzhen) Co., Limited                                       jewellery products

Kai Hang Jewellery Company      Hong Kong          53.145%           Property
  Limited                                                             holding

Macadam Profits Limited      British Virgin        53.145%          Investment
                                 Islands                              holding

Soycue Limited               British Virgin        53.145%           Inactive


There  is no  restriction  on the  distribution  of the  subsidiaries'  retained
earnings.

</TABLE>


                                      F-7
<PAGE>


4.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

     The consolidated  financial  statements include the accounts of the Company
     and its subsidiaries.  The results of subsidiaries  acquired or disposed of
     during  the  year  are  recorded  from  or  to  their  effective  dates  of
     acquisition or disposal. All material intra-group transactions and balances
     have been eliminated on consolidation.

b.   Subsidiaries
     ------------

     A  subsidiary  is a  company  in  which  the  Company  holds,  directly  or
     indirectly, more than 50% of its voting share capital for the long term.

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

     Inventories  are  stated at the  lower of cost,  on a  first-in,  first-out
     basis,  and market  value.  Costs of  work-in-progress  and finished  goods
     include  direct  materials,  direct labour and an  attributable  portion of
     production overheads.

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

     Property,  machinery and equipment and capital leases 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:

                  Leasehold land                                   50 years
                  Building                                         20 years
                  Machinery and equipment                          5 to 10 years
                  Motor vehicles                                   5 years
                  Furniture, fixtures and office equipment         5 years


     Major  expenditures  for  betterments  and  renewals are  capitalized.  All
     ordinary repair and maintenance costs are expensed as incurred.

     Impairment  loss on property,  machinery and  equipment is recognized  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, and when the carrying
     amount of the asset cannot be realized  through  sale.  Measurement  of the
     impairment loss is based on fair value of the assets.

e.   Sales
     -----

     Sales comprise (i) the invoiced value of merchandise supplied to customers,
     net of sales returns and allowances,  which are recognized when merchandise
     is shipped and title is passed to customers, (ii) contract processing fees,
     which are recognized when the contract processing service is rendered,  and
     (iii) rental income,  which is recognized on a straight-line basis over the
     period of the relevant lease.

     Deposits or advanced  payments from customers  prior to passage of title of
     goods and the  expiration  of right of return are recorded as deposits from
     customers.

                                      F-8
<PAGE>


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

f.   Advertising and promotion costs
     -------------------------------

     The costs of advertising  and promotion are expensed in the period in which
     they are incurred.

g.   Staff retirement benefits
     -------------------------

     Costs of staff  retirement  benefits  are  recognized  as an expense in the
     period in which they are incurred.

h.   Borrowing costs
     ---------------

     Borrowing  costs are  recognized  as an expense in the period in which they
     are incurred.

i.   Income taxes
     ------------

     The Group  accounts  for income tax 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 temporary differences between the tax and financial statement bases
     of assets and liabilities.

j.   Leases
     ------

     Capital leases  represent  those leases under which  substantially  all the
     risks and rewards of ownership of the leased assets are  transferred to the
     Group. Fixed assets held under capital leases are initially recorded at the
     present value of the minimum payments at the inception of the leases,  with
     equivalent   liabilities   categorized  as  appropriate  under  current  or
     non-current liabilities.  Interest expenses, which represent the difference
     between the minimum payments at the inception of the finance leases and the
     corresponding  fair  value  of  the  assets  acquired,   are  allocated  to
     accounting periods over the period of the leases to produce a constant rate
     of charge on the outstanding balance.

     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.

k.   Off-balance-sheet instruments
     -----------------------------

     Off-balance-sheet  instruments arise from futures, forward, swap and option
     transactions  undertaken  by the Group in the  foreign  exchange,  interest
     rate, commodity and equity markets. The accounting for these instruments is
     dependent upon whether the  transactions  are undertaken for speculative or
     hedging purposes.

     Financial  instruments  undertaken for  speculative  purposes are marked to
     market and any gain or loss is recognized in the statements of operations.


                                      F-9
<PAGE>

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

l.   Comprehensive income
     --------------------

     The Group has adopted Statement of Financial  Accounting  Standard No. 130,
     which  establishes  guidance for the reporting and display of comprehensive
     income and its components. The purpose of reporting comprehensive income is
     to report a measure of all changes in equity that resulted from  recognized
     transactions   and  other   economic   events  of  the  period  other  than
     transactions with  shareholders.  Adoption of the standard had no impact on
     the Group's consolidated financial position,  results of operations or cash
     flows since the Group had no items of other comprehensive income other than
     those recorded in the consolidated statements of operations.

m.   Foreign currency translation
     ----------------------------

     A substantial  portion of the Group's sales,  purchases and expenses are in
     Hong Kong dollars.  Management  believes that maintaining books and records
     in Hong Kong dollars will enable financial  results and relationships to be
     measured with more relevance and reliability.

     In the financial  statements of the individual  companies,  transactions in
     other  currencies  during the year are translated into Hong Kong dollars at
     the   applicable   rates  of  exchange   prevailing  at  the  time  of  the
     transactions.   Monetary  assets  and  liabilities   denominated  in  other
     currencies are translated into Hong Kong dollars at the applicable rates of
     exchange in effect at the balance sheet date. All such exchange differences
     are dealt with in the individual companies'  statements of operations.  The
     net  (loss)  gain  from  foreign  currency  transactions  included  in  the
     statements of operations  was  approximately  HK$(12,000),  HK$149,000  and
     HK$127,000 for the years ended March 31, 1998, 1999 and 2000, respectively.

n.   Earnings per common stock
     -------------------------

     Basic earnings per common stock is computed in accordance with Statement of
     Financial Accounting Standards No. 128 by dividing net income for each year
     by the weighted average number of shares of common stock outstanding during
     the years. The numerator in calculating basic earnings per common share for
     each year is the  reported  net  income.  The  denominator  is based on the
     weighted average number of common stocks of 12,800,000 shares for the years
     ended March 31, 1998, 1999 and 2000.

o.   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.

p.   Fair value of financial instruments
     -----------------------------------

     All  financial  instruments  of  the  Group  are  carried  at  cost,  which
     approximate their fair values.

                                      F-10
<PAGE>


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

Accounts receivable consisted of:

                                     1 9 9 9                2 0 0 0
                                   -----------       -----------------------
                                    HK $'000         HK $'000      US $'000

Trade receivables                    127,354          159,017        20,413
Less: Allowance for bad              (6,026)          (7,500)         (963)
     and doubtful accounts          ---------        ---------     ---------

Accounts receivable, net             121,328          151,517        19,450
                                    =========        =========     =========

a:   During the year ended March 31, 2000, the Group wrote off trade receivables
     of approximately HK$3,526,000,  which was charged against allowance for bad
     and doubtful accounts.


6.  PREPAYMENTS AND DEPOSITS
     ------------------------

Prepayments and deposits consisted of:


                                       1 9 9 9             2 0 0 0
                                     ----------  ----------------------------
                                      HK $'000    HK $'000          US $'000

Deposits for acquisition of
     raw materials and
     equipment                         3,709       2,115               272
Rental and utility deposits              513         515                66
Prepayments                              219         137                17
Others                                   203         281                36
                                      -------     -------           -------
                                       4,644       3,048               391
                                      =======     =======           =======

                                      F-11
<PAGE>


7.   INVENTORIES
     -----------

Inventories consisted of:

                                   1 9 9 9             2 0 0 0
                                   --------     -----------------------
                                   HK $'000     HK $'000      US $'000

Raw materials                      58,734        86,937        11,160
Finished goods                     74,779       122,312        15,701
                                 ---------     ---------      --------
                                  133,513       209,249        26,861

Less: Allowance for obsolete      (2,000)       (2,000)         (257)
     and slow-moving             ---------     ---------      --------
     inventories

Inventories, net                  131,513       207,249        26,604
                                 =========     =========      ========

As of March 31, 1999 and 2000,  inventories of approximately  HK$121,542,000 and
HK$207,327,000, respectively, were held under trust receipts bank loans.

8.   PROPERTY, MACHINERY AND EQUIPMENT AND CAPITAL LEASES
     ----------------------------------------------------

Property, machinery and equipment and capital leases consisted of:

                                   1 9 9 9                2 0 0 0
                                  ----------       -----------------------
                                   HK $'000        HK $'000       US $'000

Property, machinery and
     equipment:
     Leasehold land & building         1,973         1,973           253
     Machinery &equipment            186,081       240,784        30,910
     Motor vehicles                      920           920           118
     Furniture, fixtures &
         officer equipment            39,540        64,682         8,303

Capital leases:
     Machinery & equipment            38,178        56,823         7,295
                                    ---------     ---------      --------
Cost                                 266,692       365,182        46,879

Less Accumulated depreciation
     Property, machinery
     & equipment                    (65,499)     (112,053)      (14,384)
     Capital leases                 (16,966)      (25,992)       (3,337)
Property, machinery and             ---------     ---------      --------
     equipment and capital
     leases, net                     184,227       227,137       29,158
                                    =========     =========      ========

As of March 31, 1999 and 2000,  all of the Group's  leasehold  land and building
was situated in Hong Kong and were held under a long-term lease.


                                      F-12
<PAGE>

8.   PROPERTY, MACHINERY AND EQUIPMENT AND CAPITAL LEASES (Cont'd)
     ----------------------------------------------------

As of March 31, 1999 and 2000, leasehold land and building with a net book value
of approximately HK$1,973,000 and HK$1,973,000, respectively, were mortgaged and
machinery and equipment with a net book value of approximately  HK$1,395,000 and
HK$1,116,000, respectively, were pledged as collateral of certain of the Group's
banking facilities.

9.  SHORT-TERM BANK BORROWINGS
     --------------------------

Short-term bank borrowings comprised:

                                   1 9 9 9                  2 0 0 0
                                  ---------      -------------------------------
                                  HK $'000       HK $'000              US $'000

Bank overdrafts                     4,524          2,571                   330
Short-term bank loans               2,000         12,000                 1,540
Trust receipts bank loans         121,542        207,327                26,615
                                 ---------      ---------              ---------
                                  128,066        221,898                28,485
                                 =========      =========              =========

Short-term  bank  borrowings  were  denominated  in Hong Kong dollars,  and bore
interest at the Hong Kong prime  lending  rate to Hong Kong prime  lending  rate
plus 3.5%,  which ranged from 8.75% to 12.25% per annum as of March 31, 1999 and
8.25% to 12.25% per annum as of March 31, 2000.  Refer to Note 17 for details of
the Group's banking facilities.

Supplemental  information  with respect to short-term  bank  borrowings  for the
years ended March 31, 1999 and 2000 is as follows:
<TABLE>

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


Year ended March 31,
     1999

Bank overdrafts           9,800            8,713             10.93%                  11.73%
                        ========         ========           ========                ========
Short-term bank loans     2,000              667             8.75%                    8.81%
                        ========         ========           ========                ========
Trust receipts bank
loans                   123,500           80,914             9.33%                   10.12%
                        ========         ========           ========                ========
Year ended March 31,
     2000

Bank overdrafts           9,951            7,388            10.77%                   11.84%
                        ========         ========           ========                ========
Short-term bank loans    12,000            7,000             9.13%                    9.23%
                        ========         ========           ========                ========

Trust receipts bank
 loans                 213,004          166,946             8.95%                     9.10%
                       ========         ========           ========                ========
</TABLE>


                                      F-13
<PAGE>

10.  LONG-TERM BANK LOANS

Long-term bank loans were denominated in Hong Kong dollars, and bore interest at
the Hong Kong prime  lending  rate plus 0.25% to 3.25%,  which ranged from 9% to
11.75%  per annum as of March  31,  1999 and 8.5% to 11.5% per annum as of March
31, 2000. Refer to Note 17 for details of the Group's banking facilities.

Aggregate maturities of long-term bank loans are as follows:

                                       1 9 9 9              2 0 0 0
                                     ----------------------------------------
                                      HK $'000      HK $'000        US $'000
                                     ----------    ----------      ----------
Payable during the following
     periods

    -   Within one year               2,812          2,123             273

    -   Over one year but not         2,137          1,033             133
        exceeding two years

    -   Over two years but not        1,043          1,149             147
        exceeding three years

    -   Over three years but not      1,153          1,278             164
        exceeding four years

    -   Over four years but not       1,274          1,421             182
        exceeding five years

    -   Over five years               2,783          1,391             179
                                     --------      --------        --------
Total bank loans                      11,202         8,395           1,078

Less: Current portion                (2,812)        (2,123)           (273)
                                     --------      --------        --------
Non-current portion                   8,390          6,272             805
                                     ========      ========        ========

11.  CAPITAL LEASE OBLIGATIONS

Future  minimum  lease  payments  under the capital  leases,  together  with the
present value of the minimum lease payments, were:

                                   1 9 9 9            2 0 0 0
                                   --------    -----------------------
                                   HK $'000    HK $'000       US $'000

Payable during the following
     periods

    -   Within one year             10,780      14,253          1,830


    -   Over one year but not        7,477       5,271            676
        exceeding two years

    -   Over two years but not         693       2,267            291
        exceeding three years

Total minimum lease payments         18,950      21,791          2,797
Less: Amount representing            (1,736)     (2,051)          (263)
     future interest                --------    ---------      ---------

Present value of minimum             17,214      19,740          2,534
     lease
Less: Current portion                (9,487)    (12,747)        (1,636)
                                    --------    ---------      ---------
Non-current portion                   7,727       6,993            898
                                    ========    =========      =========

                                      F-14
<PAGE>


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

Accrued liabilities comprised:

                                      1 9 9 9              2 0 0 0
                                     -----------   -------------------------
                                     HK $'000       HK $'000      US $'000

Accruals for operating expenses


     -   Professional fees               680           833           107


     -   Workers' wages & bonus        2,716         3,473           446

     -   Management bonus              3,100         3,950           507

     -   Rental expenses                 150           324            41

     -   Others                           26           184            24

Accrued interest expense                   -           893           115
                                      -------       --------      -------
                                       6,672         9,657         1,240
                                      =======       ========      =======


13.  PROVISION FOR INCOME TAXES
     ---------------------------

Provision for income taxes consisted of the following:

                                    1 9 9 8    1 9 9 9          2 0 0 0
                                    -------    -------   ----------------------
                                    HK$'000    HK$'000   HK$'000        US$'000

Current tax
     -   Hong Kong profits tax      (2,212)   (13,000)   (5,217)          (670)
     -   PRC business tax and
          enterprise income tax (a) (6,477)    (4,253)        -              -

Over - provision in prior years
     -   Hong Kong profits tax (b)        -          -    21,098          2,709
     -   PRC business tax and
         enterprise income tax (a)    6,477      2,506         -              -
Deferred tax                         (7,751)         -    (3,449)          (443)
                                   ----------  --------  ---------       -------
                                     (9,963)   (14,747)   12,432          1,596
                                   ==========  ========  =========       =======
Notes -

a:   Prior to April 1, 1999, the Group received  contract  processing fees based
     on the utilization of equipment and technology provided by the Group to its
     PRC contracting partners. Provision for PRC taxes in relation to these fees
     had been made for periods prior to April 1, 1999.

                                      F-15
<PAGE>


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

b:   A substantial  portion of the Group's business activities were conducted in
     the PRC. Accordingly, the Group was entitled to a 50 : 50 offshore claim in
     reporting its Hong Kong profits tax, under which the profit attributable to
     the Group's PRC activities is exempted from Hong Kong profits tax. Prior to
     April 1, 1999,  the Group's 50 : 50 offshore  claim was under review by the
     Hong Kong Inland  Revenue  Department  ("the IRD") and a provision for Hong
     Kong profits tax in respect of the Group's offshore profit was recorded.

     During the year ended March 31,  2000,  the Group's 50 : 50 offshore  claim
     was agreed by the IRD and Hong Kong  profits  tax in respect of the Group's
     offshore profit was exempted.  In addition,  excess provision for Hong Kong
     profits tax  recorded  prior to April 1, 1999  amounting  to  approximately
     HK$21,098,000 was written back in the year March 31, 2000.

The Company and its  subsidiaries are subject to income taxes on an entity basis
on income arising in or derived from the tax jurisdiction in which they operate.
Subsidiaries  with  business  operations  in Hong Kong are  subject to Hong Kong
profits tax at a rate of 16.5% for the year ended March 31, 1998 and 16% for the
years ended March 31, 1999 and 2000. The British Virgin Islands subsidiaries 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. The Bermuda subsidiary is incorporated under the Companies
Act 1981 of Bermuda (as  amended) as an exempted  company and,  accordingly,  is
exempted from payment of Bermuda  income taxes until 2016.  Hang Fung  Jewellery
(Shenzhen) Co., Ltd., a company  established and operated in the PRC, is subject
to  enterprise  income tax at the rate of 33% (30% state income tax and 3% local
income tax).  However, it is exempted from PRC state income tax and local income
tax for two  years  starting  from  the  first  year of  profitable  operations,
followed by a 50%  reduction for the following  three years.  No PRC  enterprise
income tax was provided as Hang Fung  Jewellery  (Shenzhen)  Co.,  Ltd. was in a
loss position.

The  reconciliation  of the Hong Kong statutory tax rate to the effective income
tax rate based on the income before  income taxes as stated in the  consolidated
statements of operations is as follows:

                                    1 9 9 8     1 9 9 9       2 0 0 0
                                   ---------   ---------     ---------
Hong Kong statutory income
     tax rate                        16.5%       16.0%         16.0%
Non-taxable income arising
     from activities which
     qualified as offshore              -           -           (8.0%)
General provision on tax
     charged in foreign
     jurisdiction                    11.4%        6.8%             -
Over-provision of taxation
     in prior years                 (11.0%)      (3.3%)        (24.2%)
Deferred tax assets for
      which no benefits have
      been recognized due to
     the establishment of
     valuation allowance                -           -           2.8%
Other deductible activities             -           -          (0.9%)
                                  ---------  ----------   ------------
                                   16.9%       19.5%       (14.3%)
                                  =========  ==========   ============

                                      F-16
<PAGE>

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

Components  of  deferred  tax  balances  as of  March  31,  1999 and 2000 are as
follows:

                                          1 9 9 9          2 0 0 0
                                          -------         ---------------------
                                          HK$'000         HK$'000       US$'000

Tax effect of accumulated
         difference between
         taxation allowance and
         deprecation expenses                9,945          13,394        1,719

Loss of a subsidiary to be
         utilized for offsetting future
         taxable income                          -          (2,470)        (317)
                                           --------        ---------    --------

                                              9,945         10,924        1,402

Valuation allowance                               -          2,470          317
                                           --------       ---------     --------
                                              9,945         13,394        1,719
                                           ========       =========     ========

The retained earnings of the foreign subsidiaries would be subject to additional
taxation if distributed. In the opinion of the Directors these retained earnings
are, at the present time,  required to finance the  continuing  operation of the
subsidiaries  and,  accordingly,  no provision for additional  taxation has been
made.


14.  LOSS ON REDUCTION IN EQUITY INTEREST IN A SUBSIDIARY
     ----------------------------------------------------

On February 27, 1999, Hang Fung Jewellery  Company Limited,  a subsidiary of the
Company,  redeemed its redeemable  preferred stocks and Phenomenal Limited,  the
redeemable  preferred stock holder applied the redeemed proceeds,  US$10,000,000
to subscribe  for 582,800  shares of common stock of HFGTL,  a then wholly owned
subsidiary  of the  Company,  at  US$17.16  each.  On March 9, 1999,  HFGTL sold
78,750,000  common  stock at HK$0.9 in a public  offering,  receiving a net cash
proceeds  of   HK$58,671,000,   after   deducting  the  common  stock   issuance
expenditure.  Immediately  after the public offering,  HFGTL  capitalized  share
premium of approximately HK$23,425,000 for the issuance of 234,250,000 shares on
a pro rata basis to the shareholders of HFGTL before the public offering.  Thus,
after the share  subscription and the  capitalization,  Phenomenal Limited holds
68,843,250 shares of HFGTL. These equity transactions resulting in a dilution of
the  Company's  effective  percentage  of  shareholding  of HFGTL  from  100% to
53.145%.  The loss resulting from reduction of the Company's  equity interest in
HFGTL of approximately  HK$2,100,000 was charged to the consolidated  statements
of operations for the year ended March 31,1999.

                                      F-17
<PAGE>

15.  COMMITMENTS AND CONTINGENT LIABILITIES
     --------------------------------------

a.   Capital commitments

     As of March 31,  1999 and  2000,  the Group  had  capital  commitments  for
     acquisition   of  machinery  and  equipment   amounting  to   approximately
     HK$1,535,000 and HK$1,675,000, respectively.

b.   Operating lease commitments

     The  Group has  various  operating  lease  agreements  for staff  quarters,
     factory  premises,  warehouses  and motor  vehicles  under  non-cancellable
     operating  leases which extend to September  2006.  Rental expenses for the
     years ended March 31, 1998, 1999 and 2000 were approximately  HK$4,745,000,
     HK$4,523,000 and HK$3,836,000 respectively.  As of March 31, 1999 and 2000,
     future rental payments under agreements classified as operating leases with
     non-cancellable terms are as follows:


                                       1 9 9 9              2 0 0 0
                                      ---------     --------------------------
                                       HK$'000       HK$'000          US$'000

Payable during the
  following periods:
     -   Within one year                 2,951         2,364            303
     -   Over one year but not           2,229           504             65
         exceeding two years
     -   Over two years but not            504           495             64
         exceeding three years
     -   Over three years but not          495           448             57
         exceeding four years
     -   Over four years but not           448           460             59
         exceeding five years
     -   More than five years            1,163           701             90
                                        -------       -------         ------
                                         7,790         4,972            638
                                        =======       =======         ======

c.   Contingent liabilities

     Contingent liabilities not provided in the financial statements were:


                                         1 9 9 9            2 0 0 0
                                        ---------    ------------------------
                                         HK$'000      HK$'000        US$'000

      Discounted bills with recourse       2,605        1,798           231
                                         =======      =======        ======

                                      F-18
<PAGE>

16.  RETIREMENT PLAN

The  Group's  employees  in the PRC are all  employed  on a  contract  basis and
consequently  the Group  has no  obligation  for  pension  liabilities  of these
employees.

The  employees  of the Group's  operation in Hong Kong after  completing  twelve
month's service may join the Group's defined  contribution  pension fund managed
by an  independent  trustee.  Both the  Group  and the  employees  make  monthly
contributions  to  the  scheme  of 5% of  the  employees'  basic  salaries.  The
employees  are  entitled to receive  their  entire  contribution  together  with
accrued  interest  thereon at any time upon  leaving the Group,  and 100% of the
Group's  employer  contribution and the accrued interest thereon upon retirement
or leaving the Group after completing ten years of service or at a reduced scale
of  between  30% to 90% after  completing  three to nine years of  service.  Any
forfeited  contributions  made by the Group and the accrued interest thereon are
used to reduce future  employer's  contributions.  The  aggregate  amount of the
Group's employer  contributions  (net of forfeited  contributions) for the years
ended March 31, 1998, 1999 and 2000 was approximately HK$145,000,  HK$93,000 and
HK$184,000, respectively.

As of March 31, 1999 and 2000, certain employees of the Group have completed the
required  number of years of service  under the Hong Kong  Employment  Ordinance
("the  Ordinance")  to be eligible for long service  payments on  termination of
their  employment.  The  Group is only  liable to make  such  payments  when the
termination  meets  the  circumstances   specified  in  the  Ordinance.  If  the
termination  of  employment  of all  these  employees  meets  the  circumstances
specified by the Ordinance,  the Group's liability as of March 31, 1999 and 2000
would be as follows:


                                 1 9 9 9                2 0 0 0
                                ---------      --------------------------
                                 HK$'000        HK$'000           US$'000

Amount not provided in the
     financial statements         231             123                16
                                 =====           =====             =====

17.  BANKING FACILITIES
     ------------------

As of March 31, 1999 and 2000,  the Group had  aggregate  banking  facilities of
approximately  HK$184,807,000  and  HK$279,315,000,  respectively,  from several
banks for bank overdrafts,  loans and trade financing.  Unused  facilities as of
the  same  date  amounted  to  approximately  HK$27,926,000  and  HK$37,736,000,
respectively. These facilities were secured by:

a.   pledge of  machinery  and  equipment  with an  aggregate  net book value of
     approximately  HK$1,395,000 and HK$1,116,000 as of March 31, 1999 and 2000,
     respectively;

b.   mortgage over the Group's leasehold land and building with a net book value
     of  approximately  HK$1,973,000  and  HK$1,973,000 as of March 31, 1999 and
     2000, respectively;

c.   the Group's inventories held under trust receipts bank loans;

                                      F-19
<PAGE>

17.  BANKING FACILITIES  (Cont'd)
     -------------------

d.   pledges of the Group's bank deposits of HK$60,150,000 and HK$117,575,000 as
     of March 31, 1999 and 2000, respectively;

e.   guarantee  from the  Government  of the Hong  Kong  Special  Administrative
     Region under the Special  Finance  Scheme for Small and Medium  Enterprises
     amounting  to  Nil  and  HK$2,000,000  as  of  March  31,  1999  and  2000,
     respectively;

f.   mortgages over certain  leasehold  land and buildings  owned by Mr. Lam Sai
     Wing and Ms. Chan Yam Fai, Jane, directors of the Company;

g.   personal  guarantees  provided  by Mr.  Lam Sai Wing and Ms.  Chan Yam Fai,
     Jane;

h.   assignment  of the benefits in respect of the keyman  insurance for Mr. Lam
     Sai Wing, a director of the Company,  amounting to Nil and HK$20,000,000 as
     of March 31, 1999 and 2000, respectively; and

i.   corporate guarantee provided by the Company.

In  addition,  the Group has  undertaken  to comply with  restrictive  covenants
imposed by a bank.


18.  RELATED PARTY TRANSACTIONS
     --------------------------

a.   The Group entered into the following transactions with related parties:


                                  1 9 9 8   1 9 9 9         2 0 0 0
                                 --------- ---------  --------------------
                                  HK$'000   HK$'000    HK$'000     US$'000

     Rental paid to Ms. Chan Yam   1,350         -          -           -
          Fai, Jane

     Rental paid to Mr. Lam Sai        -       162        324          42
          Wing                    =======   =======     ======      ======

b.   The Group had the following outstanding balances with a director:

                                               1 9 9 9             2 0 0 0
                                              ---------    ---------------------
                                               HK$'000     HK$'000       US$'000

         Due to a director
              - Mr. Lam Sai Wing                3,101       4,426         568
                                               =======     =======       ======

     The balances due to a director  were  unsecured,  non-interest  bearing and
     without pre-determined repayment terms.

c.   The Group's  banking  facilities  were secured by, among others,  mortgages
     over  leasehold  land and buildings  owned by Mr. Lam Sai Wing and Ms. Chan
     Yam Fai, Jane and personal  guarantees provided by Mr. Lam Sai Wing and Ms.
     Chan Yam Fai, Jane.

                                      F-20
<PAGE>

19.  SEGMENT INFORMATION
     -------------------

a.   Revenue
<TABLE>
                                           1 9 9 8     1 9 9 9           2 0 0 0
                                          ---------   ---------  -----------------------
                                           HK$'000     HK$'000    HK$'000       US$'000
<S>                                       <C>          <C>        <C>           <C>


         Hong Kong operation -

         Sales of jewellery products to
              customers in
              - Hong Kong                   80,058    54,929     147,592        18,946
              - The PRC                     77,527   122,659     254,418        32,659
              - Middle East                 72,161   108,086      85,073        10,921
              - South East Asia             94,739   128,352     134,517        17,268
              - Europe                      45,614   136,880     188,065        24,142
              - United States of America    79,137   107,884     149,405        19,179
                                          --------- ---------   ---------     ---------
                                           449,236   658,790     959,070       123,115
                                          ========= =========   =========     =========
         The PRC operation -

         Contract processing fees           33,360    17,012           -             -
                                          ========= =========   =========     =========
</TABLE>

b.   Operating profit *
     ------------------

                                   1 9 9 8     1 9 9 9            2 0 0 0
                                  ---------   ---------     --------------------
                                   HK$'000     HK$'000      HK$'000      US$'000

         Hong Kong operation       27,103      69,943      103,702        13,312

         The PRC operation         36,704      17,960            -             -
                                  --------    --------    ---------      -------
         Total                     63,807      87,903      103,702        13,312
                                  ========    ========    =========      =======

*    Operating  profit  represents  gross  profit  less  selling,   general  and
     administrative expenses.

c.   Identifiable assets
     -------------------

                                       1 9 9 9                  2 0 0 0
                                      ---------        ------------------------
                                       HK$'000          HK$'000        US$'000

         Hong Kong                     417,179         636,947         81,765
         The PRC                       153,977         104,389         13,400
                                      ---------       ---------       --------
         Total                         571,156         741,336         95,165
                                      =========       =========       ========

                                      F-21
<PAGE>

19.  SEGMENT INFORMATION (Cont'd)
     -------------------

d.   Major customers

     Details of individual  customers accounting for more than 5% of the Group's
     sales are as follows:

                                            1 9 9 8    1 9 9 9       2 0 0 0
                                           ---------  ---------     ---------
         Chow Tai Fook Jewellery
               Company Limited                5.9%       2.0%          2.9%
         Sam Ming Tong Jewellery
               Company Limited                5.5%       4.9%          3.8%
                                             ======     ======        ======
e.   Major suppliers

     Details of individual  suppliers accounting for more than 5% of the Group's
     purchases are as follows:

                                            1 9 9 8    1 9 9 9        2 0 0 0
                                           ---------  ---------      ----------
         Heraeus Limited -
               supplied gold bullion          44.3%     62.9%         67.4%
         AGR Hong Kong Limited                 7.5%      3.6%          2.3%
         Degussa China Limited                 6.9%      4.6%          3.2%
              Chinese Wall
              Technology Company
              Limited                             -         -          7.8%
         Johnson Matthey Hong
              Kong Limited                     3.3%      2.0%          5.8%
                                              ======    ======        ======

20.  OPERATING RISKS
     ---------------

a.   Country risk
     ------------

     The Group's operations are conducted in Hong Kong and the PRC. Accordingly,
     the Group's business,  financial  position and results of operations may be
     influenced by the political,  economic and legal  environments in Hong Kong
     and  the  PRC,  and by the  general  state  of the  Hong  Kong  and the PRC
     economies.

     Effective  from July 1, 1997,  sovereignty  over Hong Kong was  transferred
     from  the  United  Kingdom  to the  PRC,  and Hong  Kong  became a  Special
     Administrative  Region of the PRC. As provided in the Basic Law of the Hong
     Kong, Hong Kong will have full economic  autonomy and its own  legislative,
     legal and judicial systems for fifty years. The Group's management does not
     believe  that the  transfer  of  sovereignty  over Hong Kong had an adverse
     impact on the Group's financial and operating environment.  There can be no
     assurance,  however, that changes in political or other conditions will not
     result in such an adverse impact.

     The Group's operations in the PRC are subject to special considerations and
     significant risks not typically  associated with companies 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 adversely  affected by changes in the political
     and social  conditions in the PRC, and by changes in governmental  policies
     with respect to laws and regulations,  anti-inflationary measures, currency
     conversion and remittance abroad, and rates and methods of taxation,  among
     other things.

                                      F-22
<PAGE>
20. OPERATING RISKS (Cont'd)

b.   Concentration of credit risk
     ----------------------------

     Concentration  of accounts  receivable  as of March 31, 1999 and 2000 is as
     follows:

                                                           1 9 9 9    2 0 0 0
                                                          ---------  ----------

         Five largest accounts receivable                   18.5%      21.6%
                                                           =======    =======

     The Group performs ongoing credit  evaluation of each customer's  financial
     condition.  It maintains  reserves  for  potential  credit  losses and such
     losses in the aggregate have not exceeded management's projections.

c.   Dependence on a limited number of suppliers
     -------------------------------------------

     The Group  purchases  raw  materials  from a limited  number of  suppliers.
     Concentration on the Group's  suppliers for the years ended March 31, 1998,
     1999 and 2000 is as follows:

                                                  1 9 9 8    1 9 9 9     2 0 0 0
                                                 ---------  ---------   --------
         Purchases from five largest suppliers     66.2%      77.0%       89.0%
                                                  =======    =======     =======


21.  SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
     ------------------------------------------------

a.   Cash paid for interest and income taxes are as follows:
<TABLE>

                                                           1 9 9 8  1 9 9 9             2 0 0 0
                                                           -------  -------      ---------------------
                                                           HK$'000  HK$'000      HK$'000       US$'000
<S>                                                        <C>      <C>          <C>           <C>

         Interest paid                                     5,513    11,588       18,599         2,387
                                                          =======  ========     ========       =======

         Income taxes                                      3,664       147        2,397           308
                                                          =======  ========     ========       =======
</TABLE>

b.   Cash received for interest income are as follows:
<TABLE>

                                                           1 9 9 8    1 9 9 9          2 0 0 0
                                                           -------    -------     ------------------
                                                           HK$'000    HK$'000     HK$'000    US$'000
<S>                                                        <C>        <C>         <C>        <C>

         Interest received                                 1,065       3,234      6,216        798
                                                          =======     =======    =======      =====
</TABLE>


c.   Non-cash investing activities

     During  the years  ended  March 31,  1998,  1999 and  2000,  capital  lease
     obligations of approximately HK$29,644,000, HK$2,234,000 and HK$15,070,000,
     respectively,  were  incurred  to  finance  the  Group's  additions  of new
     machinery and equipment.

                                      F-23
<PAGE>


22.      OTHER SUPPLEMENTAL INFORMATION
<TABLE>

                                                   1 9 9 8    1 9 9 9          2 0 0 0
                                                  ---------  --------- ----------------------
<S>                                               <C>        <C>       <C>

                                                   HK$'000    HK$'000   HK$'000      US$'000

         Depreciation of property, machinery and
               equipment
              - owned assets                       15,634      31,970   44,215         5,676
              - assets held under capital leases    7,513       7,635   11,365         1,459
         Loss on disposal of property, machinery
              and equipment                             -          49        -             -
         Allowance for bad and doubtful accounts        -       2,500    5,000           642
         Allowance for obsolete and slow-moving
              inventories                               -       2,000        -             -
         Derivative trading loss *                      -           -      497            64
         Interest expenses for
              - bank overdrafts and loans           4,475       9,585   17,636         2,264
              - capital lease obligations           1,038       2,003    1,856           238
         Operating lease rentals for
              - premises                            4,745       4,443    3,754           482
              - machinery & equipment                   -          80       82            11
         Advertising and promotion expenses         1,331       1,154      804           103
         Repairs and maintenance expenses             667         721      774            99
         Rental income                                 55         101       48             6
         Net foreign exchange (loss) gain             (12)        149      127            16
         Interest income from bank deposits         1,065       3,234    6,216           798
                                                   =======     =======  =======        ======
</TABLE>


*    During  the year ended  March 31,  2000,  the Group  entered  into  forward
     contracts  for  trading  of  gold,  resulting  in a loss  of  approximately
     HK$497,000.  There was no outstanding forward contract as of March 31, 1999
     and 2000.

23.  SUBSEQUENT EVENTS
     -----------------

The following significant events took place subsequent to March 31, 2000:

a.   The Group is under negotiation to enter into a joint venture agreement with
     a company  related to Phenomenal  Limited,  a minority  shareholder  of the
     HFGTL,  and an independent  third party to establish an internet portal for
     trading in gold, other precious metal and jewellery products.  According to
     the negotiation, each of the Group and the two venture partners would own a
     33.33% interest in the joint venture. In addition,  the Group has agreed to
     provide the joint venture a loan of HK$7,000,000 for the development of its
     internet  business.  The  loan  is  unsecured,   non-interest  bearing  and
     subordinated to other third party liabilities of the joint venture.

b.   In June,  2000, the Group entered into an agreement with New Epoch Holdings
     International Limited ("NEHIL"),  an independent third party, whereby HFGTL
     agreed to acquire a 49.9% interest in New Epoch  Information  (BVI) Limited
     ("NEIBVI"),  a company  engaged in the  development of internet  portal for
     online  trading  ("the  Acquisition").  The  purchase  price  for the 49.9%
     interest in NEIBVI amounted to approximately HK$186,000,000, which would be
     satisfied  by the issue of  1,632,000,000  new shares of HFGTL at  HK$0.114
     each.  Upon  completion of the  Acquisition,  NEHIL will own  approximately
     34.1% of the issued  voting  shares of HFGTL and the  Group's  interest  in
     HFGTL will be reduced to approximately 35%.

     In  addition,  HFGTL has  agreed to  provide  NEIBVI a loan  facility  upon
     completion  of the  Acquisition.  The  amount of the loan  facility  is the
     higher of (i)  HK$50,000,000  and (ii)  two-thirds of the amount of the net
     proceeds of equity or debt issue of HFGTL from time to time  subsequent  to
     the  Acquisition.  The loan  facility  bears  interest  at Hong Kong  prime
     lending  rate  plus  2.5%  and  will be used for  developing  the  internet
     business of NEIBVI.

                                      F-24