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, 2001

[ ]  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 of          (I.R.S. Employer Identification Number)
 incorporation or organization)


           Unit 25-32, Second Floor, Block B, Focal Industrial Centre,
                      21 Man Lok Street, Hunghom, Hong Kong
          ------------------------------------------------------------

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  23,  2001,  12,865,000  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 $313,000.

                       DOCUMENTS INCORPORATED BY REFERENCE

         None

<PAGE>

                                TABLE OF CONTENTS

                                                                           Page
                                                                           ----
PART I

         ITEM 1.     BUSINESS.............................................    1
         ITEM 2.     PROPERTIES...........................................   13
         ITEM 3.     LEGAL PROCEEDINGS....................................   13
         ITEM 4.     SUBMISSION OF MATTERS TO A VOTE
                     OF SECURITY HOLDERS..................................   13

PART II

         ITEM 5.     MARKET FOR REGISTRANT'S COMMON EQUITY
                     AND RELATED STOCKHOLDER MATTERS......................   13

         ITEM 6.     SELECTED FINANCIAL DATA..............................   14
         ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                     FINANCIAL CONDITION AND RESULTS OF OPERATIONS........   15
         ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES
                     ABOUT MARKET RISK....................................   23
         ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA .........   23
         ITEM 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
                     ON ACCOUNTING AND FINANCIAL DISCLOSURE...............   23
PART III

         ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS,
                     AND CONTROL PERSONS..................................   23
         ITEM 11.    EXECUTIVE COMPENSATION...............................   24
         ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
                     OWNERS AND MANAGEMENT................................   26
         ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED
                     TRANSACTIONS.........................................   27
PART IV

         ITEM 14.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
                     REPORTS ON FORM 8-K..................................   27

                     SIGNATURES...........................................   29


<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 present various  affiliates,  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.,  where  appropriate,  and its  subsidiaries  or its  affiliates.  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, 2001 of US$1.00 = HK$7.8.  No
representation  is made  that the HK$  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
present  various  affiliates,  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   operations   date  to  the  formation  of  a  jewelry
manufacturing and marketing  business by Lam Sai Wing ("Mr. Lam") in the 1980's.
In the  mid-1990's,  Mr.  Lam and his wife,  Chan Yam Fai,  Jane  ("Ms.  Chan"),
restructured substantially all of their jewelry operations by transferring those
operations to Hang Fung Jewellery  Company  Limited ("Hang Fung  Jewellery") and
transferring Hang Fung Jewellery to Quality Prince Limited ("Quality Prince").

         In December 1996, Quality Prince completed a "reverse acquisition" with
the Company (the "Exchange") pursuant to which the jewelry operations of Mr. Lam
and Ms. Chan were acquired by the Company,  prior operations of the Company were
terminated,   the  Company   assumed  and  carried  on,  through  the  operating
subsidiaries of Quality Prince (collectively the "Hang Fung Group"), the jewelry
operations and management of the Hang Fung Group assumed control of the Company.

         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") and a  non-detachable
warrant (the "Warrant") to subscribe for 5,263,158 shares of common stock of the
Company at an exercise price of $2.19 per share.  In accordance with the term of
the agreement,  the Warrant expired in May 1998. In June 1998, Phenomenal agreed
to  extend  the  maturity  date of the Note and waive  its then  entitlement  to
interest  accrued  under  the Note and 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. In February 1999, the
Hang Fung Group effected a corporate reorganization (the "Group Reorganization")
with Hang Fung Gold  Technology  Limited  ("Hang Fung Gold")  becoming a holding
company, excluding Quality Prince, for the Hang Fung Group and, according to the
terms of the revised  agreement with Phenomenal,  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.  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 and traded on The Stock  Exchange  of Hong Kong  Limited  (the "Hong Kong
Exchange") commencing on March 16, 1999.


                                       1
<PAGE>

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

         Beginning  in  fiscal  1999,  the  Company   implemented  a  number  of
initiatives  such  as (1)  product  branding,  (2)  establishment  of  strategic
marketing alliances, (3) expansion of wholesale and retail distribution channels
in  the  PRC,  and  (4)  contemplation  of an  Internet  business  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.

         As part of the Hang Fung  Group's  Internet  strategy,  in August 2000,
Hang  Fung Gold  acquired  49.9% of the  stock of New  ePoch  Information  (BVI)
Company  Limited  ("New  Epoch") in exchange  for shares of common stock of Hang
Fung Gold (the "New Epoch Transaction")  representing approximately 34.1% of the
capital stock of Hang Fung Gold as enlarged following the transaction. Under the
terms of the New Epoch Transaction, Hang Fung Gold has an option for a period of
three years to acquire the remaining  shares of New Epoch.  In conjunction  with
the New Epoch  Transaction,  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. In August 2000, Hang Fung Gold completed a placement
of shares resulting in proceeds of HK$62.7 million (the "HFG  Placement").  As a
result  of the  New  Epoch  Transaction  and the HFG  Placement,  the  Company's
ownership interest in Hang Fung Gold was reduced to 31.4%.

         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.

                                       2
<PAGE>

Company Structure

         The following chart sets forth the  organization of the Company and its
principal subsidiaries as of March 31, 2001:

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

                                      100%

                             Quality Prince Limited
                    (incorporated in British Virgin Islands)

                                      31.4%

                       Hang Fung Gold Technology Limited
                           (incorporated in Bermuda)

<TABLE>
   <S>                                       <C>
       100%                                            49.9%
 Macadam Profits Limited                     New ePoch Information (BVI) Company Limited
(incorporated in the British Virgin Islands)  (incorporated in the British Virgin Islands)

                                                (E-commerce trading platform)

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


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

      100%
 Hang Fung Jewellery (Shenzhen) Co., Ltd.
 (established in the PRC)


(Manufacturing of
 jewelry products)

</TABLE>

                                       3
<PAGE>

Overview

         The Company,  prior to the New Epoch Transaction and the HFG Placement,
was a holding company with its operating subsidiaries principally engaged in the
design,  manufacture and  distribution of a broad range of gold products,  other
precious  metal  products and jewelry  products.  All jewelry and precious metal
operations  of the  Company are carried out through the Hang Fung Group which is
owned,  after  the New Epoch  Transaction  and the HFG  Placement,  31.4% by the
Company.

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

         The Hang Fung Group presently markets its products throughout the world
including Hong Kong, the PRC,  Southeast Asia, Europe and the United States. The
Hang Fung Group has increased its sales in recent years as a result of increased
marketing effort and competitive pricing strategy.

         In August 2000, Hang Fung Gold acquired 49.9% of the equity interest of
an  affiliate,  New  Epoch,  which 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 an internet B2B platform.

         As a result of the reduction in the Company's ownership interest in its
operating   subsidiaries  following  the  New  Epoch  Transaction  and  the  HFG
Placement,  the results of those previous subsidiaries are no longer reported on
a  consolidated  basis by the  Company  but are  accounted  for under the equity
method of accounting.

Developments During Fiscal Year 2001

         In August 2000, Hang Fung Gold completed the New Epoch  Transaction and
the HFG Placement as a part of Hang Fung Group's Internet strategy to expand its
distribution channels. Hang Fung Group also began offering e-commerce facilities
and services to support  e-commerce.  As a result of the severe  downturn in the
Internet market,  development of the e-commerce  business of Hang Fung Group and
of New Epoch has been substantially curtailed.

Gold, Jewelry and Precious Metal Products Operations

- Products

     The Hang Fung Group'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 Hang Fung Group's products include, but are
not limited to, bracelets, chains, charms, rings, earrings,  ornamental plaques,
serving sets and decorative pieces.

     The Hang Fung Group  classifies its products in the following four distinct
segments:

Gold Products

     The  principal  product  line of the Hang Fung Group  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 Hang  Fung  Group  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 Hang Fung Group
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 Hang Fung Group also
manufactures  customized  gold memento cards and key chains for  corporations as
souvenirs in their business promotions.

                                       4
<PAGE>

Other Precious Metal Products

         Other  precious  metal  products  manufactured  by the Hang Fung  Group
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 Hang Fung  Group 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.

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 Hang Fung Group's products range in wholesale price
from  approximately $1 to over $65,000.  The mean selling price of the Hang Fung
Group's products is between $200 and $280. The following table  illustrates,  in
US dollars,  the  typical  range and  average  wholesale  price of the Hang Fung
Group'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 and 2001,  sales of Hang Fung Group
by major product category and as a percentage of sales were as follows:

                                             2000                 2001
                                     -------------------     -----------------
                                      Amount                 Amount
                                      $'000      Percent     $'000     Percent
                                     -------     -------     ------    -------

Fine gold products...............     71,133       57.8     129,744     76.3
Other precious metal products....     30,753       25.0      16,583      9.7
Jewelry products.................     21,031       17.1      23,539     13.8
Others...........................        198        0.1         359      0.2
                                   ---------     ------    --------   ------
                                     123,115      100.0     170,225    100.0
                                    ========      =====    ========   ======

 - Product Design and Development

         The Hang Fung Group  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 Hang Fung Group 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 Hang Fung Group 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.

                                       5
<PAGE>

         In order to maintain its  competitiveness  in the gold product  market,
the Hang Fung Group constantly  introduces new products.  Beginning in 1991, the
Hang Fung Group  introduced fine gold ornaments such as gold memento cards,  key
chains and  electroformed  products to the market.  Some of the  products of the
Hang Fung Group 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.

 - Purchasing

         The primary raw  material in the  manufacture  and assembly of the Hang
Fung Group's  products is gold bullion.  For the year ended March 31, 2001,  the
cost of gold bullion accounted for approximately  79.9% of the Hang Fung Group's
total purchases.

         The Hang Fung Group sources gold bullion  primarily  from  suppliers in
Australia,  England,  Germany and Hong Kong.  The Hang Fung Group mainly sources
gold bullion from gold bullion traders.  Generally,  the Hang Fung Group 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, 2001, purchases of gold from the Hang Fung
Group's five largest  suppliers  accounted for  approximately  93.9% of the Hang
Fung Group's total purchases. The Hang Fung Group sources gold bullion regularly
from its major suppliers and has not experienced any difficulty in obtaining the
raw  materials  required in the past.  The Hang Fung Group 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 Hang  Fung  Group  does not  maintain  any  long-term  contractual
arrangements with its suppliers. Management believes that the Hang Fung Group 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
Hang Fung Group.

         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 Hang Fung Group does not actively engage in hedging activities with
respect  to  possible  fluctuations  in  gold  prices.  The  Hang  Fung  Group's
management  monitors the  fluctuation of gold prices closely and should the need
for  hedging  arise in the  future,  the Hang Fung  Group may  engage in hedging
transactions.  Moreover,  the Hang Fung Group 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 Hang Fung Group'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 Hang  Fung  Group to its  customers,
thereby  minimizing  the effect of  fluctuation  of gold prices on the Hang Fung
Group.

 - Manufacturing and Assembly

Production Facilities

         At March 31, 2001, the Hang Fung Group 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 Hang Fung Group previously
operated production facilities in Beijing,  Shanxi and Shenzhen under processing
agreements with PRC entities holding requisite permits.

                                       6
<PAGE>

-- Production Facilities in the Hong Kong

   Hunghom Facility

         The Hunghom  Facility was  established in 1988 and is now equipped with
20 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 of 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 Hang Fung Group'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 it
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 now
houses 45 production  lines  primarily for the production of fine and karat gold
products and other precious metal products.

Production Process

         The Hang Fung Group 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.

-- Ornaments

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

                                       7
<PAGE>

         Design and Mold Making

         The Hang Fung Group'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.

 - Manufacturing Technology and Development

         The Hang Fung  Group  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  Hang  Fung  Group  has  successfully  combined
traditional manual craftsmanship with advanced  computerized  technology to mass
produce quality gold products in a cost efficient manner.

                                       8
<PAGE>

         The  Hang  Fung  Group  has  committed  to  invest  in  developing  the
technology and improvement in product quality.  As one of the first gold product
manufacturers to have successfully implemented  electro-forming  technology, the
Hang Fung Group 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 Hang Fung Group 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 Hang Fung
Group.  Gold  statuettes  are produced by scanning the object to be  reproduced,
particularly  busts, by a computerized  scanner.  Details of the contours of the
bust 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 Hang Fung
Group and finally to the rapid prototyping system for further production of fine
gold busts 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 Hang Fung Group has also  obtained  other  patents in Hong Kong for
other production methods.

         The Hang Fung  Group  used  advanced  electro-forming  technologies  to
successfully  manfacture the world's tallest one-piece  electro-formed fine gold
statue - the  Goddess  Kuan Yan and  became  the only  manufacturer  capable  of
producing  one-piece  electro-formed  products in such size.  The statue  weighs
approximately  168kg and is 273cm high with an estimated worth of HK$15 million.
The Hang Fung Group has applied for inclusion of the statue in the Guinness Book
of World Records.

 - Quality Control

         The Hang Fung Group's  quality  control team consists of 20 persons and
is  committed to ensure that the  products  meet the Hang Fung  Group'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 Hang Fung Group 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 Hang Fung
Group's marketing staff also check the quality of finished products upon receipt
of products before distribution.

     Hang Fung Jewellery  (Shenzhen) Co. Ltd., a wholly-owned  subsidiary of the
Hang Fung Group,  which operates the Sha Tau Kok Facility,  has been granted the
ISO 9001 certification.

         The Hang Fung Group is  preparing  to apply for ISO 9001  certification
for its Hunghom Facility.

 - Inventory Policy and Control

     For gold  bullion,  in  general,  it is the Hang  Fung  Group's  policy  to
maintain a stock holding  period of  approximately  70 days to 80 days. The Hang
Fung Group had a stock level at the year ended March 2001 of approximately 1,900
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
accounting  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  department 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  department  and the results of the stock counts are checked  against
the stock ledger.

                                       9
<PAGE>

 - Sales and Marketing

         The Hang Fung Group's marketing and sales activities are carried out by
a team of  approximately 90 staff members.  The Hang Fung Group's  marketing and
sales staff  carries out marketing  and sales  activities  under the guidance of
senior management which oversees the sales staff and overall marketing strategy.
The Hang Fung Group's  marketing and sales staff is responsible for establishing
and maintaining  relations with third party sales  representatives and customers
as well as marketing the Hang Fung Group's products to 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 Hang Fung Group
is able to  promote  its  corporate  image,  increase  public  awareness  of its
products and strengthen its competitive position in the gold products market.

         The Hang Fung Group had a showroom at its head office in Hunghom,  Hong
Kong where its wide range of products  were  displayed  and sold. As a result of
its unique design and excellent  product quality,  the products of the Hang Fung
Group are very popular among  customers.  As the previous  showroom for business
with tourists was typically  over-crowded,  the Hang Fung Group has relocated to
expand the  showroom  by opening of the  3D-Gold  Tourism  Exhibition  Hall (the
"Exhibition Hall") built to meet the increasing  business generated by tourists.
The Exhibition Hall is located at the ground floor, 28 Man Lok Street,  Hunghom,
Kowloon and occupies a gross floor area of approximately 20,000 square feet. The
Exhibition  Hall reinforces the Hang Fung Group's  determination  to manufacture
gold and jewellery  products with  innovative  technology.  The Exhibition  Hall
displays  various  scenes  such as the Fine Gold Kuan Yan  Statue,  the  Worlds'
Largest  Fresh Water Pearl,  Super Star Wax Models and the 12 Zodiac of the Yuan
Ming Yuan. Each scene has special  characteristics.  The Exhibition Hall expands
the Hang Fung Group's  customer  base and revenue base and promotes  Hong Kong's
tourism  industry  with  the  development  of  a  new  and  innovative   tourist
destination.

         Other promotional  activities undertaken by the Hang Fung Group 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
Hang Fung  Group by  existing  customers  or learn  about the Hang Fung  Group's
products from other sources such as  advertisements.  Customers may place orders
to the Hang Fung Group'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 Hang Fung Group does not hold a PRC license to distribute its products
in the PRC to customers in the PRC. The Hang Fung Group'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.

         Through an alliance  with the The  Administration  of  Shatoujiao  Free
Trade Zone of Shenzhen  (the "Free  Trade  Administration"),  Hang Fung  branded
products are sold through ten retail chain stores. Pursuant to the alliance, the
Hang Fung  Group,  jointly  with the Free Trade  Administration,  developed  the
wholesale and retail  business in the PRC by establishing  and selling  products
under its own "3D-Gold" and "La Milky Way" brands.

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

                                       10
<PAGE>

         The  principal  markets  to which the Hang Fung  Group's  products  are
distributed  are the PRC,  South East Asia,  Hong  Kong,  the United  States and
Europe.  Sales by region  (excluding  Subcontracting  fees) for the three  years
ended March 31, 2001 have been as follows:
<TABLE>

                                      1999                  2000                 2001
                                -----------------   ----------------    ------------------
                                 Amount              Amount               Amount
                                 $,000    Percent    $,000  Percent      $,000     Percent
                                --------  -------   ------- --------    ---------  --------
<S>                             <C>       <C>       <C>     <C>         <C>        <C>

PRC and Hong Kong..........     22,915     26.9     51,605    41.9        98,408     57.8
Southeast Asia.............     16,562     19.5     17,268    14.0        30,524     17.9
United States..............     13,920     16.4     19,179    15.6        18,065     10.6
Europe.....................     17,661     20.8     24,142    19.6        15,129      8.9
Others.....................     13,947     16.4     10,921     8.9         8,099      4.8
                                ------   ------   -------- -------      --------  -------
   Total...................     85,005    100.0    123,115   100.0       170,225    100.0
                                ======   ======   ======== =======      ========  =======
</TABLE>

     The Hang Fung  Group  generally  adopts a tight  credit  policy  and grants
credit only to selected customers depending on their business  relationship with
the Hang Fung Group.  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 Hang  Fung  Group.  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 Hang Fung Group has  experienced no significant  bad debt
problems and management believes there are no material collectibility problems.

 - Customers

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

     At March 31,  2001,  the Hang  Fung  Group had  approximately  300  regular
customers.  The Hang Fung Group  estimates  that,  through  customers  and their
extensive  distribution  networks,  the products  manufactured  by the Hang Fung
Group are sold in approximately 2,000 retail outlets worldwide.

     For the year  ended  March 31,  2001,  the Hang  Fung  Group  five  largest
customers  accounted for  approximately  12.2% of sales.  During fiscal 2001, no
customers accounted for more than 5% of the Hang Fung Group's revenues. The Hang
Fung Group has no long term contracts with any customers.  The Hang Fung Group's
top five  customers  have each had a  business  relationship  with the Hang Fung
Group for over five years.

 - 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 Hang Fung Group believes its competitive  position is
enhanced by the Hang Fung Group's broad  customer base,  experienced  management
team,   advanced   technology  and  capital  investment  in  continuous  product
development and product design and the Hang Fung Group's close relationship with
its  customers  and vendors.  Therefore,  although the  competition  is intense,
management  believes  that the Hang Fung Group is well  positioned to compete in
the jewelry industry.

Internet Operations

     In August  2000,  the Hang Fung  Group  acquired  49.9% of the stock of New
ePoch Information  (BVI) Company Limited ("New Epoch").  New Epoch is engaged in
developing and facilitating  e-commerce trading facilities between China and the
rest of the world using offline trading  services to complement its Internet B2B
platform.

                                       11
<PAGE>

     New Epoch is actively seeking cooperation with entities in China in various
industries  to  explore  and  pioneer  opportunities  in  China  and will be the
investment and business  development  arm of the Hang Fung Group in China.  As a
result of the severe downturn of the Internet business,  New Epoch has curtailed
its developing of e-commerce trading facilities.

     In August 2000, New Epoch signed a memorandum of understanding ("MOU") with
the  California  Association  of Hong Kong Limited  ("CAHK") to foster  business
between China and California.  Under the MOU, New Epoch will assist CAHK members
and  investors  from  California  to develop  business  with China by  providing
current market and investment  information through New Epoch's network in China,
its Internet  trading  platforms and trade enabling  facilities.  New Epoch will
identify potential agents, distributors,  importers,  manufacturers or end-users
in China for products,  services and technologies  from California and will also
source the same in California for raw materials,  goods and products from China.
In addition,  New Epoch will identify  prospective  funding sources in China for
investment projects or joint ventures in California.

     CAHK will assist New Epoch by  generating  and  promoting  awareness of New
Epoch's  services to CAHK  members  and  California  businesses  via a series of
promotional and marketing programs.

Staff

     As of  March  31,  2001,  the  Hang  Fung  Group  had  approximately  1,120
employees,  including 12 executive officers, 25 other management  personnel,  27
persons in  administration,  896 persons in manufacturing and production and 160
persons in sales and  marketing  and New Epoch had under its  direct  employment
approximately 10 employees.  Of the Hang Fung Group's  employees,  approximately
250 staff  members are located in Hong Kong with the remaining  employees  being
located in the PRC.  None of the Hang Fung  Group's or New Epoch's  employees is
governed by  collective  bargaining  agreements  and the Hang Fung Group and New
Epoch each consider its relations with its employees to be satisfactory.

Certain Foreign Operation Considerations

     The  operations  of the Hang Fung Group are  conducted in Hong Kong and the
PRC.  As a result,  the Hang Fung  Group'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 Hang Fung Group'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  Hang  Fung  Group'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 Hang Fung 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  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  revenues  of the Hang Fung  Group 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.

                                       12
<PAGE>

ITEM 2. PROPERTIES

     Both the Company's and Hang Fung Group'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 by the Hang Fung Group 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 Hang Fung Group's  principal  production  operations  are  conducted at
facilities  located in Sha Tau Kok,  the PRC.  The Hang Fung  Group's  principal
production  facilities  are  described in "Item 1.  Business"  under the heading
"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, 2001.

                                     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 price
of the Company's Common Stock, as of July 15, 2001, was $0.20.

Holders

     At July 15,  2001,  there  were  approximately  110  record  holders of the
Company's Common Stock.

Dividends

     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.

Sales of Unregistered Securities

     In January  2001,  the Company  issued  65,000  shares of Common Stock to a
consultant for marketing and promotion services.  The shares were issued without
a public  offering  pursuant  to the  exemption  from  registration  provided by
Section 4(2) of the Securities Act of 1933 and the  certificates  evidencing the
shares bear a legend restricting transfer of the shares.

                                       13
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

     The following tables present  selected  historical  consolidated  financial
data of the Company derived from the  consolidated  financial  statements of the
Company which appear  elsewhere  herein.  The  following  data should be read in
conjunction with the consolidated  financial  statements of the Company included
elsewhere herein.
<TABLE>

                                                                Year Ended March 31,
                                        ---------------------------------------------------------------------
                                            1997          1998          1999           2000            2001
                                        -----------     ---------     ---------     ----------      ---------
                                                  (amounts stated in US$,000, except per share data)
<S>                                     <C>             <C>           <C>           <C>             <C>

Income Statement Data (1):
Net sales..............................   $36,825        $57,994      $ 85,005      $ 123,115       $  47,645
Subcontracting fees....................     4,133          4,308         2,195              -               -
                                         --------        -------     --------- --------------   -------------
  Total revenues.......................    40,958         62,302        87,200        123,115          47,645
Gross profit...........................    10,971         15,143        17,705         23,655           8,408
Operating income.......................     5,838          8,145        11,120         12,886           4,621
Interest expense, net..................    ( 389)          (574)       (1,078)        (1,704)           (523)
Share of losses of affiliates..........         -              -             -              -         (6,670)
Loss on dilution of equity interests in
 subsidiaries..........................         -              -         (271)              -         (2,034)
Income (loss) before taxes.............     5,449          7,571         9,771         11,182         (4,606)
Minority interests.....................        --             --       (2,013)        (5,997)         (1,805)
Net income.............................   $ 4,475        $ 6,285       $ 5,856        $ 6,781       $ (6,732)
                                          =======        =======       =======        =======       =========
Net income per share (2)...............  $   0.40       $   0.49      $   0.46       $   0.53      $   (0.53)
                                         ========       ========      ========       ========      ==========
Weighted average shares
 outstanding (2).......................11,075,000     12,800,000    12,800,000     12,800,000      12,814,000
                                       ==========     ==========    ==========     ==========      ==========

Balance Sheet Data (1):
Working capital........................   $ 2,768       $(1,170)      $ 19,555       $ 24,960      $    (303)
Total assets...........................    21,409         45,667        73,698         95,165         20,369
Long-term debt, less
 current portion.......................     1,834          4,405         3,363          3,422              -
Stockholders' equity...................     8,017         14,278        20,134         26,811         20,069
</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, 2001 of US$1.00 =
         HK$7.8. No representation is made that the HK$ 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.


                                       14
<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.

- Corporate Structure

         On December 31,  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 as a reorganization of
entities under common  control,  similar to a pooling of interests.  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 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.

                                       15
<PAGE>

         On August 23, 2000, the Company's principal operating subsidiary,  Hang
Fung Gold Technology  Limited ("HFGTL" or "Hang Fung Gold") issued 1,632 million
shares to New ePoch  Holdings  International  Limited  ("NEH") in exchange for a
49.9% interest in New ePoch  Information (BVI) Company Limited ("New Epoch")(the
"New Epoch Transaction"). On August 28, 2000, HFGTL placed 550 million shares to
individual investors for HK$62.7 million (the "HFG Placement").

         As a result of the New Epoch  Transaction  and the HFG  Placement,  the
Company's indirect ownership interest in HFGTL decreased from 53.145% to 35% and
from 35% to 31.4%  and the  Company's  interest  in HFGTL  and its  subsidiaries
(including affiliates) are classified as affiliates.  The Company's consolidated
statements of operations reflect the Company's  proportionate  interest in HFGTL
prior to and subsequent to the New Epoch  Transaction and the HFG Placement.  As
at March 31, 2001, the Company's  investment in HFGTL is reported on the balance
sheet under the equity  method of  accounting.  The  Company  reported a loss on
dilution of equity  interests  in  subsidiaries  relating to the decrease in the
Company's ownership percentage in HFGTL based on the difference in the Company's
interest  in the net  assets  value of HFGTL  prior to and  after  the New Epoch
Transaction and the HFG Placement.

- Operations

         Following  the New Epoch  Transaction  and HFG  Placement,  the Company
conducts no operations which are reported on a consolidated basis.  Instead, the
Company holds indirect,  less than 50%, interests in the Hang Fung Group and New
Epoch.

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

         The primary cost of operating Hang Fung Group's jewelry business is the
raw material cost of gold and jewelry. Hang Fung Group assembles or manufactures
the products which it sells, other than sales made as agent for certain business
partners.  Hang Fung Group 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 Hang Fung  Group's  control.  While any
fluctuations  in cost of acquiring raw materials may adversely  affect Hang Fung
Group's profit margins,  Hang Fung Group has historically been able to pass such
cost fluctuations on to its customers. See ITEM 1. "Business - Purchasing".

         Hang Fung Group'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.

         New Epoch's  operations consist of trading and developing and operating
e-commerce  trading  facilities  between  the PRC and the rest of the world.  No
revenues of a material amount from such  operations have been generated  through
March 31, 2001.

         The primary  cost of  operating  New Epoch's  business is salaries  and
recurring database maintenance expense.

Comparability of Financial Data

         Prior to the New Epoch Transaction,  HFGTL was the principal  operating
subsidiary  of the  Company.  After  the  New  Epoch  Transaction  and  the  HFG
Placement,  the Company's effective percentage of ownership in HFGTL was reduced
from  53.145% to 31.4%,  the  Company's  interest in HFGTL and its  subsidiaries
(including affiliates) changed from subsidiaries to affiliates of the Company.

         As the March 31, 2001 period  accounts  for HFGTL and its  subsidiaries
(including  affiliates) from the date of the New Epoch Transaction as affiliates
of the Company,  prior year comparative  financial information may be of limited
value.

                                       16
<PAGE>

Results of Operations

         Following the New Epoch  Transaction and HFG Placement,  the operations
of HFGTL Group are no longer consolidated but are accounted for under the equity
method of  accounting.  For purposes of  comparability,  the  discussion  herein
includes (1)  consolidated  results of  operations  as  reported,  (2) pro forma
consolidated  results  of  operations  as if the New Epoch  Transaction  and HFG
Placement  had  occurred  at April 1,  1999,  and (3)  operating  results of the
Company's affiliates, HFGTL Group and New Epoch.

Year Ended March 31, 2001 Compared to Year Ended March 31, 2000
<TABLE>

                                                                                      Pro Forma
                                            HFGTL Group            New Epoch        Consolidated           Consolidated
                                         ---------------       -----------------   ----------------     ------------------
 Year ended March 31,                     2000      2001        2000       2001     2000      2001       2000        2001
                                         ------    ------      ------     ------   ------    ------     ------      ------
<S>                                     <C>       <C>         <C>        <C>        <C>       <C>       <C>        <C>

    (in US`000s)

     Revenues                           $123,115  $ 170,225    $     -   $    33    $    -   $    -    $ 123,115   $ 47,645
     Cost of sales and services          (99,460)  (143,907)         -       (32)        -        -      (99,460)   (39,237)
                                       ---------- ----------   ---------  --------  --------  -------   --------- -----------
     Gross profit                         23,655     26,318          -         1         -        -       23,655      8,408
     Selling, general and
        administrative expenses          (10,748)   (13,861)      (111)   (1,041)      (22)     (56)     (10,770)    (3,787)
                                       ---------- ----------   ---------  --------  --------  -------   --------- -----------
     Operating income (loss)              12,907     12,457       (111)   (1,040)      (22)     (56)      12,885      4,621
     Interest expense, net                (1,704)    (2,741)         -      (191)        -        -       (1,704)      (523)
     Share of profits (losses) of
     affiliates-                            (791)       (63)    (1,231)   (4,136)    2,358        -            -     (6,670)
     Write-back of (provision for)
       amount due from affiliates              -     (1,063)      (305)      176         -        -            -          -
     Gain (loss) on dilution of
       equity interests in subsidiaries        -          -          -         -     1,585        -            -     (2,034)
                                      ----------- ----------  ----------  --------  --------  --------  --------- -----------
   (2,034)
     Income (loss) before income taxes    11,203      7,862       (479)   (2,286)   (2,573)   2,302       11,181     (4,606)
     Reversal of (provision for)
        income taxes                       1,596     (1,174)         -         -       501     (369)       1,596       (321)
     Minority interests                        -          -          -         -         -        -       (5,997)    (1,805)
                                      ----------- ----------  ----------  --------  --------  --------  --------- -----------
 (1,805)
     Net income (loss)               $    12,799   $  6,688   $   (479)  $(2,286)  $(2,072)  $ 1,933    $  6,780   $ (6,732)
                                      =========== ==========  ==========  ========= ========  ========  =========  ==========
</TABLE>


         Revenues  and Gross  Profit.  Consolidated  revenues for the year ended
March 31, 2001 were $47.7 million as compared to $123 million for the year ended
March 31, 2000. The decrease in  consolidated  revenues was  attributable to the
dilution of equity  interest in HFGTL from  53.145% to 31.4%  following  the New
Epoch Transaction and HFG Placement in August 2000. As a consequence,  HFGTL was
no longer a  subsidiary  and has  become an  affiliate.  Pro forma  consolidated
revenues were nil for both the 2000 fiscal year and the 2001 fiscal year.

         HFGTL Group.  Total revenues of HFGTL Group were $170.2 million for the
year ended March 31, 2001, an increase of 38.3% from $123.1 million for the year
ended March 31,  2000.  The increase in revenues of HFGTL Group for the year was
primarily  attributable to expansion of production facilities to meet increasing
demand,  new products design,  increased  marketing efforts and adoption of more
competitive pricing strategy.

         Geographically, within Southeast Asia (including Hong Kong and the PRC)
sales by HFGTL Group  increased  87.1% to $128.9  million  during the year ended
March 31, 2001 from $68.9 million during the prior year.  Sales within Southeast
Asia accounted for 75.7% of total sales during the current period as compared to
55.9%  during  the same  period in the  prior  year.  Sales  within  the  region
increased due to improving  economic  conditions and extra  marketing  effort in
particular in the PRC during the year  following an extended  period of weakness
from late 1997 to early 1999 which was partially  offset by pricing  competition
and additional sales during the 1999 period relating to the Millennium. Sales in
Hong Kong and the PRC  increased  approximately  90.7% to $98.4  million for the
year  ended  March 31,  2001 from $51.6  million  for the prior  year.  Sales in
Southeast Asia (not including Hong Kong and the PRC) during the year ended March
31, 2001 increased 76.3% to $30.5 million from $17.3 million for the same period
in the prior year.

         Outside of Asia (mainly in the United  States and Europe),  HFGTL Group
experienced a 23.9%  decrease in sales with these sales  accounting for 24.3% of
total  sales in the 2001  fiscal year as compared to 44.1% of total sales in the
prior year. The decrease in sales outside of Asia was  attributable to increased
marketing efforts and strong product demand which accompanied  improved economic
conditions in Southeast Asia regions and deteriorating  macroeconomic conditions
worldwide.  Sales in Europe decreased  approximately  37.3% to $15.1 million for
the 2001 fiscal year from $24.1  million in the prior year.  Sales in the United
States decreased approximately 5.7% to $18.1 million during the 2001 fiscal year
from $19.2 million in the prior year.


                                       17
<PAGE>


         Gross profit of HFGTL Group  increased by 11% to $26.3  million  during
the current period from $23.7 million during the prior fiscal year. The increase
in gross  profit was mainly  attributable  to the  increase in net sales.  Gross
margin  decreased to 15.5% in the current  period from 19.2% in the prior fiscal
year period.  The decrease in gross profit  percentage during the current period
was primarily  attributable to adoption of a more  competitive  pricing strategy
and the increase in proportion  of sales of gold  products of  relatively  lower
profit margin.

         New Epoch.  Total revenues of New Epoch were $33,000 during fiscal 2001
and nil during fiscal 2000. New Epoch operations during the year were focused on
developing and operating  e-commerce  trading facilities between the PRC and the
rest of the world.

         Operating  Expenses.  Consolidated  operating  expenses for fiscal 2001
were $3.8 million as compared to $10.8  million for the prior  fiscal year.  The
decrease in consolidated  operating  expenses was  attributable to the fact that
HFGTL has  become an  affiliate  following  the New  Epoch  Transaction  and HFG
Placement in August 2000. Pro forma consolidated operating expenses were $56,000
for the 2001 fiscal year and $22,000 for the prior year.

         HFGTL Group. Total operating expenses of HFGTL Group were $13.9 million
for fiscal 2001, an increase of 28.7% from $10.8 million for the prior year. The
increase  in  operating  expenses  of HFGTL  Group  for the  year was  primarily
attributable to increased staff salary and selling expenses to support increased
business operations.

         New Epoch.  Total  operating  expenses of New Epoch were $1,041,000 for
fiscal  2001,  an  increase  of 837.8% from  $111,000  for the prior  year.  The
increase  in  operating  expenses  of New  Epoch  for  the  year  was  primarily
attributable to the limited operations  conducted by New Epoch in the prior year
following the formation of New Epoch in November 1999.

         Interest Expense,  Net.  Consolidated interest expense, net, for fiscal
2001 was $523,000 as compared to $1.7  million for the prior year.  The decrease
in consolidated net interest expense was attributable to the fact that HFGTL has
become an affiliate  following  the New Epoch  Transaction  and HFG Placement in
August 2000. Pro forma consolidated net interest expense was nil for both fiscal
2001 and fiscal 2000.

         HFGTL Group.  Net interest  expense of HFGTL Group was $2.7 million for
fiscal  2001,  an  increase  of 58.8% from $1.7  million  for fiscal  2000.  The
increase in net interest  expense of HFGTL Group was primarily  attributable  to
increased trust receipt bank loans and long term bank loans.

         Share of Profit/(Losses) of Affiliates. Consolidated share of losses of
affiliates  totaled  $6.7 million  during  fiscal 2001 as compared to nil during
fiscal 2000. Consolidated share of losses of affiliates represents the Company's
31.4% interest in HFGTL, including a 49.9% interest in New Epoch owned by HFGTL.
Pro forma  consolidated  share of profits of affiliates totaled $2.4 million for
fiscal 2001 and pro forma  consolidated  share of losses of  affiliates  totaled
$4.1 million for fiscal 2000.

         Loss on Dilution of Equity Interest in  Subsidiaries.  Loss on dilution
of equity  interest in  subsidiaries  totaled $2 million  during  fiscal 2001 as
compared to nil during  fiscal  2000.  Loss on  dilution  of equity  interest in
subsidiaries  represents the loss attributable to the reduction in the Company's
ownership  interest in HFGTL from  53.145% to 31.4% as a result of the New Epoch
Transaction and HFG Placement.

         Income Taxes. Consolidated income taxes, including share of affiliates'
income tax,  for fiscal  2001 was  $321,000 as compared to a tax benefit of $1.6
million  for fiscal  2000.  The change in  consolidated  income tax  expense was
attributable  to the fact that HFGTL has become an affiliate  following  the New
Epoch  Transaction and HFG Placement in August 2000 and finalization of offshore
claims in computing Hong Kong profit tax in fiscal 2000. Pro forma  consolidated
income tax expense  were  $369,000 for fiscal 2001 and a tax benefit of $501,000
for fiscal 2000.

         HFGTL  Group.  Income tax expense of HFGTL  Group was $1.2  million for
fiscal 2001, as compared to a tax benefit of $1.6 million for fiscal 2000.

         Minority Interest.  Consolidated minority interest totaled $1.8 million
during fiscal 2001 as compared to $6 million during fiscal 2000. The decrease in
minority  interest  was  attributable  to the fact  that  HFGTL  has  become  an
affiliate  following  the New Epoch  Transaction  and HFG  Placement.  Pro forma
consolidated minority interest was nil for both fiscal 2001 and fiscal 2000.

                                       18
<PAGE>

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 products were up 44.8% to $123.1 million during fiscal
2000  as  compared  to $85  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,
Hang  Fung  Group  plans to  launch an  Internet  site in Hong  Kong to  support
business-to-business  sales of  products  as well as to  promote  its brands and
support its 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.

         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 and the PRC increased 125.3% to $51.6 million during
fiscal 2000 from $22.9 million 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 (mainly in the United  States and Europe),  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  United  States
increased  approximately  38.1% to $19.2  million  during fiscal 2000 from $13.9
million in fiscal 1999.

         Gross  profits  increased by 33.9% to $23.7 million in fiscal 2000 from
$17.7  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 19.2% in
fiscal 2000 from 20.8% 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 $10.8 million during
fiscal 2000, an increase of 63.6% from $6.6 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 to support the increase in sales volumes.

         Interest Expense, Net. Net interest expense was $1.7 million for fiscal
2000,  an increase of 54.5% from 1.1 million in fiscal  1999.  The  increase was
primarily  attributable  to increased  bank  facilities  to support the business
expansion during fiscal 2000.

         Loss on Dilution of Equity Interest in  Subsidiaries.  Loss on dilution
of equity  interest  in  subsidiaries  totaled  $271,000  during  fiscal 1999 as
compared to nil during  fiscal  2000.  Loss on  dilution  of equity  interest in
subsidiaries  during  fiscal  1999  was  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.

                                       19
<PAGE>
         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.

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 of Hang Fung Group and New
Epoch  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  ability  of Hang  Fung  Group to  introduce  new
products and implement new or expanded  manufacturing  technologies  on a timely
basis,  new product  introductions  by competitors,  the ability of New Epoch to
commence  revenue  producing  operations  and  generate  sufficient  revenues to
operate profitably,  fluctuations in exchange rates,  changes in consumer tastes
and spending patterns and general economic conditions, among others.

         Hang Fung Group'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) Hang Fung Group's ability to sell adequate  volumes of product at sufficient
profit  margins in the PRC to recoup Hang Fung  Group's  substantial  investment
plan in  expanding  distribution  channels in the PRC and (4) Hang Fung  Group's
ability to manage projected revenue growth.

         Management  believes  that Hang Fung  Group'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,  Hang Fung Group  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
Hang Fung Group's operating costs could increase reducing both Hang Fung Group's
margins and profitability.

         Management   believes  that  Hang  Fung  Group'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.  Hang
Fung Group has invested  substantial amounts in new machinery and the opening of
the Sha Tau Kok Facility.  Hang Fung Group has also invested substantial amounts
to expand marketing efforts in the PRC, the United States,  and Europe. In order
to continue to grow revenues and profitability,  Hang Fung Group 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 Hang Fung  Group  will not
require  additional  funding  to  support  future  planned  expansion.  See  "--
Liquidity and Capital Resources."

         As a result of the New Epoch  Transaction  and the HFG  Placement,  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 53.145% to  approximately  31.4%.  For periods  subsequent to the New Epoch
Transaction and the HFG Placement,  the Company's operating results will reflect
only the Company's percentage ownership in the operations of Hang Fung Group and
New Epoch as affiliates and the the revenues and other  operating items will not
be reported on a consolidated basis.

                                       20
<PAGE>
         Hang Fung  Group has  formed an  alliance  with The  Administration  of
Shatonjiao  Free Trade Zone of  Shenzhen  pursuant  to which Hang Fung Group 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. A global economic  slowdown during the second half of 2000 and the
first half of 2001 have again adversely affected those economies.  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 Hang Fung Group's  products which
may be considered luxury consumer goods), and the U.S. dollar value of Hang Fung
Group's  foreign  currency  denominated  sales.  In addition,  Hang Fung Group'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  Hang  Fung  Group's  efforts  to  increase
distribution  channels in the PRC and could lead to our  inability to recoup the
investment in that regard.

         Hang Fung Group'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
Hang Fung Group 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 Hang Fung Group is exposed to
undue amount of risk arising from  fluctuations  of the exchange  rates  between
those currencies and the U.S. dollar.

         Hang Fung Group 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.  Hang Fung Group  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 Hang Fung Group's risk management activities,
there may be adverse financial  impacts resulting from unfavorable  movements in
either foreign exchange or interest rates.

Liquidity and Capital Resources

         At March 31,  2001,  the  Company  had no cash  balances  and a working
capital  deficit of $303,000.  This  compares to a cash balance of $19.6 million
and a working  capital  balance of $24.9 million at March 31, 2000. The decrease
in cash and in  working  capital  were  attributable  to the fact that Hang Fung
Group has become an affiliate  during fiscal 2001. At March 31, 2001,  Hang Fung
Group had cash  balances of $14.2  million and working  capital of $24.5 million
and New Epoch had cash  balances  of $3.9  million  and  working  capital  of $4
million.

         For fiscal 2001, net cash used in operating activities amounted to $9.2
million as compared to net cash provided by operating activities of $5.4 million
for the prior  year.  This  change  resulted  primarily  from a  combination  of
decreased   net   income   before   minority   interest   attributable   to  the
reclassification  of Hang Fung  Group  after the New  Epoch  Transaction  and an
increase  in  inventories  which was  partially  set off by loss on  dilution of
equity interests of subsidiaries. Hang Fung Group had cash flows from operations
of $1.4 million during fiscal 2001. New Epoch used $928,000 of cash in operating
activities during fiscal 2001.

         Net cash used in investing activities totaled $20 million during fiscal
year 2001 compared with $10.7 during fiscal 2000. This increase was attributable
to net cash  outflow from  dilution of equity  interests  in  subsidiaries  as a
result of the New Epoch  Transaction.  Net cash used in investing  activities by
Hang Fung Group  totaled $28.9 million  during fiscal 2001,  and were  primarily
attributable to increased  investment in machinery and equipment and advances to
New Epoch.  Net cash used in  investing  activities  by New Epoch  totaled  $1.7
million during fiscal 2001 and were primarily  attributable  to  acquisitions of
affiliates.

         Net cash  provided by  financing  activities  increased to $9.6 million
during  fiscal 2001 from $8.2  million  during  fiscal  2000.  The  increase was
primarily  attributable  to net variance in bank  borrowings  and capital  lease
obligations.  Net cash  provided  by  financing  activities  for Hang Fung Group
totaled $11.8 million during fiscal 2001 and were primarily  attributable to the
HFG  Placement  and  increased  bank  loans.  Net  cash  provided  by  financing
activities  for New Epoch  totaled  $6.5  million  during  fiscal  2001 and were
primarily attributable to loans from Hang Fung Group.


                                       21
<PAGE>

         At March 31, 2001,  the Company had no long term debt  compared to long
term debt as at March 31, 2000 of $3.4  million.  The decrease in long term debt
was primarily attributable to the change of Hang Fung Group from a subsidiary to
become  affiliates.  Hang Fung Group had long term debt of $9.4 million at March
31, 2001 and New Epoch had long term debt of $6.4 million at March 31, 2001.

         The Company  has limited  direct  liquidity  requirements.  The primary
liquidity  needs  of  Hang  Fung  Group  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,  Hang Fung Group
had  historically  funded its  operations  through a  combination  of internally
generated  cash,  short-term  borrowings  under  bank  lines of credit  and hire
purchase  financing.  New  Epoch's  primary  liquidity  needs are to fund  daily
operating expenses and recurring database maintenance expenses.

         At March 31,  2001,  the Company had no material  capital  commitments.
Hang Fung Group intends to use available funds as needed to expand its wholesale
and retail  business.  New Epoch intends to use  available  funds to develop and
maintain its e-commerce trading facilities.

         At March 31, 2001,  the Company had no material  capital  resources and
Hang Fung Group's capital resources  consisted of various bank credit facilities
and certain capital leases, in addition to funds on hand. Hang Fung Group's bank
credit  facilities  consist of a  combination  of term  loans,  lines of credit,
letters of credit, overdraft,  revolving and similar credit facilities generally
utilized in the jewelry  industry.  Hang Fung Group'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.  Hang Fung Group's
total  available  bank credit  facilities  at March 31, 2001 were  approximately
$55.4 million of which approximately $50.5 million had been used at such date.

         At March 31, 2001,  Hang Fung Group also had a number of capital leases
and operating leases pursuant to which Hang Fung Group holds various  facilities
and equipment.  At March 31, 2001, Hang Fung Group's  capital lease  obligations
totaled $4  million of which $1.7  million  was  attributable  to current  lease
obligations.  Obligations  under operating  leases require minimum annual rental
payments by Hang Fung Group of approximately $229,000 in fiscal 2002.

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

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.

         The  following  table sets forth Hang Fung Group's  unaudited net sales
for the periods indicated:

                                         Fiscal Year Ended March 31,
                           -----------------------------------------------------
                            1999              2000                   2001
                         (US$,000)         (US$,000)               (US$,000)
                         ---------         ---------               ---------
                          Amount      %     Amount       %      Amount      %
                         ---------   ---   ---------    ---     ------     ---
1st Quarter (4/1-6/30)  $ 16,482    18.9  $ 24,398     19.8   $ 27,211     16.0
2nd Quarter (7/1-9/30)    16,177    18.6    28,892     23.5     28,075     16.5
3rd Quarter (10/1-12/31)  28,331    32.5    31,098     25.3     47,776     28.1
4th Quarter (1/1-3/31)    26,210    30.0    38,727     31.4     67,163     39.4
                         -------   ----- ---------    -----   --------    -----
    Total               $ 87,200   100.0  $123,115    100.0   $170,225    100.0
                        ========   =====  ========    =====   ========    =====

                                       22
<PAGE>



Inflation

         Inflation has  historically  not had a material effect on the Hang Fung
Group'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
Hang Fung Group 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 Hang Fung Group's future operations.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The Hang Fung Group'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 Hang Fung Group's operating results.

         In order to minimize the Hang Fung Group's  exposure to fluctuations in
the  exchange  rate of Rmb,  the Hang Fung Group  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 Hang Fung Group's  currency risk in fiscal
2001 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 Hang Fung Group's  interest  expense is subject to the fluctuations
of Hong Kong interest rates. The interest rates on the bank installment loans of
the Hang Fung Group,  in the  principal  amount of  approximately  $9.5 million,
ranged from Hong Kong prime  lending rate less 1.75% to Hong Kong prime  lending
rate plus 3.5% in fiscal 2001. The Hang Fung Group does not currently  hedge its
interest  rate  exposure as the Hang Fung Group  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  respectively of the Company and
Hang Fung Gold, together with the independent auditors' report thereon of Arthur
Andersen  &  Co  ("Arthur  Andersen"),  Certified  Public  Accountants,  appears
following the Index to Financial Statements on page 30 of this report.

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

         Not applicable

                                    PART III

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

     Identification  of Directors,  Executive  Officers and Certain  Significant
     Employees

         The  following  table  sets forth  certain  information  regarding  the
directors and executive officers of the Company.

Name                  Age   Position
----                 -----  ---------
Lam Sai Wing........   46   Chairman, Chief Executive Officer and President
Chan Yam Fai, Jane..   38   Vice President, Chief Financial Officer and Director
Ng Yee Mei..........   39   Vice President and Director
Cheng Wa On.........   38   Director

                                       23
<PAGE>

Terms of Office

     The  directors of the Company hold office until the next annual  meeting of
stockholders of the Company or until their  successors in office are elected and
duly  qualified.  All officers serve at the discretion of the Board of Directors
except as set forth in employment agreements.

Family Relationships

     Lam Sai Wing and Chan Yam Fai, Jane are husband and wife.

Business Experience

     Lam Sai Wing has served as Chairman of the Board,  Chief Executive  Officer
and  President of the Company  since the Exchange in December of 1996 and of the
Company's  predecessor and operating  subsidiaries,  the Hang Fung Group,  since
founding the Hang Fung Group in 1986.

     Chan Yam Fai, Jane has served as Vice President,  Chief  Financial  Officer
and a Director of the Company  since the Exchange in December of 1996 and of the
Hang Fung Group since 1990.

     Ng Yee Mei has served as Vice President and a Director of the Company since
the Exchange in December of 1996 and of the Hang Fung Group since 1991.

     Cheng Wa On has served as a Director of the Company  since the  Exchange in
December of 1996.  Mr. Cheng has been  employed by the Hang Fung Group as Export
Manager since 1986.

Compliance With Section 16(a) of the Exchange Act

     Under the securities  laws of the United States,  the Company's  directors,
its  executive  officers  and any persons  holding  more than ten percent of the
Company's  Common Stock are required to report  their  initial  ownership of the
Company's  Common  Stock and any  subsequent  changes in that  ownership  to the
Securities  and Exchange  Commission.  Specific due dates for these reports have
been  established and the Company is required to disclose any failure to file by
these dates during fiscal 2001.

     All of the filing  requirements  were satisfied on a timely basis in fiscal
2001.  In making  these  disclosures,  the Company has relied  solely on written
statements of its directors,  executive  officers and shareholders and copies of
the reports that they filed with the Commission.

ITEM 11.  EXECUTIVE COMPENSATION

Executive Compensation Table

     The following table sets forth  information as to the compensation  paid or
accrued by the Company or Hang Fung Group to each officer and director receiving
compensation of at least $100,000 per year and the Chief  Executive  Officer for
the three years ended March 31, 2001:
<TABLE>

                                               Annual Compensation
                                 --------------------------------------------------------
                                                            Other Annual      All Other
Name and Principal Position     Year   Salary      Bonus   Compensation (1)  Compensation
---------------------------     -----  ------      -----   ----------------  ------------
<S>                             <C>    <C>         <C>      <C>                <C>
Lam Sai Wing..................  2001  $191,666    $320,512   $66,178             $0
  Chief Executive Officer,....  2000   166,880     507,060    56,222              0
  Chairman and President......  1999   202,694     400,000    39,237              0
</TABLE>

---------------
(1)  Mr. Lam's other annual  compensation  consists of a housing  allowance  and
     education allowance.


                                       24
<PAGE>

Director's Compensation

     No compensation has been paid to any directors for service in such capacity
in the past and no such compensation is presently payable to directors.  At such
time as the Board of Directors deems  appropriate,  the Company intends to adopt
an appropriate policy to compensate  non-employee  directors in order to attract
and retain the services of qualified non-employee directors.

Employment Agreements

     The Company previously  maintained  employment  agreements with Mr. Lam and
Ms. Chan. In connection  with the Group  Reorganization  and Hong Kong Offering,
both of those employment agreements were terminated on February 27, 1999 and the
Company's affiliate, Hang Fung Gold, entered into employment agreements with Mr.
Lam, Ms. Chan and Ms. Ng Yee Mei.

     The Employment  Agreement  with Mr. Lam commenced  October 1, 1998 and runs
for a term of three  years.  The  agreement  provides  for a  monthly  salary of
HK$100,000  with annual  adjustments  based on review by the board of directors,
not to exceed 15%. The  agreement  also  provides for a guaranteed  annual bonus
equal to one month's salary and discretionary  bonuses to be fixed by the board,
with the aggregate  bonuses  payable to executive  directors not to exceed 5% of
consolidated  profits of Hang Fung  Gold.  In  addition  to the salary and bonus
provisions,  Mr. Lam is  entitled  to (i)  participation  in  insurance  schemes
adopted by Hang Fung Gold, (ii)  participation  in provident funds maintained by
Hang Fung Gold, (iii) use of a company automobile,  including  maintenance,  gas
and  parking,  (iv)  payment  of  maintenance,  gas and  parking  costs  for one
automobile owned by Mr. Lam, (v) use of a company provided residence,  including
payment by Hang Fung Gold of all  management and utility costs  associated  with
such residence,  with the monthly rental payable by Hang Fung Gold not to exceed
HK$30,000,  and (vi) an education  allowance of up to HK$300,000 annually to pay
for tuition of dependent children under the age of 18.

     The Employment  Agreement with Ms. Chan commenced  October 1, 1998 and runs
for a term of three  years.  The  agreement  provides  for a  monthly  salary of
HK$30,000 with annual adjustments based on review by the board of directors, not
to exceed 15%. The agreement  also provides for a guaranteed  annual bonus equal
to one month's salary and  discretionary  bonuses to be fixed by the board, with
the  aggregate  bonuses  payable  to  executive  directors  not to  exceed 5% of
consolidated  profits of Hang Fung  Gold.  In  addition  to the salary and bonus
provisions,  Ms. Chan is  entitled to (i)  participation  in  insurance  schemes
adopted by Hang Fung Gold, (ii)  participation  in provident funds maintained by
Hang Fung Gold, (iii) use of a company automobile,  including  maintenance,  gas
and parking,  and (iv)  payment of  maintenance,  gas and parking  costs for one
automobile owned by Ms. Chan.

     The Employment  Agreement with Ms. Ng Yee Mei commenced October 1, 1998 and
runs for a term of three years.  The agreement  provides for a monthly salary of
HK$50,000 with annual adjustments based on review by the board of directors, not
to exceed 15%. The agreement  also provides for a guaranteed  annual bonus equal
to one month's salary and  discretionary  bonuses to be fixed by the board, with
the  aggregate  bonuses  payable  to  executive  directors  not to  exceed 5% of
consolidated  profits of Hang Fung  Gold.  In  addition  to the salary and bonus
provisions, Ms. Ng Yee Mei is entitled to (i) participation in insurance schemes
adopted by Hang Fung Gold, (ii)  participation  in provident funds maintained by
Hang Fung Gold, (iii) use of a company automobile,  including  maintenance,  gas
and parking,  and (iv)  payment of  maintenance,  gas and parking  costs for one
automobile  owned by Ms.  Ng Yee  Mei.  The  Employment  Agreement  with Ms.  Ng
terminated  effective November 1, 1999 by delivery of notice of termination from
Ms. Ng.

Provident Plan

     The  Company's  affiliates  in Hong Kong have  adopted a voluntary  defined
contribution  provident  plan (the "Plan") for its  employees in Hong Kong.  The
Plan  generally  covers all  employees  of the  Company's  operating  affiliates
(excluding  contract  workers in the PRC) who have  completed  twelve  months of
service with the company.  Employees  electing to participate in the Plan defer,
in the form of a contribution  to the Plan, an amount equal to five percent (5%)
of their monthly salary and the company makes a matching  contribution on behalf
of each participating employee.  Participating employees are always fully vested
with respect to contributions made by them to the Plan and earnings or increases
thereon.  Employees become vested in  contributions  made by the company ratably
over ten years. The Plan was terminated in December 2000.

                                       25
<PAGE>

         From December 2000, the Company's affiliates have arranged for its Hong
Kong  employees to join the Mandatory  Provident Fund Scheme (the "MPF Scheme").
The MPF  Scheme is a  defined  contribution  scheme  managed  by an  independent
trustee.  Under the MPF  Scheme,  each of the  company  and its  employees  make
monthly  contributions to the scheme at 5% of the employees' earnings as defined
under the Mandatory  Provident  Fund  legislation.  Both the  employer's and the
employees'  contributions  are  subject  to a cap  of  HK$1,000  per  month  and
thereafter contributions are voluntary.

Share Option Scheme

     The  Company's  affiliate,  Hang Fung Gold,  adopted a Share Option  Scheme
pursuant to which the directors of Hang Fung Gold may grant options to Hang Fung
Gold employees to purchase shares of common stock of Hang Fung Gold. Pursuant to
the Share Option Scheme,  options may be granted to purchase shares of Hang Fung
Gold at a price  determined by the  directors,  not less than 80% of the average
closing  price of the share  quoted on the Stock  Exchange  for the five trading
days  immediately  preceding  the date of the option or the nominal value of the
share of Hang Fung Gold  whichever  is higher,  for a period of not more than 10
years.  The total number of shares issuable  pursuant to the Share Option Scheme
may not exceed ten percent of the shares of Hang Fung Gold outstanding from time
to time.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Common Stock

     The following table is furnished as of June 15, 2001 to indicate beneficial
ownership of shares of the Company's Common Stock by (1) each shareholder of the
Company who is known by the Company to be a beneficial  owner of more than 5% of
the Company's  Common Stock, (2) each director and named officer of the Company,
individually,  and (3) all officers and directors of the Company as a group. The
information set out in the following table was supplied by such persons.

Name and Address of                               Number of Shares
Beneficial Owner (1)                             Beneficially Owned     Percent
--------------------                             ------------------     -------
Good Day Holdings Ltd. (2)(3)....................     6,600,000  (2)    51.6%
Lam Mo Wan (3)...................................     2,930,000         22.9%
Chan Wai Sum (3).................................       670,000          5.2%
Lam Sai Wing (2).................................     6,600,000  (2)    51.6%
Carhill Limited (4)..............................       800,000          6.3%
Chan Yam Fai, Jane...............................       300,000          2.3%
Ng Yee Mei.......................................             0          -
Cheng Wa On......................................             0          -
All officers and directors as a group (2 persons)     6,900,000  (2)    53.9%

-----------------
(1)  Unless  otherwise  noted,  each person or group  identified  possesses sole
     voting and  investment  power with respect to the shares shown opposite the
     name of such person or group.
(2)  Good Day Holdings Ltd. is  controlled  100% by Lam Sai Wing, an officer and
     director  of the  Company.  Accordingly,  Mr.  Lam may be  deemed to be the
     beneficial owner of the shares held by Good Day Holdings Ltd.
(3)  Address is Unit 25-32,  Second Floor,  Block B, Focal Industrial Centre, 21
     Man Lok Street, Hunghom, Hong Kong.
(4)  Address is c/o Suite 4703,  Central Plaza, 18 Harbour Road,  Wanchai,  Hong
     Kong.

                                       26
<PAGE>


Preferred Stock

         Series A Preferred  Stock.  The following table is furnished as of June
15, 2001 to indicate  beneficial  ownership of the Company's  Series A Preferred
Stock by each  shareholder  of the  Company  who is known by the Company to be a
beneficial owner of more than 5% of the Company's Series A Preferred Stock.

Name and Address of                   Number of Shares
Beneficial Owner (1)                  Beneficially Owned           Percent
--------------------                  ------------------           -------
Good Day Holdings Ltd. (3)............    100,000  (2)             100.0%
Lam Sai Wing..........................    100,000  (2)             100.0%

(1)  Unless  otherwise  noted,  each person or group  identified  possesses sole
     voting and  investment  power with respect to the shares shown opposite the
     name of such person or group.
(2)  Good Day Holdings Ltd. is  controlled  100% by Lam Sai Wing, an officer and
     director  of the  Company.  Accordingly,  Mr.  Lam may be  deemed to be the
     beneficial owner of the shares held by Good Day Holdings Ltd.
(3)  Address is Unit 25-32,  Second Floor,  Block B, Focal Industrial Centre, 21
     Man Lok Street, Hunghom, Hong Kong.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The Company's predecessor and affiliate, Hang Fung Group, has, from time to
time entered into  transactions  with  officers and directors of the Company and
companies controlled by officers and directors of the Company.

     During the fiscal year ended March 31,  2000 and March 31,  2001,  the Hang
Fung Group paid rental payments of $41,592 and $41,538, respectively, to Mr. Lam
in connection with the lease of a residential premises for Mr. Lam's residence.

     The Company has from time to time both advanced to and borrowed  funds from
Mr. Lam. At March 31,  2000,  the Company  owed Mr. Lam  $568,000.  At March 31,
2001,  the  Company  owed Mr. Lam  $303,000.  All of such  loans are  unsecured,
non-interest bearing and without pre-determined repayment terms.

     Mr. Lam and Ms. Chan personally  guaranteed the existing banking facilities
of the Hang Fung Group, pledged certain real estate as collateral to secure such
banking facilities.

     All of the above  transactions are believed by management to be on terms at
least as favorable to the Company as may have been  obtained  from  unaffiliated
third  parties.  The  Company  has no present  policy  governing  related  party
transactions  but intends to implement a policy such that all future and ongoing
transactions  between  the  Company  and  its  directors,   officers,  principal
stockholders  or  affiliates  will be on terms no less  favorable to the Company
than may be obtained from unaffiliated third parties,  and any such transactions
will be approved by a majority of disinterested directors of the Company.

                                     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 30 of this report for financial  statements and  supplementary
          data filed as part of this report.

     (2)  Financial Statement Schedules

                  None

                                       27
<PAGE>

     (3)  Exhibits
<TABLE>

   Exhibit
   Number                                    Description of Exhibit
  ---------                                 ------------------------
  <S>        <C>
      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)
     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 (5)
     10.16   Facility Agreement between Hang Fung Gold Technology Limited and New
             Epoch Information (BVI) Limited dated June 24, 2000 (5)
</TABLE>

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

++       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
(5)      Incorporated  by reference to the  respective  exhibits  filed with the
         Registrant's  Annual  Report on Form 10-K for the year ended  March 31,
         2000

 (b)     Reports on Form 8-K

         None

                                       28
<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:   August 13 , 2001

         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
Lam Sai Wing            (Principal Executive Officer) and    August 13, 2001
                         Chairman of the Board
/s/ Chan Yam Fai
-----------------------  Vice President, Chief Financial
Chan Yam Fai, Jane       Officer  (Principal Accounting      August 13, 2001
                         and Financial Officer) and Director
/s/ Ng Yee Mei
-----------------------  Vice President and Director         August 13, 2001
Ng Yee Mei

/s/ Cheng Wa On
-----------------------  Director                            August 13, 2001
Cheng Wa On


                                       29
<PAGE>
                                 S.W. LAM, INC.

                   Index to Consolidated Financial Statements


                                                                           Page
                                                                          ------

S.W. Lam, Inc.

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

Consolidated Balance Sheets as of March 31, 2000 and 2001..............    F-2

Consolidated  Statements of Operations  and  Comprehensive
Income for the Years ended March 31, 1999, 2000 and 2001...............    F-3

Consolidated Statements of Cash Flows for the Years ended March 31, 1999,
2000 and 2001 ..........................................................   F-4

Consolidated  Statements of Changes in Shareholders'  Equity for
the Years ended March 31, 1999, 2000 and 2001...........................   F-5

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

Hang Fung Gold Technology Limited

Report of Independent Public Accountants................................   F-26

Consolidated Income Statement for the Year ended March 31, 2001.........   F-27

Consolidated Statement of Recognised Gains and Losses for the Year
ended March 31, 2001....................................................   F-28

Consolidated Balance Sheet as at March 31, 2001.........................   F-29

Consolidated Cash Flow Statement for the Year ended March 31, 2001......   F-30

Notes to Consolidated Financial Statements..............................   F-31


                                       30
<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, 2000 and 2001, and the
related  consolidated  statements of operations and comprehensive  income,  cash
flows and changes in  shareholders'  equity for the years ended March 31,  1999,
2000  and  2001.  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, 2000 and 2001, and the results of their  operations
and  comprehensive  income and their cash  flows for the years  ended  March 31,
1999, 2000 and 2001, 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, 2001.


                                       F-1
<PAGE>

                                 S. W. LAM, INC.

                           CONSOLIDATED BALANCE SHEETS
                          AS OF MARCH 31, 2000 AND 2001


<TABLE>

                                               Note         2 0 0 0             20 0 1
                                              -------    ------------   ----------------------
                                                           HK$'000      HK$'000        US$'000
<S>                                           <C>        <C>            <C>            <C>

ASSETS

Current Assets:

   Cash and bank deposits                       18            152,385        -           -
   Accounts receivable, net                      5            151,517        -           -
   Prepayments and deposits                      6              3,048        -           -
   Inventories                                   7            207,249        -           -
                                                           ---------- ----------  ----------

         Total current assets                                514,199        -            -

   Investment in affiliates                      3                 -  158,882       20,369
   Property, machinery and equipment and
      capital leases, net                        8           227,137        -            -
                                                           ----------  ---------  ----------

             Total assets                                    741,336  158,882       20,369
                                                           ==========  =========  ==========

LIABILITIES, MINORITY INTERESTS
AND SHAREHOLDERS' EQUITY

Current liabilities:
   Short-term bank borrowings                    9          221,898        -            -
   Long-term bank loans, current portion        10            2,123        -            -
   Capital lease obligations, current portion   11           12,747        -            -
   Accounts payable                                          28,579        -            -
   Accrued liabilities                          12            9,657        -            -
   Due to a director                            19            4,426    2,368          303
   Taxation payable                             13           40,326        -            -
                                                          ----------  ---------  ----------

       Total current liabilities                            319,756    2,368          303

Long-term bank loans, non-current portion       10            6,272        -            -
Capital lease obligations, non-current portion  11            6,993        -            -
Deferred taxation                               13           13,394        -            -
                                                          ----------  ---------  ----------

           Total liabilities                                346,415    2,368          303
                                                          ----------  ---------  ----------

Minority interests                                          186,060        -            -
                                                          ----------  ---------  ----------

Shareholders' equity:
   Common stock, par value US$0.001 each:
    -  authorized - 25,000,000 shares
    -  outstanding and fully paid - 12,865,000
       shares (2000 - 12,800,000 shares)         15             101      101           13
   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    4,118          528
   Retained earnings                                        204,800  152,295       19,525
                                                          ---------- ---------   ----------

      Total shareholders' equity                            208,861  156,514       20,066
                                                          ---------- ---------   ----------

Total liabilities and shareholders' equity                  741,336  158,882       20,369
                                                          ========== =========   ==========
</TABLE>


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

                                       F-2
<PAGE>

                                 S. W. LAM, INC.

         CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

                FOR THE YEARS ENDED MARCH 31, 1999, 2000 AND 2001
<TABLE>


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

Revenues
   Net sales                         20.a       658,790      959,070     371,630          47,645
   Contract processing fees          20.a        17,012            -           -               -
                                            -----------    ----------  ----------       ----------

         Total revenues                         675,802      959,070     371,630          47,645

 Cost of sales and services                    (538,586)    (774,794)   (306,048)        (39,237)
                                            -----------    ----------  ----------       ----------

         Gross profit                           137,216      184,276      65,582           8,408

 Selling, general and
 administrative expenses                        (51,029)     (83,896)    (29,541)         (3,787)
 Interest expense                               (11,588)     (19,492)     (7,244)           (929)
 Interest income                                  3,234        6,216       3,166             406
 Share of losses of affiliates                        -            -     (52,025)         (6,670)
 Loss on dilution of equity
 interests in subsidiaries           14          (2,100)           -     (15,864)         (2,034)
                                            -----------    ----------  ----------      ----------

         Income (Loss) before
         income taxes                            75,733       87,104     (35,926)         (4,606)

 (Provision for) Reversal of
         income taxes                13         (14,747)      12,432      (2,500)           (321)
                                            -----------    ----------   ---------      ----------

         Income (Loss) before
         minority interests                      60,986       99,536     (38,426)         (4,927)

 Minority interests                             (15,601)     (46,716)    (14,079)         (1,805)
                                            -----------    ----------   ---------      ----------

Net income (loss) and
           comprehensive
           income (loss)                         45,385       52,820     (52,505)         (6,732)
                                            ===========    ==========   =========      ==========

 Earnings (Loss) per common
   share                                        HK$3.55      HK$4.13    HK$(4.10)       US$(0.53)
                                            ===========    ==========   =========      ==========

Weighted average number of                   12,800,000   12,800,000  12,814,000      12,814,000
   common shares
                                            ===========   =========== ===========     ===========
</TABLE>


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


                                       F-3
<PAGE>

                                 S. W. LAM, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                FOR THE YEARS ENDED MARCH 31, 1999, 2000 AND 2001

<TABLE>

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

Cash flows from operating activities:
Net income (loss)                                   45,385      52,820     (52,505)        (6,732)
Adjustments to reconcile net income (loss) to net
  cash provided by (used in) operating activities -
  Depreciation of property, machinery and
  equipment                                         39,605      55,580      26,954          3,456
  Loss on disposal of property, machinery and
  equipment                                             49           -           -              -
  Share of losses of affiliates                          -           -      52,025          6,670
  Loss on dilution of equity interests in
  subsidiaries                                       2,100           -      15,864          2,034
  Minority interests                                15,601      46,716      14,079          1,805

(Increase) Decrease in operating assets -
  Accounts receivable, net                         (41,907)    (30,189)     15,113          1,938
  Prepayments and deposits                          (1,580)      1,596      (9,691)        (1,242)
  Inventories, net                                 (30,368)    (75,736)   (144,913)       (18,579)
Increase (Decrease) in operating liabilities -
  Accounts payable                                    4,318      1,940       9,462          1,213
  Accrued liabilities                                 3,764      2,985      (3,654)          (468)
  Due to a director                                 (4,909)      1,325       2,766            355
  Taxation payable                                   14,600    (18,278)      2,500            321
  Deferred taxation                                       -      3,449           -              -
                                                 ----------  ----------    ----------    ----------

  Net cash provided by (used in) operating
  activities                                         46,658     42,208     (72,000)        (9,229)
                                                 ----------  -----------   ----------    ----------

Cash flows from investing activities:
Increase in amount due to an affiliate                   -           -         281             36
Additions to property, machinery and equipment     (67,781)    (83,420)    (32,919)        (4,220)
Net cash outflow from dilution of equity interest
in subsidiaries (Note 21)                                -           -    (122,486)       (15,704)
                                                  --------- -----------   ----------     ----------

  Net cash used in investing activities            (67,781)    (83,420)   (155,124)       (19,888)

Cash flows from financing activities:
Net proceeds from issuance of new ordinary shares        -           -         158             20
Dividend paid to a minority shareholder of a
aubsidiary                                               -     (14,328)          -              -
Cash proceeds received from minority interests      58,671           -           -              -
Increase (Decrease) in bank overdrafts               1,538      (1,953)      5,942            762
Increase in trust receipts bank loans               80,988      85,785      58,683          7,523
New short-term bank loans                            2,000      12,000      18,547          2,378
Repayment of short-term bank loans                       -      (2,000)     (2,000)          (256)
New long-term bank loans                             2,000           -           -              -
Repayment of long-term bank loans                   (2,288)     (2,807)       (854)          (109)
Repayment of capital element of capital lease
obligations                                         (8,559)    (12,544)     (5,737)          (736)
                                                 ----------   ----------   ----------   -----------
Net cash provided by financing activities          134,350      64,153      74,739          9,582

  Net increase (decrease) in cash and bank
  deposits                                         113,227      22,941    (152,385)       (19,535)

Cash and bank deposits, as of beginning of year     16,217     129,444     152,385         19,535
                                                 ----------  ----------   -----------   -----------

Cash and bank deposits, as of end of year          129,444     152,385           -              -
                                                 ==========  ===========  ===========   ===========
</TABLE>

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

                                       F-4
<PAGE>


                                 S. W. LAM, INC.

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                FOR THE YEARS ENDED MARCH 31, 1999, 2000 AND 2001


<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, 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

 Net loss                           -           -           -           -              -       (52,505)

 Issuance of new common
 shares (Note 15)                  65           -           -           -            158              -
                             ---------   ---------   ---------  ----------    -----------    -----------

 Balance as of March 31, 2001  12,865         101         100           -          4,118        152,295
                             =========   =========   =========  ==========    ===========    ===========

</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
     ------------
     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.

     On December 31, 1996, the Company  acquired 100% interest in Quality Prince
     Limited ("QPL";  a company  incorporated in the British Virgins Islands) by
     issuing  10,500,000  shares of its common stock of par value US$0.001 each,
     and 100,000  shares of its Series A preferred  stock of par value  US$0.001
     each, to the previous  shareholders  of QPL. QPL is an  investment  holding
     company which had acquired on December 19, 1996, 100% interest in Hang Fung
     Jewellery  Company Limited  ("HFJCL"),  Kai Hang Jewellery Company Limited,
     Macadam  Profits  Limited,  and Soycue Limited  (collectively  known as the
     "Hang Fung Entities"). The acquisition of the Hang Fung Entities by QPL has
     been accounted for as a  reorganization  of entities under common  control,
     similar to a pooling  of  interests,  as the  shareholders  and  management
     control of the Hang Fung Entities and QPL are the same before and after the
     acquisition.

     On  December  4, 1997,  Hang Fung Gold  Technology  Limited  ("HFGTL")  was
     incorporated  and  became a wholly  owned  subsidiary  of the  Company.  On
     February  27,  1999,  HFGTL  became  the  holding  company of the Hang Fung
     Entities  pursuant to a group  reorganization  which included  exchanges of
     shares. On the same date, HFJCL redeemed its preferred stock and Phenomenal
     Limited,  the  redeemable  preferred  stock holder,  applied the redemption
     proceeds of  US$10,000,000  to  subscribe  for  582,800  shares of HFGTL at
     US$17.16  each  ("Share  Subscription").  On  March  9,  1999,  HFGTL  sold
     78,750,000 shares at HK$0.9 each in a public offering and received net cash
     proceeds  of  HK$58,671,000,  after  deducting  the common  stock  issuance
     expenditures.  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 ("Capitalization").  Thus, after the Share Subscription
     and the Capitalization, Phenomenal Limited holds 68,843,250 shares of HFGTL
     and  the  Company  holds   167,406,750   shares  of  HFGTL.   These  equity
     transactions resulted in a dilution of the Company's effective shareholding
     in HFGTL from 100% to 53.15%.

     On August 23, 2000, HFGTL issued  1,632,000,000  shares at HK$0.114 each to
     New Epoch Holdings  International  Limited,  an independent third party, as
     consideration  for a 49.9% equity interest in New Epoch  Information  (BVI)
     Company  Limited.  On August 28,  2000,  HFGTL sold  550,000,000  shares at
     HK$0.114  each.  These  equity  transactions  resulted in a dilution of the
     Company's  effective  shareholding  in HFGTL from  53.15% to  31.40%.  As a
     consequence, HFGTL was no longer a subsidiary and has become an affiliate.

     The Group is subject to, among others, the following operating risks:

     a. Country risk
        ------------
     As most of the Group's operations are conducted in the People's Republic of
     China  (including  Hong Kong and Mainland  China),  the Group is subject to
     special  considerations and significant risks not typically associated with
     companies  in  North  America  and  Western  Europe.  The   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
     People's  Republic of China,  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-6
<PAGE>

1.   ORGANIZATION (Cont'd)
     ------------
b.   Concentration of credit risk

     Concentration  of accounts  receivable  as of March 31, 2000 and 2001 is as
     follows:

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

Five largest accounts receivable               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 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, 1999,
     2000 and 2001 is as follows:


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

Purchases from five largest suppliers     77.0%      89.0%       93.1%
                                        ========== =========  ============

2.   SUBSIDIARY
     ----------
     Details of the Company's subsidiary as of March 31, 2001 are as follows:
<TABLE>

                                                Percentage of equity
      Name             Place of incorporation     interest held        Principal activity
--------------------- ------------------------ ---------------------   -------------------
<S>                   <C>                       <C>                     <C>
Quality Prince Limited British Virgin Islands          100%            Investment holding
</TABLE>

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

3.   AFFILIATES
     ----------
Investment in affiliates consisted of:

<TABLE>

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

Investment in Hang Fung Gold Technology Limited
 and its subsidiaries ("HFGTL")                        -        159,163       20,405

Due to an affiliate                                    -          (281)         (36)
                                                  ----------  ---------   ----------

                                                       -        158,882       20,369
                                                  ==========  =========   ==========

Quoted market value of investment in HFGTL             -        167,407       21,462
                                                  ==========  =========   ==========
</TABLE>

As of March 31,  2001,  the  Company had a 31.40%  interest in HFGTL,  a company
incorporated  in Bermuda  and whose  shares are listed on The Stock  Exchange of
Hong Kong Limited (see Note 1). HFGTL is an investment  holding  company and its
subsidiaries are principally  engaged in the manufacturing and sales of gold and
jewellery products.

The  underlying  value of the  investment in affiliates is in the opinion of the
Company's directors,  not less than the Company's carrying value as of March 31,
2001.

                                       F-7
<PAGE>

3.   AFFILIATES (Cont'd)
     ----------
The  amount due to an  affiliate  is  unsecured,  non-interest  bearing  and not
repayable before April 1, 2002.

Summarized financial information of HFGTL are as follows:

Balance sheet

                                                         As of March 31, 2001
                                                   ----------------------------
                                                     HK$'000           US$'000

Current assets                                         647,719           83,041
Non-current assets                                     389,199           49,897
                                                   -----------    -------------

           Total assets                              1,036,918          132,938
                                                   ===========    =============

Current liabilities                                    456,333           58,504
Non-current liabilities                                 73,697            9,448
                                                   -----------    -------------

            Total liabilities                          530,030           67,952
                                                   -----------    -------------

Shareholders' equity                                   506,888           64,986
                                                   -----------    -------------

Total liabilities and shareholders' equity           1,036,918          132,938
                                                   ===========    =============

Statement of operations


                                         For the year ended March 31, 2001
                                         ---------------------------------
                                              HK$'000           US$'000

Net sales                                   1,327,656           170,212
Gross profit                                  205,181            26,305
Loss before income taxes                     (146,978)          (18,843)
Net loss                                     (156,134)          (20,017)
                                            =========      ============

Separate audited  consolidated  financial  statements of HFGTL as of and for the
year ended March 31, 2001 are included in this Form 10-K.


                                       F-8
<PAGE>

4.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
     ------------------------------------------
a.   Basis of presentation
     ---------------------
     The Company  maintains its accounting books and records based on accounting
     principles  generally accepted in the United States of America ("US GAAP").
     Its subsidiaries and affiliates maintain their accounting books and records
     based on accounting principles generally accepted in Hong Kong ("HK GAAP").
     The  accompanying  financial  statements  have been prepared to present its
     financial position,  results of operations and cash flows in US GAAP, which
     require management to make certain  estimates,  assumptions and adjustments
     that affect reported amounts or certain disclosures.

b.   Basis of consolidation
     ----------------------
     The consolidated  financial  statements include the accounts of the Company
     and its  subsidiaries,  together with the Group's share of post acquisition
     results  and  reserves  of  its  affiliates  under  the  equity  method  of
     accounting. The results of subsidiaries and affiliates acquired or disposed
     of  during  the  year are  recorded  from or to  their  effective  dates of
     acquisition or disposal.  Gains and losses arising from deemed  acquisition
     or  disposal  of interest in  subsidiaries  and  affiliates  as a result of
     issuance  shares of the  subsidiaries  and  affiliates  are included in the
     consolidated  statement of operations in the period in which it occurs. All
     material  intra-group  transactions  and balances  have been  eliminated on
     consolidation.

c.   Subsidiaries
     ------------
     A  subsidiary  is a  company  in  which  the  Company  holds,  directly  or
     indirectly,  more than 50% of its issued  voting share capital as long-term
     investment  and over  which  it can  exercise  control,  as  defined  under
     generally accepting accounting principles.

d.   Affiliates
     ----------
     The Group's  investment in affiliates for which its ownership  exceeds 20%,
     but which are not  majority-owned  or controlled by the Group, is accounted
     for using the equity method of  accounting.  Under the equity  method,  the
     Group's  proportionate  share  of the  affiliates'  net  income  or loss is
     included in the consolidated statement of operations.

e.   Cash and cash equivalents
     -------------------------
     Cash and cash  equivalents  include  cash on hand,  deposit  with banks and
     highly liquid  investments  with  maturities of three months or less at the
     time of acquisition.

f.   Inventories
     -----------
     Inventories  are  stated at the  lower of cost,  on a  first-in,  first-out
     basis, or market. Costs of finished goods include direct materials,  direct
     labour and an attributable portion of production overheads.  Net realizable
     value is the  estimated  selling  price in the ordinary  course of business
     less the estimated costs of completion and the estimated costs necessary to
     make the sale.

     When inventories are sold, the carrying amount is charged to expense in the
     period in which the revenue is  recognized.  Writedowns for declines in net
     realizable  value or for losses of inventories are recognized as an expense
     in the period the impairment or loss occurs.


                                       F-9
<PAGE>


4.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
     ------------------------------------------
g.   Property, machinery and equipment and capital leases
     ----------------------------------------------------
     Property,  machinery and equipment and capital leases are recorded at cost.
     Gains or losses on disposal  are  reflected  in current  operations.  Major
     expenditures  for  betterments and renewals are  capitalized.  All ordinary
     repair and  maintenance  costs are expensed as incurred.  Depreciation  for
     financial  reporting  purposes is provided using the  straight-line  method
     over the estimated useful lives of the assets as follows:

              Leasehold land and buildings            20 years
              Machinery and equipment             5 to 7 years
              Motor vehicles                           5 years
              Furniture and office equipment           5 years

     The Group accounts for property, machinery and equipment in accordance with
     Statement of Financial  Accounting  Standards No. 121:  "Accounting for the
     Impairment of Long-lived  Assets and for  Long-lived  Assets to be Disposed
     of" which requires  impairment losses to be recognized on long-lived assets
     when the sum of  expecting  future  cash flows  (undiscounted  and  without
     interest  charges)  resulting  from the use of the asset  and its  eventual
     disposition is less then the carrying amount of the assets.  Measurement of
     the  impairment  loss is  based  on the fair  value  of the  assets.  If an
     impairment is present, the asset is reported at the lower of carrying value
     or fair value.

h.   Sales recognition
     -----------------
     Sales comprise (i) the invoiced value of merchandise supplied to customers,
     net of sales returns and allowances,  which are recognized when merchandise
     is delivered  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 delivery and passage
     of title of goods and the  expiration  of rights of return are  recorded as
     deposits from customers.

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

j.   Employee retirement benefits
     ----------------------------
     The costs of staff retirement  benefits are recognized as an expense in the
     period in which they are incurred.

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

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


                                      F-10
<PAGE>

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

m.   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, which represents the difference between
     the  minimum  payments  at the  inception  of the  finance  leases  and the
     corresponding fair value of the assets acquired, is 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 a
     straight-line basis over the period of the relevant leases.

n.   Comprehensive income
     --------------------
     The Group has adopted Statement of Financial Accounting Standard s No. 130:
     "Reporting  Comprehensive  Income"  which  requires the Group to report all
     changes  in  equity  during a  period,  except  for  those  resulting  from
     investments by owners and distributions to owners, in financial  statements
     for the period in which they are  recognized.  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 (loss) other than those recorded in the  consolidated
     statements of operations.

o.   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 within the Group,
     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  gain  (loss)  from  foreign  currency  transactions  included  in  the
     statements of  operations  was  approximately  HK$149,000,  HK$127,000  and
     HK$(9,000) for the years ended March 31, 1999, 2000 and 2001, respectively.

     Translation  of amounts  from Hong Kong  dollars  ("HK$") to United  States
     dollars  ("US$") 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, 2001 of US$1 = HK$7.8. No representation is made that the Hong
     Kong dollar  amounts  could have been, or could be,  converted  into United
     States dollars at that rate or at any other rate.



                                      F-11
<PAGE>

4.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Cont'd)
     ------------------------------------------
p.   Earnings per common share
     -------------------------
     Basic  earnings  (loss) per common  share is  computed in  accordance  with
     Statement of Financial  Accounting Standards No. 128: "Earnings Per Share",
     by dividing  the net income  (loss) for each year by the  weighted  average
     number  of shares  of  common  share  outstanding  during  the  years.  The
     numerator in  calculating  basic earnings per common share for each year is
     the reported net income  (loss).  The  denominator is based on the weighted
     average  number of common shares of  12,800,000,  12,800,000 and 12,814,000
     shares for the years ended March 31, 1999, 2000 and 2001, respectively.

     Diluted earnings (loss) per common share are not presented as there were no
     dilutive  potential  common share in existence during the years ended March
     31, 1999, 2000 and 2001.

q.   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.

r.   Fair value of financial instruments
     -----------------------------------
     The  carrying  amounts  for cash and bank  deposits,  accounts  receivable,
     short-term  bank  borrowings and accounts  payable  approximate  their fair
     values  because of the short  maturity of those  instruments.  The carrying
     amounts for long-term bank loans and capital lease obligations  approximate
     their fair values as of March 31, 2000 and 2001.

s.   Recent accounting standards
     ---------------------------
     In June 1998, the Financial  Accounting Standards Board issued Statement of
     Financial   Accounting   Standards  No.  133:  "Accounting  for  Derivative
     Instruments  and  Hedging   Activities",   which  was  amended  by  several
     subsequent  standards.  These  standards  require that an entity  recognize
     derivative instruments as either assets or liabilities on its balance sheet
     and measure those  instruments at fair value.  Changes in the fair value of
     derivative  instruments are to be recorded each period in income or as part
     of a hedged transaction.  These standards became effective for the Group on
     April 1, 2001.  The Group will record the effect of adopting this Statement
     in the first  quarter of the  financial  year ending  March 31,  2002.  The
     effect of  adopting  this  Statement  will not be  material  to the Group's
     financial position or results of operations.

5.   ACCOUNTS RECEIVABLE

Accounts receivable consisted of:


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

 Accounts receivables                      159,017          -             -
 Less: Allowance for bad and doubtful
       accounts                             (7,500)         -             -
                                         ------------   ----------   ----------

 Accounts receivable, net                  151,517          -             -
                                         ============   ==========   ==========


                                      F-12
<PAGE>


6.   PREPAYMENTS AND DEPOSITS

Prepayments and deposits consisted of:
                                            2 0 0 0           2 0 0 1
                                          ------------  ---------------------
                                            HK$'000      HK$'000    US$'000

 Deposits for acquisition of raw materials
 and equipment                               2,115         -           -
 Rental and utility deposits                   515         -           -
 Prepayments                                   137         -           -
 Others                                        281         -           -
                                          ------------  ---------  -----------
                                             3,048         -           -
                                          ============  =========  ===========
7.   INVENTORIES

Inventories consisted of:
                                             2 0 0 0            2 0 0 1
                                           ------------ ------------------------
                                             HK$'000     HK$'000        US$'000

Raw Materials                                  86,937        -             -
Finished goods (after allowance for obsolete
     and slow-moving inventories of
     HK$2,000,000)                            120,312        -             -
                                             ---------  --------      --------
                                              207,249        -             -
                                             =========  ========      ========

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

                                      F-13
<PAGE>

8.   PROPERTY, MACHINERY AND EQUIPMENT AND CAPITAL LEASES

Property, machinery and equipment and capital leases consisted of:

<TABLE>

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

Property, machinery and equipment:
   Leasehold land and buildings                    1,973         -             -
   Machinery and equipment                       240,784         -             -
   Motor vehicles                                    920         -             -
   Furniture and office equipment                 64,682         -             -

Capital leases:
   Machinery and equipment                        56,823         -             -
                                             -----------      ---------     ----------

Cost                                             365,182         -             -

Less: Accumulated depreciation
Property, machinery and equipment              (112,053)         -             -
Capital leases                                  (25,992)         -             -
                                             -----------      ---------     ----------

Property, machinery and equipment and            227,137         -             -
   capital leases, net
                                             ===========      =========     ==========
</TABLE>

As of March 31,  2000,  all of the Group's  leasehold  land and  buildings  were
situated in Hong Kong and held under long-term leases.

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

9.   SHORT-TERM BANK BORROWINGS

Short-term bank borrowings consisted of :


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

  Bank overdrafts                  2,571          -           -
  Short-term bank loans           12,000          -           -
  Trust receipts bank loans      207,327          -           -
                              -----------   ---------   ----------

                                 221,898          -           -
                              ===========   =========   ==========

Short-term  bank  borrowings  were  denominated  in Hong Kong dollars,  and bore
interest at the Hong Kong prime  lending  rate to 3.5% above that,  which ranged
from 8.25% to 11.75% per annum as of March 31, 2000.


                                      F-14
<PAGE>

9.   SHORT-TERM BANK BORROWING (Cont'd)

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

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

Year ended March 31, 2000               9,951         7,388          10.77%           11.84%
                                  ===========   ===========       ===========      ===========
Bank overdrafts
                                       12,000         7,000           9.13%            9.23%
                                  ===========   ===========       ===========      ===========
Short-term bank loans
                                      213,004       166,946           8.95%            9.10%
                                  ===========   ===========       ===========      ===========
</TABLE>

Trust receipts bank loans

Refer to Note 18 for details of the Group's banking facilities.

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
12% per annum as of March 31, 2000.

Maturities  of  long-term  bank loans were  ranged from 2000 to 2006 and details
were as follows:

                                             2000                2001
                                           ---------    ----------------------
                                            HK$'000     US$'000      HK$'000

Payable during the following periods:
 -  Within one year                          2,123        -              -
 -  Over one year but not exceeding two
    years                                    1,033        -              -
 -  Over two years but not exceeding three
    years                                    1,149        -              -
 -  Over three years but not exceeding four
    years                                    1,278        -              -
 -  Over four years but not exceeding five
    years                                    1,421        -              -
 -  Over five years
                                             1,391        -              -
                                         -----------    --------    ----------
 Total bank loans                            8,395        -              -

 Less: Current portion                      (2,123)       -              -
                                         -----------    --------    ----------

 Non-current portion                         6,272        -              -
                                         ===========    ========    ==========

Refer to Note 18 for details of the Group's banking facilities.


                                      F-15
<PAGE>

11.  CAPITAL LEASE OBLIGATIONS
     -------------------------

Maturities of capital lease  obligations  were ranged from 2000 to 2003.  Future
minimum lease payments under the capital leases, together with the present value
of the minimum lease payments, were:

                                              2 0 0 0              2 0 0 1
                                             ----------   ----------------------
                                              HK$'000      HK$'000     US$'000
Payable during the following periods:
  -  Within one year                           14,253         -           -
  -  Over one year but not exceeding two
     years                                      5,271         -           -
  -  Over two years but not exceeding three
     years                                      2,267         -           -
                                             ----------  --------     -------

 Total minimum lease payments                  21,791         -           -
 Less: Amount representing future interest     (2,051)        -           -
                                             ----------  --------    -------

 Present value of minimum lease payments       19,740         -           -
 Less: Current portion                        (12,747)        -           -
                                             ----------  --------    --------
 Non-current portion                            6,993         -           -
                                             ==========  ========    ========
12.  ACCRUED LIABILITIES

Accrued liabilities consisted of:


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


Accruals for operating expenses          833         -                -
   -  Professional fees                3,473         -                -
   -  Workers' wages and bonus         3,950         -                -
   -  Management bonus                   324         -                -
   -  Rental expenses                    184         -                -
   -  Others
                                         893         -                -
Accrued interest                   ----------    -----------     -----------

                                       9,657         -                -
                                   ==========    ===========     ===========



                                      F-16
<PAGE>

13.  INCOME TAXES

Provision for income taxes consisted of the following:

<TABLE>

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

      Current tax
    -  Hong Kong profits tax         (13,000)      (5,217)        (2,500)         (321)
    -  Mainland China business tax
       and enterprise income tax
       (a)                            (4,253)           -              -             -

 Over-provision in prior years
    -  Hong Kong profits tax (b)           -       21,098              -             -
    -  Mainland China business tax
       and enterprise income tax
       (a)                             2,506            -              -             -

 Deferred tax                              -       (3,449)             -             -
                                    ---------  ------------    -----------  ------------

                                     (14,747)       12,432        (2,500)         (321)
                                    =========  ============    ===========  ============
</TABLE>

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
     Mainland China contracting partners.  Provision for Mainland China taxes in
     relation to these fees was made for periods prior to April 1, 1999.

b.   A substantial  portion of the Group's business activities were conducted in
     Mainland China. Accordingly, the Group was entitled to a 50% offshore claim
     in  computing  its Hong Kong  profits  tax,  under which 50% of the Group's
     profit was deemed to be derived from Mainland China  activities and was not
     subject  to Hong Kong  profits  tax.  Prior to April 1, 1999,  the  Group's
     offshore claim was under review by the Hong Kong Inland Revenue  Department
     ("the  IRD") and the Group  made  provision  for Hong Kong  profits  tax in
     respect of all of its profit,  including  the 50% deemed to be derived from
     Mainland China.  During the year ended March 31, 2000, the Group's offshore
     claim was agreed by the IRD and excess  provision for Hong Kong profits tax
     recorded  prior to April 1, 1999 amounting to  approximately  HK$21,098,000
     was written back.

The Company,  its  subsidiaries and affiliates are subject to income taxes on an
entity basis on income arising in or derived from the tax  jurisdiction in which
they operate.  Subsidiaries and affiliates with business operations in Hong Kong
are  subject  to Hong Kong  profits  tax at a rate of 16%.  The  British  Virgin
Islands subsidiaries are incorporated under the International Business Companies
Act of the British Virgin Islands and,  accordingly,  are exempt from payment of
British Virgin Islands income taxes.  HFGTL is incorporated  under the Companies
Act 1981 of Bermuda (as  amended) as an exempted  company and,  accordingly,  is
exempt from payment of Bermuda income taxes until 2016.


                                      F-17
<PAGE>

13.  INCOME TAXES (Cont'd)
     ------------
The  reconciliation  of the Hong Kong statutory tax rate to the effective income
tax rate  based on the  income  (loss)  before  income  taxes as  stated  in the
consolidated statements of operations is as follows:

<TABLE>

                                                   1999          2000           2001
                                                -----------  -------------  -------------
<S>                                             <C>           <C>            <C>

Hong Kong statutory income tax rate                16.0%        16.0%          16.0%
Non-taxable income arising from activities
     which qualified as offshore                      -         (8.0%)          7.3%
Non-deductible expenses
   -  share of losses of affiliates                   -            -          (23.2%)
   -  loss on dilution of equity interests in
      subsidiaries                                 (0.4%)          -           (7.1%)
Provision for tax in foreign jurisdiction           7.2%           -              -
Over-provision of taxation in prior years          (3.3%)      (24.2%)            -
Deferred tax assets for which no benefits have
been recognized due to the establishment of
valuation allowances                                  -          2.8%              -
Other (non-deductible) deductible items               -         (0.9%)             -
                                                ----------   ----------     ----------
                                                   19.5%       (14.3%)          (7.0%)
                                                ==========   ==========     ==========
</TABLE>

Taxation payable consisted of:
<TABLE>


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

      Hong Kong profits tax                         3,684            -            -
      Mainland China business tax and enterprise   36,642            -            -
      income tax                                 ----------    ----------   -----------

                                                   40,326            -            -
                                                 ==========    ==========   ===========
</TABLE>

Components  of  deferred  tax  balances  as of  March  31,  2000 and 2001 are as
follows:

<TABLE>

                                                      2000                  2001
                                                  ------------     ------------------------
                                                    HK$000         HK$'000          US$'000
<S>                                               <C>             <C>              <C>

Tax effect of accumulated difference between
taxation allowances and depreciation
expense                                                3,394             -              -

Tax effect on loss of a subsidiary to be
utilized to offset future taxable income             (2,470)             -              -

Tax effect on loss on dilution of equity interests
in subsidiaries                                            -       (2,538)          (325)
                                                  ----------    -----------  -------------

                                                      10,924       (2,538)          (325)

                                                       2,470        2,538            325
                                                  ----------    -----------  -------------

                                                      13,394             -              -
                                                  ==========    ===========  =============
</TABLE>

                                      F-18
<PAGE>
13.  INCOME TAXES (Cont'd)
     ------------
The  retained  earnings  of the foreign  subsidiaries  and  affiliates  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  operations  of the  affiliates  and,  accordingly,  no provision for
additional taxation has been made.

14.  LOSS ON DILUTION OF EQUITY INTERESTS IN SUBSIDIARIES
     ----------------------------------------------------
On February 27, 1999, HFJCL redeemed its preferred stock and Phenomenal Limited,
the redeemable preferred stock holder,  applied the proceeds of US$10,000,000 to
subscribe for 582,800 shares of common stock of HFGTL at US$17.16 each. On March
9, 1999,  HFGTL sold  78,750,000  shares at HK$0.9 each in a public offering and
received  net  cash  proceeds  of   HK$58,671,000,   after  deducting   issuance
expenditures.  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 and the Company  hold  167,406,750  shares of HFGTL.
These  equity  transactions  resulted in a dilution of the  Company's  effective
shareholding  in HFGTL from 100% to 53.15%.  The loss resulting from dilution of
the Company's  interest in HFGTL amounted to approximately  HK$2,100,000,  which
was charged to the 1999 consolidated statement of operations.

On August 23, 2000,  HFGTL issued  1,632,000,000  shares at HK$0.114 each to New
Epoch  Holdings   International   Limited,   an  independent   third  party,  as
consideration for a 49.9% equity interest in New Epoch Information (BVI) Company
Limited.  On August 28, 2000,  HFGTL sold  550,000,000  shares at HK$0.114 each.
These  equity  transactions  resulted in a dilution of the  Company's  effective
shareholding in HFGTL from 53.15% to 31.40%. The loss resulting from dilution of
the Company's interest in HFGTL amounted to approximately  HK$15,864,000,  which
was charged to the consolidated statement of operations.

15.  COMMON STOCK
     ------------
On January 16, 2001, the Company issued 65,000 shares of common stock, par value
of US$0.001 each, of US$0.3125 per share to an independent third party in return
for marketing  and  promotion  services  amounting to  approximately  HK$158,000
(equivalent of approximately US$20,000).

16.  COMMITMENTS AND CONTINGENT LIABILITIES
     --------------------------------------
a.   Capital commitments
     -------------------
As of March 31, 2000 and 2001, the Group had capital commitments for acquisition
of machinery  and equipment  amounting to  approximately  HK$1,675,000  and nil,
respectively.


                                      F-19
<PAGE>

16.  COMMITMENTS AND CONTINGENT LIABILITIES (Cont'd)
     --------------------------------------
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  expense for the years ended March 31,
1999,  2000  and  2001  was   approximately   HK$4,523,000,   HK$3,836,000   and
HK$1,074,000,  respectively.  Maturities of operating  leases  commitments  were
ranged from 2000 to 2006. As of March 31, 2000 and 2001,  future rental payments
under agreements  classified as operating leases with non-cancellable  terms are
as follows:

<TABLE>

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

              Payable during the following periods:      2,364       -          -
  -  Within one year                                       504       -          -
  -  Over one year but not exceeding two years             495       -          -
  -  Over two years but not exceeding three years          448       -          -
  -  Over three years but not exceeding four years         460       -          -
  -  Over four years but not exceeding five years          701       -          -
  -  More than five years                             --------     -------    -------
                                                         4,972       -          -
                                                      ========     =======    =======
</TABLE>

c.   Contingent liabilities
     ----------------------
     Contingent liabilities not provided in the financial statements are:


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

 Discounted bills with recourse        1,798           -               -
                                   ===========   =========    ==============



                                      F-20

<PAGE>
17.  RETIREMENT PLAN
     ---------------

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

The Group  arranged  for its Hong  Kong  employees  to  participate  in  defined
contribution  provident funds ("the Scheme"),  which were managed by independent
trustees.  Each  of the  Group  and its  employees  in Hong  Kong  made  monthly
contributions  to  the  Scheme  at 5% of  the  employees'  basic  salaries.  The
employees  were  entitled to receive their entire  contribution  and the accrued
interest thereon,  and 100% of the Group's contribution and the accrued interest
thereon  upon  retirement  or leaving  the Group  after  completing  ten yeas of
service or at a reduced scale of 30% to 90% after completing three to nine years
of service.  Any forfeited  contributions  made by the Group and related accrued
interest were used to reduce the Group's contribution.

The  aggregate  amounts  of  the  Group's   contributions  to  the  Scheme  were
approximately HK$93,000, HK$184,000 and HK$32,000,  respectively, and there were
no forfeited contributions, for the years ended March 31, 1999, 2000 and 2001.

18.  BANKING FACILITIES
     ------------------
As of March 31, 2000 and 2001,  the Group had  aggregate  banking  facilities of
approximately HK$279,315,000 and nil, respectively,  from several banks for bank
overdrafts,  loans  and  trade  financing  (Refer  to  Note  9 and  10).  Unused
facilities as of March 31, 2000 amounted to approximately  HK$37,736,000.  As of
March 31, 2000, these facilities were secured by the following:

a.   pledge of machinery  and equipment  with a net book value of  approximately
     HK$1,116,000;

b.   mortgage  over the Group's  leasehold  land and  buildings  with a net book
     value of approximately HK$1,973,000;

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

d.   pledges of the Group's bank deposits of HK$117,575,000;

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

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.   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 HK$20,000,000; and

i.   guarantee provided by HFGTL.

In  addition,  as of March 31,  2000,  the Group had  undertaken  to comply with
certain covenants imposed by a bank.

                                      F-21

<PAGE>


19.  RELATED PARTY TRANSACTIONS

a.   The Group entered into the following transactions with a director:

<TABLE>

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

Rental paid to Mr. Lam Sai Wing      162           324        127          16
                                ============  ============   ========== =========
</TABLE>

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


                        2 0 0 0              2 0 0 1
                     ------------   -------------------------
                        HK$'000      HK$'000         US$'000
Due to a director
-  Mr. Lam Sai Wing      4,426        2,368              303
                     ============   ==========     ==========

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

20.  SEGMENT INFORMATION
     -------------------
Prior to April 1,  1999,  the  Group was  principally  engaged  in two  business
segments:  (i) manufacturing and sales of gold and jewellery products;  and (ii)
provision  of  contract  processing  services  which  ceased  on April 1,  1999.
Effective on August 23, 2000,  the Company's  interest in HFGTL was diluted from
53.15% to  31.40%.  As a  consequence,  the  Company is  principally  engaged in
investment holding.

a.   Sales

Analysis of sales by business activity and geographical location is as follows:

<TABLE>

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

Hong Kong operation -
Sale of gold and jewellery products to
     customers in
     -    Hong Kong/Mainland China         177,588      402,010       191,819        24,592
     -    South East Asia                  128,352      134,517        57,665         7,393
     -    The United States of America     107,884      149,405        52,433         6,722
     -    Europe                           136,880      188,065        42,040         5,390
     -    Others                           108,086       85,073        27,673         3,548
                                          ---------    ---------     ---------      --------
                                           658,790      959,070       371,630        47,645
                                          =========    =========     =========      ========
Mainland China operation -
Contract processing fees                    17,012            -             -             -
                                          =========    =========     =========      ========
</TABLE>


                                      F-22
<PAGE>

20.   SEGMENT INFORMATION  (Cont'd)

b.   Operating profit *
     ----------------
<TABLE>

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

 Hong Kong operation
   -   sales of gold and jewellery
       products                        68,227     100,380      36,041         4,621

 Mainland China operation
   -   contract processing services    17,960           -           -             -
                                      --------   ----------   ---------     ---------
 Total                                 86,187     100,380      36,041         4,621
                                      ========   ==========   =========     =========
</TABLE>


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

c.   Identifiable assets, capital expenditures and depreciation
     ----------------------------------------------------------

Geographical   analysis  of  identifiable   assets,   capital  expenditures  and
depreciation is as follows:


Identifiable assets      2 0 0 0                2 0 0 1
-------------------     ----------    -----------------------------
                         HK$'000       HK$'000              US$'000

Hong Kong                 636,947       158,882             20,369
Mainland China            104,389             -                  -
                        -----------    ---------          ---------
Total                     741,336       158,882             20,369
                        ===========    =========          =========
Capital expenditures

Hong Kong                 83,345         32,832             4,209
Mainland China                75             87                11
                        -----------    ---------          ---------
Total                     83,420         32,919             4,220
                        ===========    =========          =========
Depreciation

Hong Kong                 51,458         25,331             3,248
Mainland China             4,122          1,623               208
                        -----------    ----------         ---------
Total                     55,580         26,954             3,456
                        ===========    ==========         =========

d.   Major customers
     ---------------
     There  are no  individual  customers  accounting  for  more  than 5% of the
     Group's sales for the years ended March 31, 1999, 2000 and 2001.


                                      F-23
<PAGE>

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

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

                                            1 9 9 9   2 0 0 0     2 0 0 1
                                           --------- ---------   ---------
 Heraeus Limited - supplied gold bullion     62.9%     67.4%        52.2%
 Chinese Wall Technology Company Limited        -       7.8%        15.7%
 Johnson Matthey Hong Kong Limited           2.0%       5.8%        21.7%
                                           ========= =========   =========

21.  SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

a.   Cash paid for interest and income taxes is as follows:

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

Interest paid                        11,588    18,599        7,244        929
                                  =========  ==========   ========== ==========

Income taxes                            147     2,397            -          -
                                  =========  ==========   ========== ==========

b.   Cash received for interest income is as follows:


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

Interest received                   3,234       6,216       3,166         406
                                 ==========  ==========  ==========  =========


c.   As  mentioned in Note 1, the  Company's  interest in HFGTL was diluted from
     53.15% to 31.40% on August  23,  2000.  Details  of net  assets of HFGTL on
     August 23, 2000, when HFGTL changed from a subsidiary to an affiliate, were
     as follows:

                                                                   HK$'000
                                                                 -----------

Property, machinery and equipment and capital leases, net           233,102
Cash and bank deposits                                              122,486
Accounts receivable, net                                            136,404
Prepayments and deposits                                             12,739
Inventories, net                                                    352,162
Bank overdrafts                                                      (8,513)
Trust receipts bank loans                                          (266,010)
Short-term bank loans                                               (28,547)
Minority interests                                                 (200,139)
Accounts payable                                                    (38,041)
Accrued liabilities                                                  (6,003)
Due to a director                                                    (4,824)
Taxation payable                                                    (42,826)
Long-term bank loans                                                 (7,541)
Capital lease obligations                                           (14,003)
Deferred taxation                                                   (13,394)
                                                               -------------
Net assets as at the date of dilution                                227,052
                                                               =============

Net cash outflow in respect of the dilution of equity  interests in HFGTL was as
follows:


                                                                   HK$'000
                                                                 -----------

                                                                    122,486
                                                                 ===========


                                      F-24
<PAGE>

21.  SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (Cont'd)
     ------------------------------------------------
d.   Non-cash investing activities:

     During  the years  ended  March 31,  1999,  2000 and  2001,  capital  lease
     obligations  of   approximately   HK$2,234,000,   HK$15,070,000   and  nil,
     respectively,  were  incurred  to  finance  the  Group's  additions  of new
     machinery and equipment.

22.  OTHER SUPPLEMENTAL INFORMATION
     ------------------------------

<TABLE>

                                           1 9 9 9      2 0 0 0          2 0 0 1
                                          ----------   ----------  ----------------------
                                           HK$'000      HK$'000     HK$'000      US$'000
<S>                                        <C>         <C>         <C>           <C>
Depreciation of property, machinery and
Equipment
  -   owned assets                           31,970      44,215      22,527        2,888
  -   assets held under capital leases        7,635      11,365       4,427          568
Loss on disposal of property, machinery and
equipment                                        49           -           -            -
Allowance for bad and doubtful accounts       2,500       5,000           -            -
Allowance for obsolete and slow-moving
inventories                                   2,000           -           -            -
Interest on
  -   bank overdrafts and loans               9,585      17,636       6,680          857
  -   capital lease obligations               2,003       1,856         564           72
Operating lease rentals for
  -   premises                                4,443       3,754       1,044          134
  -   machinery and equipment                    80          82          30            4
Advertising and promotion                     1,154       7,772       2,206          283
Repairs and maintenance                         721         774         310           40
Rental income                                   101          48          32            4
Net foreign exchange gain (loss)                149         127          (9)          (1)
Interest income from bank deposits            3,234       6,216       3,166          406
                                           ==========  ==========  ===========  =========
</TABLE>


                                      F-25
<PAGE>

Auditors' Report to the Shareholders of
HANG FUNG GOLD TECHNOLOGY LIMITED
(Incorporated in Bermuda with limited liability)

We have audited the financial  statements of Hang Fung Gold  Technology  Limited
and its  subsidiaries  which have been  prepared in accordance  with  accounting
principles generally accepted in Hong Kong.

Respective responsibilities of directors and auditors

The  company's  directors  are  responsible  for the  preparation  of  financial
statements  which give a true and fair view. In preparing  financial  statements
which give a true and fair view it is fundamental  that  appropriate  accounting
policies are selected and applied consistently.

It is our responsibility to form an independent opinion,  based on our audit, on
those statements and to report our opinion to you.

Basis of opinion

We conducted  our audit in  accordance  with  Statements  of Auditing  Standards
issued by the Hong Kong Society of Accountants and auditing standards  generally
accepted in the United States of America.  An audit includes  examination,  on a
test basis, of evidence relevant to the amounts and disclosures in the financial
statements.  It also  includes an assessment  of the  significant  estimates and
judgements made by the directors in the preparation of the financial statements,
and of whether the accounting  policies are appropriate to the  circumstances of
the company and of the group, consistently applied and adequately disclosed.

We  planned  and  performed  our audit so as to obtain all the  information  and
explanations  which  we  considered  necessary  in  order  to  provide  us  with
sufficient  evidence to give  reasonable  assurance as to whether the  financial
statements are free from material  misstatement.  In forming our opinion we also
evaluated  the  overall  adequacy  of the  presentation  of  information  in the
financial statements.  We believe that our audit provides a reasonable basis for
our opinion.

Opinion

In our opinion,  the financial statements give a true and fair view of the state
of affairs of the  company  and of the group as at 31st  March,  2001 and of the
profit  and cash  flows of the  group  for the year  then  ended,  and have been
properly  prepared  in  accordance  with  the  accounting  principles  generally
accepted in Hong Kong.

Accounting   practices   used  by  the  group  in  preparing  the   accompanying
consolidated  financial  statements conform with generally  accepted  accounting
principles in Hong Kong, but do not conform with accounting principles generally
accepted in the United States of America. A description of these differences and
a reconciliation of consolidated net income (loss) and  shareholders'  equity to
accounting  principles generally accepted in the United States of America is set
forth in Note 31.


                                             ARTHUR ANDERSEN & CO
                                             Certified Public Accountants
                                                   Hong Kong

Hong Kong, 14th July, 2001.

                                      F-26
<PAGE>

                        HANG FUNG GOLD TECHNOLOGY LIMITED

                          CONSOLIDATED INCOME STATEMENT

                       FOR THE YEAR ENDED 31ST MARCH, 2001

                        (Expressed in Hong Kong dollars)


                                                Note         2 0 0 1
                                               -------     -----------
                                                                $'000

Turnover                                          4          1,327,753

Cost of sales                                               (1,122,475)
                                                           ------------

Gross profit                                                   205,278

Selling and distribution expenses                              (16,856)
General and administrative expenses                            (91,260)
                                                           ------------

Profit from operations                                          97,162

Interest income                                   4              8,723
Interest expense                                               (30,105)
Share of losses of associates and provision
for doubtful receivables from an associate       14            (14,460)
                                                           ------------

Profit before taxation                            5             61,320

Taxation                                          7            (9,156)
                                                           ------------

Profit attributable to shareholders               8            52,164

Retained profit, beginning of year                            261,052

Elimination of goodwill                          14          (188,142)
                                                           ------------

Retained profit, end of year                      9           125,074
                                                           ============

Earnings per share                               10
   -  Basic                                              HK1.17 cents
                                                         ==============
   -  Diluted                                            HK1.16 cents
                                                         ==============


                                      F-27
<PAGE>

                        HANG FUNG GOLD TECHNOLOGY LIMITED

              CONSOLIDATED STATEMENT OF RECOGNISED GAINS AND LOSSES

                       FOR THE YEAR ENDED 31ST MARCH, 2001

                        (Expressed in Hong Kong dollars)




                                                          2 0 0 1
                                                         ---------
                                                           $'000

Deficit on revaluation of an investment property                 -

Profit attributable to shareholders                         52,164
                                                        ----------

Net recognised gains                                        52,164

Elimination of goodwill from acquisition of an associate (188,142)
                                                        ----------

                                                         (135,978)
                                                        ==========



                                      F-28
<PAGE>

                        HANG FUNG GOLD TECHNOLOGY LIMITED

                                 BALANCE SHEETS

                             AS AT 31ST MARCH, 2001

                        (Expressed in Hong Kong dollars)

<TABLE>
                                                                    2 0 0 1
                                                          -----------------------------
                                                Note       Consolidated      Company
                                               --------   --------------    -----------
                                                              $'000          $'000
<S>                                             <C>        <C>              <C>
NON-CURRENT ASSETS                                11           351,978              -
Fixed assets                                      12             1,600              -
Investment property                               13                 -        339,327
Investment in subsidiaries                        14            35,347              -
Investment in associates                                  ------------    -----------

                                                               388,925        339,327
Total non-current assets                                  ------------    -----------


CURRENT ASSETS                                    15           314,343              -
Inventories                                       16           214,847              -
Accounts receivable                                              7,824            121
Prepayments and deposits                           3               281              -
Due from holding companies                        17            77,210              -
Pledged bank deposits                                           33,214              -
Cash and bank deposits                                    ------------    -----------

                                                               647,719            121
Total current assets                                      ------------    -----------


CURRENT LIABILITIES                               18         (355,492)              -
Short-term bank borrowings                        20          (12,973)              -
Finance lease obligations, current portion        21          (30,933)              -
Accounts payable                                              (19,805)              -
Accruals and other payables                        3             (488)              -
Due to a director                                 22          (36,642)              -
Taxation payable                                          ------------    -----------

                                                             (456,333)              -
Total current liabilities                                 ------------    -----------

                                                               191,386            121
Net current assets                                        ------------    -----------

                                                               580,311        339,448
Total assets less current liabilities                     ------------    -----------


NON-CURRENT LIABILITIES                           19          (35,580)              -
Long-term bank loans, non-current portion         20          (18,086)              -
Finance lease obligations, non-current portion    23          (20,031)              -
Deferred taxation                                         ------------    -----------

                                                              (73,697)              -
Total non-current liabilities                             ------------    -----------

                                                               506,614        339,448
Net assets                                                ============    ===========

Representing:
                                                  24            53,320         53,320
SHARE CAPITAL
                                                  26           328,220        486,821
RESERVES
                                                               125,074       (200,693)
RETAINED PROFIT (ACCUMULATED DEFICIT)                     ------------    -----------

                                                               506,614        339,448
Shareholders' equity                                      ============    ===========
</TABLE>

             Approval by the Board of Directors on 14th July, 2001:

          LAM SAI WING                              CHAN YAM FAI, JANE
            Chairman                                 Deputy Chairman

                                      F-29
<PAGE>


                        HANG FUNG GOLD TECHNOLOGY LIMITED

                        CONSOLIDATED CASH FLOW STATEMENT

                       FOR THE YEAR ENDED 31ST MARCH, 2001

                        (Expressed in Hong Kong dollars)

<TABLE>
                                                              Note        2 0 0 1
                                                             ------     -----------
                                                                           $'000
<S>                                                          <C>        <C>

Net cash inflow from operating activities                      27.a        10,527
                                                                         ----------

Returns on investments and servicing of finance
       Interest received                                                    6,822
   Interest paid                                                          (30,105)
   Dividends paid                                                               -
                                                                         ----------
                                                                          (23,283)
                                                                         ----------
Taxation
   Hong Kong profits tax paid                                              (6,203)
                                                                         ----------
 Investing activities
   Additions of fixed assets                                             (175,476)
   Advances to an associate                                               (50,000)
   Increase in the amounts due from holding companies                        (281)
                                                                         ----------

                                                                         (225,757)
                                                                         ----------

Net cash outflow before financing activities                             (244,716)
                                                                         ----------

Financing activities                                          27.b
   Issuance of shares                                                      62,700
   Share issuance expenses                                                 (3,321)
   New short-term bank loans                                               26,547
   Repayment of short-term bank loans                                     (12,000)
   New long-term bank loans                                                37,480
   Repayment of long-term bank loans                                       (2,900)
   Repayment of capital element of finance lease obligations              (15,832)
   (Decrease) Increase in amount due to a director                           (865)
                                                                         ---------

                                                                           91,809
                                                                         ---------

Decrease in cash and cash equivalents                                    (152,907)

Cash and cash equivalents, Beginning of year                              (58,219)
                                                                         ---------

   End of year                                                27.d       (211,126)
                                                                         =========
</TABLE>

                                      F-30
<PAGE>

                        HANG FUNG GOLD TECHNOLOGY LIMITED

                        NOTES TO THE FINANCIAL STATEMENTS

        (Amounts expressed in Hong Kong dollars unless otherwise stated)

1.   ORGANISATION AND PRINCIPAL ACTIVITIES
     -------------------------------------
Hang Fung Gold Technology Limited ("the Company") was incorporated in Bermuda on
4th  December,  1997 as an  exempted  company  under the  Companies  Act 1981 of
Bermuda (as amended).  Its shares have been listed on The Stock Exchange of Hong
Kong Limited since 16th March, 1999.

The Company is an investment  holding company.  Its subsidiaries are principally
engaged in the design,  manufacture  and  distribution  of a broad range of gold
products,  other precious metal products and jewellery products.  Its associates
are  principally  engaged in trading and  developing  and  operating  e-commerce
trading facilities between Mainland China and the rest of the world.

2.   PRINCIPAL ACCOUNTING POLICIES
     -----------------------------
The financial  statements  have been prepared in accordance  with  Statements of
Standard  Accounting  Practice  issued by the Hong Kong Society of  Accountants,
accounting  principles  generally  accepted  in Hong  Kong,  and the  disclosure
requirements  of the Hong Kong Companies  Ordinance and the Rules  Governing the
Listing of  Securities  on The Stock  Exchange of Hong Kong  Limited.  Principal
accounting policies are summarised below:

a.   Basis of measurement
     --------------------
The financial  statements  have been prepared on the historical  cost basis,  as
modified by the revaluation of an investment property.

b.   Basis of consolidation
     ----------------------
The consolidated  financial  statements  include the accounts of the Company and
its  subsidiaries  (together "the Group"), together with the  Group's  share  of
post-acquisition  results and reserves of its associates under the equity method
of accounting.  The results of subsidiaries and associates  acquired or disposed
of during the year are recorded from or to their  effective dates of acquisition
or  disposal.  Significant  intra-group  transactions  and  balances  have  been
eliminated on consolidation.

c.   Goodwill
     --------
Goodwill  represents the difference  between the fair value of the consideration
given and the Group's share of the aggregate fair values of the identifiable net
assets of subsidiaries and associates  acquired.  Positive goodwill arises where
the  consideration  given exceeds the Group's share of the aggregate fair values
of the  identifiable net assets acquired and is eliminated  immediately  against
available  reserves.  Negative  goodwill  arises where the Group's  share of the
aggregate  fair  values of the  identifiable  net assets  acquired  exceeds  the
consideration given and is credited directly to reserves.

d.   Subsidiaries
     ------------
A subsidiary is a company in which the Company  holds,  directly or  indirectly,
more than 50% of its issued voting share capital as a long-term  investment.  In
the Company's financial statements, investment in subsidiaries is stated at cost
less provision for any impairment in value,  while income from  subsidiaries  is
recorded to the extent of dividends received and receivable.


                                      F-31
<PAGE>

2.   PRINCIPAL ACCOUNTING POLICIES (Cont'd)
     -----------------------------
e.   Associates
     ----------
An associate is a company, not being a subsidiary,  in which the Group holds 20%
or more of its issued  voting share  capital as a long-term  investment  and can
exercise significant influence over its financial and operating policies. In the
consolidated  financial  statements,  investment  in associates is stated at the
Group's share of the fair value of the identifiable net assets of the associates
at the time of  acquisition,  adjusted  for the Group's  share of  undistributed
post-acquisition results and reserves of the associates,  distributions received
from the associates and other necessary alterations in the Group's proportionate
interest in the associates  arising from changes in the equity of the associates
that have not been included in the income statement.

f.   Turnover and revenue recognition
     --------------------------------
Turnover consists of the net invoiced value of merchandise sold after allowances
for returns and discounts and rental income.

Revenue is recognised when the outcome of a transaction can be measured reliably
and  when  it is  probable  that  the  economic  benefits  associated  with  the
transaction  will  flow to the  Group.  Sales  revenue  is  recognised  when the
merchandise is delivered and title has passed.  Rental income is recognised on a
straight-line  basis over the period of the relevant leases.  Interest income is
recognised on a  time-proportion  basis on the principal  outstanding and at the
rate applicable.

g.   Taxation
     --------
Individual  companies  within the Group  provide for profits tax on the basis of
their profits for financial reporting purposes,  adjusted for income and expense
items which are not assessable or deductible for profits tax purposes.

Deferred  taxation is provided  under the liability  method,  at the current tax
rate, in respect of significant  timing  differences  between profit as computed
for taxation purposes and profit as stated in the financial  statements,  except
when it is considered  that no liability will arise in the  foreseeable  future.
Deferred tax assets are not recognised  unless the related benefits are expected
to crystallise in the foreseeable future.

h.   Advertising and promotion costs
     -------------------------------
The costs of advertising and promotion are expensed as incurred.

i.   Employee retirement benefits
     ----------------------------
Costs of employee retirement benefits are recognised as an expense as incurred.

j.   Borrowing costs
     ---------------
Borrowing costs that are directly attributable to the acquisition,  construction
or production of fixed assets that takes a substantial period of time to prepare
for its intended use or sale are  capitalised  as part of the cost of that asset
at  rates  based  on the  actual  cost of the  specific  borrowings.  All  other
borrowing costs are recognised as an expense as incurred.


                                      F-32
<PAGE>

2.   PRINCIPAL ACCOUNTING POLICIES (Cont'd)
     -----------------------------
k.   Fixed assets and depreciation
     -----------------------------
Fixed  assets  are  stated  at  cost  less   accumulated   depreciation.   Major
expenditures on modifications  and betterments of fixed assets which will result
in future economic benefits are capitalised,  while  expenditures on maintenance
and repairs of fixed assets are expensed when incurred. Depreciation is provided
on a straight-line  basis to write off the cost less estimated residual value of
each asset over its estimated  useful life. The annual rates of depreciation are
as follows:

         Land and buildings                        5%
         Machinery and equipment           16% to 20%
         Furniture and office equipment    12% to 20%
         Motor vehicles                           20%

The  carrying  value of fixed  assets is assessed  periodically  or when factors
indicating  an  impairment  are  present.  Fixed  assets  carried  at cost  less
accumulated  depreciation  are  reduced to their  recoverable  amount if this is
lower than net book value, with the difference  charged to the income statement.
In  determining  the  recoverable  amount of  individual  items of fixed assets,
expected future cash flows are not discounted to their present value.

Gains and  losses on  disposal  of fixed  assets  are  recognised  in the income
statement  based on the net disposal  proceeds less the then carrying  amount of
the assets.

Fixed assets held under finance leases are recorded and  depreciated on the same
basis as described above.

l.   Investment properties
     ---------------------
Investment  properties  are interests in leasehold land and buildings in respect
of which  construction and development work has been completed and which is held
for their long-term investment potential.  Investment properties are included in
the balance sheet at their open market value on the basis of an annual valuation
by an  independent  qualified  valuer.  All  changes in the value of  investment
properties  are dealt  with in the  investment  properties  revaluation  reserve
unless  the  total of this  reserve  is  insufficient  to cover a  deficit  on a
portfolio  basis,  in which  case  the net  deficit  is  charged  to the  income
statement.  When an investment  property is disposed of,  previously  recognised
revaluation  surpluses are reversed and the gain or loss on disposal reported in
the income statement is determined  based on the net disposal  proceeds less the
original cost.

No depreciation  is provided for investment  property unless the unexpired lease
term is 20 years or less,  in which case  depreciation  is  provided on the then
carrying value over the unexpired lease term.

m.   Inventories
     -----------
Inventories  are  stated at the  lower of cost and net  realisable  value.  Cost
includes costs of raw materials calculated using the first-in,  first-out method
of  costing  and,  in the case of  finished  goods,  also  direct  labour and an
appropriate proportion of production overheads. Net realisable value is based on
estimated selling prices in the ordinary course of business,  less further costs
expected  to be incurred  to  completion  and  disposal.  Provision  is made for
obsolete, slow-moving or defective items where appropriate.

When  inventories  are  sold,  the  carrying  amount  of  those  inventories  is
recognised  as an  expense  in the  period  in  which  the  related  revenue  is
recognised.  The amount of any write-down of inventories to net realisable value
and all losses of  inventories  are  recognised  as an expense in the period the
write-down  or  loss  occurs.  The  amount  of  reversal  of any  write-down  of
inventories,  arising from an increase in net realisable value, is recognised as
a reduction in the amount of inventories  recognised as an expense in the period
in which the reversal occurs.


                                      F-33
<PAGE>

2.   PRINCIPAL ACCOUNTING POLICIES (Cont'd)
     -----------------------------
n.   Provisions and contingencies
     ----------------------------
A  provision  is  recognised  when  there  is a  present  obligation,  legal  or
constructive,  as a result of a past event and it is probable (i.e.  more likely
than not) that an outflow  of  resources  embodying  economic  benefits  will be
required to settle the  obligation,  and a reliable  estimate can be made of the
amount of the  obligation.  Provisions  are reviewed  regularly  and adjusted to
reflect the current best  estimate.  Where the effect of the time value of money
is material,  the amount of a provision is the present value of the expenditures
expected to be required to settle the obligation.

Contingent liabilities are not recognised in the financial statements.  They are
disclosed unless the possibility of an outflow of resources  embodying  economic
benefits  is remote.  A  contingent  asset is not  recognised  in the  financial
statements but disclosed when an inflow of economic benefits is probable.

o.   Leases
     ------
Finance 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  finance  leases are  initially  recorded at the present
value of the minimum  payments at the inception of the leases,  with  equivalent
liabilities categorised as appropriate under current or non-current liabilities.
Interest expense,  which represents the difference  between the minimum payments
at the  inception of the leases and the  corresponding  fair value of the assets
acquired,  is  allocated to  accounting  periods over the period of the relevant
leases to produce a constant rate of charge on the outstanding balances.

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 the  income  statement  on a
straight-line basis over the period of the relevant leases.

p.   Currency translation
     --------------------
Companies  within  the  Group  maintain  their  books and  records  in Hong Kong
dollars.  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. Exchange gains or losses are dealt
with in the income statement.

q.   Use of estimates
     ----------------
The preparation of financial  statements in conformity  with generally  accepted
accounting  principles  in Hong Kong requires  management to make  estimates and
assumptions that affect certain  reported amounts and disclosures.  Accordingly,
actual results could differ from those estimates.

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

Significant transactions and balances with related parties are summarised below:

a.   During  the  year  ended  31st  March,  2001,  the  Group  paid  rental  of
     approximately  $324,000 in respect of residential premises owned by Mr. Lam
     Sai Wing, a director of the Company. The premises are used as the residence
     of Mr. Lam Sai Wing and his family.

                                      F-34
<PAGE>

3.   RELATED PARTY TRANSACTIONS (Cont'd)
     --------------------------
b.   The amount due from an associate of $50,000,000 (see Note 14) is secured by
     certain of equity  interest in the associate not owned by the Group,  bears
     interest at the Hong Kong prime  lending  rate plus 2.5%,  and is repayable
     after  September 2003.  During the year,  interest earned from this advance
     amounted to approximately $1,901,000.

c.   Details of the amounts due from holding companies (consolidated) are:

<TABLE>

                                                      Balance as at      Maximum balance
                                                       31st March,     outstanding during
                                                          2001              the year
                                                      -------------    ------------------
<S>                                                    <C>              <C>
                                                         $'000               $'000
Quality Prince Limited, the immediate holding company           6                6

S.W. Lam, Inc., the intermediate holding company              275              275
                                                      -----------      ================

                                                              281
                                                      ===========
</TABLE>

These amounts are  unsecured,  non-interest  bearing and without  pre-determined
repayment terms.

d.   Details of the amount due to a director (consolidated) are:


                                                         Maximum balance due
                               Balance as at 31st       from a director during
                                  March, 2001                  the year
                             ----------------------     ------------------------
                                   $'000                         $'000
Mr. Lam Sai Wing                    488                             -
                             ======================     ========================

The balances with the director are unsecured,  non-interest  bearing and without
pre-determined repayment terms.

e.   The Group's banking facilities are secured by, among others, mortgages over
     certain  properties  owned by Mr. Lam Sai Wing and Ms. Chan Yam Fai,  Jane,
     directors of the Company,  and personal  guarantees provided by Mr. Lam Sai
     Wing and Ms. Chan Yam Fai, Jane (see Note 30).

4.   TURNOVER AND REVENUE
     --------------------
Analysis of turnover  and revenue in the  consolidated  income  statement  is as
follows:


                                                               2 0 0 1
                                                             -----------
                                                               $'000

Sales of merchandise                                          1,327,657

Rental income                                                        96
                                                            -----------

Turnover                                                      1,327,753

Interest income                                                   8,723
                                                            -----------

Total revenue                                                 1,336,476
                                                            ===========

The Group's  turnover  by major  product  category  and  geographical  location,
together with their  respective  contributions  to profit from  operations,  are
analysed as follows:


                                      F-35
<PAGE>

4.   TURNOVER AND REVENUE (Cont'd)
     --------------------
a.   By major product category -

                                                     2 0 0 1
                                       -------------------------------------
                                                      Contribution to profit
                                         Turnover       from operations
                                       -------------  ----------------------
                                          $'000              $'000

Sales of merchandise
-Gold products                            1,011,996             45,862
-Other precious metal products              129,348             23,271
-Jewellery products                         183,604             27,577
-Others                                       2,709                368

Rental income                                    96                 84
                                       ------------      -------------

                                          1,327,753             97,162
                                       ============      =============

b.   By geographical location* -


                                                           2 0 0 1
                                                         -----------
                                                            $'000

Mainland China and Hong Kong                                767,585

South-East Asia                                             238,083

The United States of America                                140,903

Europe                                                      118,006

Others                                                       63,176
                                                        -----------

                                                          1,327,753
                                                        ===========

*    Turnover  by  geographical  location  is  determined  on the  basis  of the
     destination of delivery of merchandise.

No analysis of profit from operations by  geographical  location is presented as
it is generally in line with the distribution of turnover as set out above.



                                      F-36
<PAGE>

5.   PROFIT BEFORE TAXATION
     ----------------------
Profit before taxation in the consolidated  income statement is determined after
charging or crediting the following items:



                                                                     2 0 0 1
                                                                    ----------
                                                                     $'000
After charging -


Interest on
   -  bank overdrafts and borrowings wholly repayable
      within five years                                              27,272
                                                                        647
   -  bank borrowings wholly repayable after five years               2,186
   -  finance leases
                                                                     47,321
Employment costs (including directors' emoluments)
                                                                      7,772
Advertising and promotion costs

Website development expense                                           3,969


 Operating lease rentals in respect of                                4,485
    -  office and factory premises                                       82
    -  machinery and equipment

 Depreciation of fixed assets                                        63,662
    -  owned assets                                                  11,774
    -  assets held under finance leases
                                                                        377
 Net loss on disposal of fixed assets
                                                                        250
 Deficit on revaluation of an investment property
                                                                      2,500
 Provision for bad and doubtful debts
                                                                      1,200
 Provision for slow-moving and obsolete inventories
                                                                          -
 Derivative trading loss *
                                                                         75
 Net exchange loss
                                                                        780
 Auditors' remuneration                                          ===========


 After crediting -
                                                                        450
 Derivative trading gain *

 Interest from                                                        6,822
    -  bank deposits                                                  1,901
    -  amount due from an associate (see Notes 3 and 14)
                                                                         82
 Rental income, less outgoings
                                                                          -
 Net exchange gain                                               ===========

*    During the year, the Company entered into forward  contracts for trading of
     gold  and  recognised  a  gain  of  approximately  $450,000.  There  was no
     outstanding forward contract as at 31st March, 2001.


                                      F-37
<PAGE>

6.   DIRECTORS' AND SENIOR EXECUTIVES' EMOLUMENTS
     --------------------------------------------
a.     Details of emoluments paid/payable to directors of the Company are:


                                                                  2 0 0 1
                                                                -----------
                                                                   $'000

Fees for executive directors                                           -

Fees for non-executive directors                                     120

Other emoluments for executive directors
   -  Basic salaries and allowances                                2,460
   -  Bonus *                                                      2,500
                                                                -----------

                                                                   5,080
                                                                ===========

*    The Company's executive directors are entitled to a discretionary bonus not
     exceeding  5%  of  the  Group's   consolidated   profit   attributable   to
     shareholders.

No directors  waived any  emoluments  during the year. No incentive  payment for
joining the Group or compensation  for loss of office was paid or payable to any
directors during the year.

Analysis of directors'  emoluments by number of directors and emolument range is
as follows:


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


Executive directors                                            1
    -  Nil to $1,000,000                                       1
    -  $4,500,001 to $5,000,000                                -
    -  $5,500,001 to $6,000,000

 Non-executive directors                                       5
    -  Nil to $1,000,000                               ----------
                                                               7
                                                       ==========

b.   Details of  emoluments  of the five  highest  paid  individuals  (including
     directors and other employees) are:


                                                           2 0 0 1
                                                         -----------
                                                            $'000

Basic salaries and allowances                                 4,364

Bonus                                                         2,500
                                                         -----------
                                                              6,864
                                                         ===========

Two  of the  highest  paid  individuals  were  directors  of  the  Group,  whose
emoluments have been included in Note 6.a above.

During the year,  no emolument of the five highest paid  individuals  (including
directors  and other  employees)  was  incurred  as  inducement  to join or upon
joining the Group or as compensation for loss of office.



                                      F-38
<PAGE>


6.   DIRECTORS' AND SENIOR EXECUTIVES' EMOLUMENTS (Cont'd)
     --------------------------------------------
b.   (Cont'd)

     Analysis of  emoluments  of the five  highest paid  individuals  (including
     directors and other employees) by number of individuals and emolument range
     is as follows:


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

-     Nil to $1,000,000                                  4
-     $4,500,001 to $5,000,000                           1
-     $5,500,001 to $6,000,000                           -
                                                     ---------
                                                         5
                                                     =========

7.   TAXATION

Taxation in the consolidated income statement consisted of:


                                                        2 0 0 1
                                                      -----------
                                                         $'000

Hong Kong profits tax                                      2,519
    -  Current year                                            -
    -  Write-back of over-provision in prior years     ---------

                                                           2,519

                                                           6,637
 Deferred taxation - Hong Kong profits tax             ---------
                                                           9,156
                                                       =========

     The Company is exempted  from  taxation  in Bermuda  until 2016.  Hong Kong
     profits  tax  has  been  provided  at the  rate  of  16%  on the  estimated
     assessable profit arising in or derived from Hong Kong.

8.   PROFIT ATTRIBUTABLE TO SHAREHOLDERS
     -----------------------------------
     The  consolidated  profit  attributable to shareholders  included a loss of
     approximately  $200,701,000  dealt with in the financial  statements of the
     Company.

9.   RETAINED PROFIT
     ---------------
Retained profit consisted of:


                                                       2 0 0 1
                                                     -----------
                                                        $'000

Company and subsidiaries                               131,241

Associates                                              (6,167)
                                                     ----------

                                                       125,074
                                                     ==========


                                      F-39
<PAGE>

10.  EARNINGS PER SHARE
     ------------------
The calculation of basic earnings per share for the year ended 31st March,  2001
is  based  on  the   consolidated   profit   attributable   to  shareholders  of
approximately  $52,164,000 and on the weighted  average number of  approximately
4,468,231,000 shares in issue during the year.

The  calculation  of diluted  earnings  per share for the year ended 31st March,
2001 is  based  on the  consolidated  profit  attributable  to  shareholders  of
approximately  $52,164,000 and on the weighted  average number of  approximately
4,502,197,000  shares in issue,  after adjusting for the effects of all dilutive
potential shares. The effect of the dilutive potential shares resulting from the
exercise of the  outstanding  employee  share  options on the  weighted  average
number of shares in issue during the year was approximately  33,966,000  shares,
which were deemed to have been issued at no  consideration as if all outstanding
employee  share options had been  exercised on the date when the employee  share
options were granted.

11.  FIXED ASSETS
     ------------
a.   Movements of fixed assets (consolidated) were:


<TABLE>
                                                           2 0 0 1
                            ----------------------------------------------------------------------------
                                                              Furniture
                            Land and        Machinery and     and Office        Moter
                            buildings        equipment        Equipment        Vehicles         Total
                            ------------   ---------------  --------------   ------------    -----------
                               $'000           $'000            $'000           $'000           $'000
<S>                         <C>            <C>              <C>               <C>            <C>

Cost

Beginning of year                      -        297,607            64,682            920        363,209
Additions                         16,700         89,474            96,319            134        202,627
Disposals                              -              -              (390)             -           (390)
                            ------------   ------------    --------------    -----------    -----------

End of year                       16,700        387,081           160,611          1,054        565,446
                            ------------   ------------    --------------    -----------    -----------

Accumulated depreciation

Beginning of year                      -        116,887            20,238            920        138,045
Provision  for the year              105         60,770            14,553              8         75,436
Disposals                              -              -               (13)             -            (13)
                            ------------   ------------    --------------    -----------    -----------

End of year                          105        177,657            34,778            928        213,468
                            ------------   ------------    --------------    -----------    -----------

Net book value

End of year                       16,595        209,424           125,833            126        351,978
                            ============   ============    ==============    ===========    ===========

Beginning of year                      -        180,720            44,444              -        225,164
                            ============   ============    ==============    ===========    ===========

</TABLE>

b.   Land and buildings:

Land and  buildings  are  located  in Hong Kong and are held  under  medium-term
leases.  All  land  and  buildings  with  a  net  book  value  of  approximately
$15,608,000  were mortgaged as security for the Group's banking  facilities (see
Note 30).

                                      F-40
<PAGE>

11.  FIXED ASSETS (Cont'd)

c.   Finance leases:

Certain machinery and equipment were purchased under finance leases.  Details of
these assets are as follows:

                                                         2 0 0 1
                                                      -------------
                                                           $000

Cost                                                       58,868
Less: Accumulated depreciation                            (20,382)
                                                     -------------

Net book value                                              38,486
                                                     =============

Depreciation for the year                                   11,774
                                                     =============

12.  INVESTMENT PROPERTY

Movements of investment property (consolidated) were:

                                                         2 0 0 1
                                                       ----------
                                                          $'000

Beginning of year                                         1,850
Deficit on revaluation                                     (250)
                                                       ---------

End of year                                               1,600
                                                       =========

The  investment  property  is located in Hong Kong and is held under a long-term
lease.  It is stated at the open market value at 31st March,  2001 as determined
by DTZ Debenham Tie Leung Limited, an independent qualified valuer.

Details of the investment property as at 31st March, 2001 are as follows:

         Location                         Group's interest        Existing use
---------------------------------------   -----------------       --------------
 Flat B4 on 14th Floor, Peace Building,
 3 Peace Avenue, Ho Man Tin,
 Kowloon, Hong Kong                            100%                  Residential


                                      F-41
<PAGE>

In the Company's balance sheet, investment in subsidiaries consisted of:

                                                              2 0 0 1
                                                             ----------
                                                                  $'000

Unlisted shares, at cost                                        158,743

Due from subsidiaries                                           381,285
                                                             ----------

                                                                540,028

Less: Provision for impairment in value and doubtful
      receivables from subsidiaries                            (200,701)
                                                             -----------

                                                                 339,327
                                                             ===========

The amounts due from subsidiaries are unsecured and non-interest bearing.

The  underlying  value of investment in  subsidiaries  is, in the opinion of the
Company's Directors, not less than the carrying value as at 31st March, 2001.


                                      F-42
<PAGE>

13.  INVESTMENT IN SUBSIDIARIES  (Cont'd)

Details of the subsidiaries as at 31st March, 2001 were as follows:

<TABLE>

                             Place of                             Percentage of
                             incorporation/   Issuedmand fully    equity interes
  Name                       operations       paid share capital  held (ii)
------------------------    ---------------   ------------------  ----------------   --------------------
<S>                         <C>               <C>                 <C>                 <C>

Hang Fung Gold               British Virgin       US$1                 100%            Investment holding
(International) Company      Islands/Hong
Limited                          Kong

Hang Fung Jewellery          Hong Kong            Class A (non-          -             Manufacturing and
Company Limited                                   voting) ordinary                     selling of gold a
                                                  - $4 (i)             100%            jewellery product
                                                  Class B (voting)
                                                  ordinary - $2

Hang Fung Jewellery          Mainland China       $25,000,000          100%            Manufacturing of
(Shenzhen) Co., Ltd. (iii)                        registered capital                   gold and jeweller
                                                                                       products

Jubonet.com Limited          Hong Kong            $2                   100%            Operation of an e
(formerly known as                                                                     commerce
Pender Limited)                                                                        platform for gold
                                                                                       and jewelley
                                                                                       products

Kai Hang Jewellery           Hong Kong            Class A (non           -             Property holding
Company Limited                                   voting) ordinary
                                                  - $10,002 (i)
                                                  Class B (voting)     100%
                                                  ordinary - $2

Macadam Profits Limited      British Virgin                            100%            Investment holding
                             Islands/Hong
                             Kong

Soycue Limited               British Virgin                            100%            Investment holding
                             Islands/Hong
                             Kong
</TABLE>


Notes -

(i)  The Class A (non-voting)  ordinary  shares have no voting  rights,  are not
     entitled to dividends  unless dividends paid to holders of Class B (voting)
     ordinary  shares exceed  $900,000,000,000  in a financial year, and are not
     entitled  to  distribution  of the  companies'  assets  unless each Class B
     (voting)  ordinary  shareholder  has  been  returned  its  paid-up  capital
     together with a premium of $900,000,000,000.

(ii) The shares of Macadam Profits Limited are held directly by the Company. The
     shares of other subsidiaries are held indirectly.

(iii)Hang  Fung  Jewellery   (Shenzhen)   Co.,  Ltd.  is  wholly  foreign  owned
     enterprises established in Mainland China to be operated for 30 years up to
     2028.

None of the  subsidiaries  had any loan  capital in issue at any time during the
year ended 31st March, 2001.

                                      F-43
<PAGE>

14.  INVESTMENT IN ASSOCIATES

Investment in associates (consolidated) consisted of:


                                                                      2 0 0 1
                                                                  --------------
                                                                      $'000

Unlisted shares, at cost                                             186,048

Goodwill on acquisition, eliminated against retained profit         (188,142)

Share of losses of associates                                         (6,167)
                                                                  ------------

                                                                      (8,261)

Advances to an associate                                              50,000

Accrued interest                                                       1,901

Provision against receivables from an associate                       (8,293)
                                                                  -----------

                                                                      35,347
                                                                  ===========

During the year ended 31st March, 2001, the Company issued  1,632,000,000 shares
with a fair value of  $186,048,000  as  consideration  for the  acquisition of a
49.9% equity interest in New Epoch Information  (BVI) Company Limited.  Goodwill
resulting  from  this  acquisition  of   approximately   $188,142,000  has  been
eliminated against retained profit.

The amount due from an associate (New Epoch  Information  (BVI) Company Limited)
of  $50,000,000  is secured by certain of equity  interest in the  associate not
owned by the Group,  bears  interest  at the Hong Kong prime  lending  rate plus
2.5%, and is repayable after September 2003.

The  underlying  value of  investment  in  associates  is, in the opinion of the
Company's Directors, not less than the carrying value as at 31st March, 2001.

Details of the principal associates as at 31st March, 2001 were as follows:

<TABLE>

                                 Place of
                                 incorporation/    Issued and fully paid   percentage of equity
  Name                           operations        share capital           interest held (i)     Principal activities
------------------------------  ---------------    ---------------------   ------------------   ----------------------
<S>                             <C>                <C>                     <C>                  <C>

Asia Trader Associates Limited
("ATAL")                        British Virgin          US$450,000             16.5% (ii)       Trading and developing
                                Islands/Hong Kong                                               and operating of e-
                                                                                                commerce trading facilities
                                                                                                between Mainland Chin and
                                                                                                the rest of the world

China International Electronic  Hong Kong              $20,000,000             24.5%            Trading and developing
Commerce (HK) Limited                                                                           and operating of e-
                                                                                                commerce trading facilities
                                                                                                between Mainland Chin and
                                                                                                the rest of the world

New Epoch Information (BVI)    British Virgin             US$1,000             49.9%            Investment holding
Company Limited                Islands/Hong Kong

New Epoch Information Company  Hong Kong                $5,000,000             49.9%            Trading and investment
Limited                                                                                         holding
</TABLE>

                                      F-44
<PAGE>

14.  INVESTMENT IN ASSOCIATES  (Cont'd)
     ------------------------
Notes -

(i)  The shares of the above associates are held indirectly by the Company.

(ii) Asia Trader  Associates  Limited is an associate as the Group's interest in
     it is held  through an  associate  which in turn holds more than 20% of the
     issued voting share capital of ATAL.

The above summary lists only the principal  associates of the Company which,  in
the opinion of the  Company's  Directors,  principally  affected  the results or
formed a substantial  portion of the net assets of the Group. To give details of
other  associates  would, in the opinion of the Company's  Directors,  result in
particulars of excessive length.

15.  INVENTORIES
     -----------
Inventories (consolidated) consisted of:


                                                                2 0 0 1
                                                             --------------
                                                               $'000

 Raw materials                                                     160,912

 Finished goods                                                    156,631
                                                             --------------

                                                                   317,543

 Less: Provision for slow-moving and obsolete inventories           (3,200)
                                                             --------------

                                                                   314,343
                                                             ==============

As at 31st March, 2001, no inventories were stated at net realisable value.

Inventories of  approximately  $317,543,000  were held under trust receipts bank
loan arrangements (see Note 30).

16.  ACCOUNTS RECEIVABLE
     -------------------
The Group grants to its  customers  credit  periods  ranging from 30 days to 120
days. The ageing analysis of accounts receivable (consolidated) is as follows:


                                                            2 0 0 1
                                                          ------------
                                                             $'000

0 to 90 days                                                  215,249
91 to 180 days                                                  7,295
181 to 270 days                                                 2,303
                                                         ------------

                                                              224,847

Less: Provision for bad and doubtful debts                    (10,000)
                                                          ------------

                                                              214,847
                                                          ============

17.  PLEDGED BANK DEPOSITS
     ---------------------
As at 31st March,  2001, the Group's bank deposits of approximately  $77,210,000
were pledged as collateral for the Group's banking facilities (see Note 30).

                                      F-45
<PAGE>

18.  SHORT-TERM BANK BORROWINGS
     --------------------------
Short-term bank borrowings (consolidated) consisted of:


                                                                 2 0 0 1
                                                              ------------
                                                                 $'000

Bank overdrafts                                                         84

Trust receipts bank loans                                          321,466

Short-term bank loans                                               26,547
                                                              ------------

                                                                   348,097

Long-term bank loans, current portion (Note 19)                      7,395
                                                              ------------

                                                                   355,492
                                                              ============

Short-term  bank  borrowings are secured and bear interest at rates ranging from
0.75% below the Hong Kong prime  lending rate to 2.5% above that.  Refer to Note
30 for details of the Group banking facilities.

19.  LONG-TERM BANK LOANS
     --------------------
Long-term bank loans (consolidated) consisted of:


                                                                       2 0 0 1
                                                                 -------------
                                                                        $'000
Amounts repayable within a period
   -  not exceeding one year                                             7,703
   -  more than one year but not exceeding two years                    18,714
   -  more than two years but not exceeding five years                   9,163
   -  more than five years                                       -------------

                                                                        42,975

Less: Amounts repayable within one year included under current
liabilities (Note 18)                                                   (7,395)
                                                                 -------------
                                                                        35,580
                                                                 =============

Long-term  bank loans are secured and bear  interest at rates ranging from 1.75%
below the Hong Kong prime lending rate to 3.5% above that.  Refer to Note 30 for
details of the Group's banking facilities.

                                      F-46
<PAGE>


20.  FINANCE LEASE OBLIGATIONS
     -------------------------
Finance  lease  obligations,  net  of  future  finance  charges  (consolidated),
consisted of:


                                                             2 0 0 1
                                                            ---------
                                                              $'000


Amounts repayable within a period                            12,973
    -  not exceeding one year                                10,548
    -  more than one year but not exceeding two years         7,538
    -  more than two years but not exceeding five years    --------
                                                             31,059


 Less: Amounts repayable within one year included under
current liabilities                                         (12,973)
                                                           ---------
                                                             18,086
                                                           =========

21.  ACCOUNTS PAYABLE
     -----------------
The ageing analysis of accounts payable (consolidated) is as follows:

                                                                 2 0 0 1
                                                               -----------
                                                                  $'000

0 to 90 days                                                      28,636
91 to 180 days                                                     1,716
181 to 270 days                                                      581
                                                               ---------

                                                                  30,933
                                                               =========
22.  TAXATION PAYABLE
     ----------------
Taxation payable (consolidated) consisted of:


                                                                  2 0 0 1
                                                                 ---------
                                                                   $'000

Hong Kong profits tax                                                  -

General provision for Mainland China business tax and
enterprise income tax *                                           36,642
                                                                 ----------
                                                                  36,642
                                                                 ==========

*    Prior to 1st April, 1999, the Group received contract processing fees based
     on the utilisation of equipment and technology provided by the Group to its
     Mainland China contracting partners.  Provision for Mainland China taxes in
     relation to these fees has been made for periods prior to 1st April, 1999.

                                      F-47
<PAGE>

23.  DEFERRED TAXATION
     -----------------
Movements of deferred taxation (consolidated) were:
                                                                2001
                                                            -----------
                                                               $'000

Beginning of year                                             13,394
Provision for net timing differences                           6,637
                                                            -----------

                                                              20,031
                                                            ===========

Deferred taxation represented the taxation effect of accelerated depreciation of
fixed  assets  for  taxation  purposes.  There  were no  significant  unprovided
deferred tax liabilities as at 31st March, 2001.

24.  SHARE CAPITAL
     -------------
Movements were:
<TABLE>
                                                                     2 0 0 1
                                                          -----------------------------
                                                           Number of
                                                            shares       Nominal value
                                                          -----------    --------------
                                                             '000            $'000
<S>                                                       <C>            <C>

Authorised - ordinary shares of $0.01 each                20,000,000          200,000
                                                          ===========        =========
Issued and fully paid - ordinary shares of $0.01 each (from
     22nd February, 2000 - see Note (iii))
     Beginning of year                                      3,150,000          31,500
     Issuance of shares for acquisition of associates (i)   1,632,000          16,320
     Issuance of shares through a placement (ii)              550,000           5,500
     Effect of ten-for-one share split (iii)                       -                -
                                                           ----------        ---------

     End of year                                            5,332,000           53,320
                                                           ==========        =========
</TABLE>

Notes -

(i)  During the year ended 31st March,  2001, the Company  issued  1,632,000,000
     shares of $0.01 each,  with a fair value of $186,048,000  (i.e.  $0.114 per
     share),  as consideration for the acquisition of a 49.9% equity interest in
     New Epoch Information (BVI) Company Limited.

(ii) In August 2000, the Company issued 550,000,000 shares of $0.01 each through
     a private placement for cash  consideration of $62,700,000 (i.e. $0.114 per
     share).

(iii)On 22nd February,  2000, the Company effected a ten-for-one share split and
     changed the par value of its shares from $0.1 per share to $0.01 per share.
     As a result,  the then outstanding  315,000,000  shares with a par value of
     $0.10 each became 3,150,000,000 shares with a par value of $0.01 each.

                                      F-48
<PAGE>

25.  SHARE OPTIONS
     -------------
The  Company has a share  option  scheme,  under  which it may grant  options to
employees  of the  Group  (including  executive  directors  of the  Company)  to
subscribe for shares in the Company,  subject to a maximum of 10% of the nominal
value of the issued share  capital of the Company  from time to time,  excluding
for this  purpose  shares  issued on the exercise of options.  The  subscription
price will be determined by the  Company's  board of directors,  and will not be
less than the higher of the  nominal  value of the shares and 80% of the average
of the  closing  price of the shares  quoted on The Stock  Exchange of Hong Kong
Limited on the five trading days immediately  preceding the date of offer of the
options.

During the year ended 31st March, 2001, the Company granted options to subscribe
for  315,000,000  shares in the  Company at a  subscription  price  (subject  to
adjustment) of $0.109 per share to be exercised during the period from 9th June,
2001 to 26th  February,  2009. No options were  exercised  during the year ended
31st March, 2001.

26.  RESERVES
     ---------
Movements of reserves were:
                                                                   2 0 0 1
                                                               -----------------
                                                                Share premium
                                                               -----------------
                                                                    $'000

Consolidated

Beginning of year                                                    104,613
Premium on issuance of shares                                        226,928
Share issuance expenses                                               (3,321)
                                                               -------------

End of year                                                          328,220
                                                               =============


                                                 2 0 0 1
                             --------------------------------------------------
                                                  Contributed
                              Share premium         surplus           Total
                             -----------------   --------------  --------------
                                  $'000              $'000            $'000

Company

Beginning of year                  104,613             158,601         263,214
Premium on issuance of shares      226,928                   -         226,928
Share issuance expenses             (3,321)                  -          (3,321)
                             -------------      --------------   -------------

End of year                        328,220             158,601         486,821
                             =============      ==============   =============

Under the  Companies Act 1981 of Bermuda (as  amended),  contributed  surplus is
distributable to shareholders,  subject to the condition that the Company cannot
declare or pay a dividend,  or make a distribution out of contributed surplus if
(i) it is, or would after the payment be, unable to pay its  liabilities as they
become due, or (ii) the  realisable  value of its assets  would  thereby be less
than the  aggregate of its  liabilities  and its issued share  capital and share
premium account.


                                      F-49
<PAGE>

27.  NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT
     ---------------------------------------------
a.   Reconciliation  of profit before taxation to net cash inflow from operating
     activities:


                                                                       2 0 0 1
                                                                      ---------
                                                                        $'000

Profit before taxation                                                 61,320
Interest income                                                        (8,723)
Interest expense                                                       30,105
Share of losses of associates                                           6,167
Provision against receivables from an associate                         8,293
Depreciation of fixed assets                                           75,436
Net loss on disposal of fixed assets                                      377
Deficit on revaluation of an investment property                          250
Increase in inventories                                              (107,094)
Increase in accounts receivable                                       (63,330)
(Increase) Decrease in prepayments and deposits                        (4,776)
Increase in accounts payable                                            3,866
Increase in accruals and other payables                                 8,636
                                                                    ----------
Net cash inflow from operating activities                              10,527
                                                                    ==========

b.   Analysis of changes in financing:

<TABLE>

                                       Share
                                    capital and                                  Finance
                                       share       Short-term     Long-term       lease
                                      premium      bank loans     bank loans    obligations    Total
                                   -------------  -------------  ------------   ------------ ---------
                                       $'000          $'000         $'000          $'000       $'000
<S>                                <C>            <C>            <C>            <C>          <C>

As at 31st March, 2000                136,113         12,000         8,395         19,740      176,248

Issuance of shares
- for cash                             62,700              -             -              -       62,700
- as consideration to acquire an
  associate                           186,048              -             -              -      186,048
Share issuance expenses               (3,321)              -             -              -       (3,321)
New finance lease obligations               -              -             -         27,151       27,151
Repayment of capital element of
   finance lease obligations                -              -             -        (15,832)     (15,832)
New bank loans                              -         26,547        37,480              -       64,027
Repayment of bank loans                     -        (12,000)       (2,900)             -      (14,900)
                                  -----------  -------------  ------------   ------------   ----------

As at 31st March, 2001                381,540         26,547        42,975         31,059      482,121
                                  ===========  =============  ============   ============   ==========
</TABLE>

c.   Major non-cash transactions:

     (i)  During the year,  the Group  acquired  fixed  assets of  approximately
          $27,151,000 under finance leases.

     (ii) During the year,  the Company issued 1,632,000,000  shares with a fair
          value of $186,048,000 as consideration  for the acquisition of a 49.9%
          equity interest in New Epoch Information (BVI) Company Limited.




                                      F-50
<PAGE>

27.  NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (Cont'd)
     ---------------------------------------------
d.   Analysis of cash and cash equivalents:


                                                              2 0 0 1
                                                            ------------
                                                               $'000

Cash and bank deposits                                         110,424
 Bank overdrafts                                                   (84)
 Trust receipts bank loans                                    (321,466)
                                                            -----------
                                                              (211,126)
                                                            ===========

28.  COMMITMENTS AND CONTINGENT LIABILITIES
     --------------------------------------
The  Group  and  the  Company  had the  following  significant  commitments  and
contingent liabilities which were not provided for in the financial statements:

a.    Capital commitments

 Capital commitments, which were all authorised and
 contracted for, are analysed as follows:


                                                      2 0 0 1
                                    --------------------------------------------
                                       Consolidated                Company
                                    -------------------      -------------------
                                          $'000                     $'000

Acquisition of fixed assets                 9,587                        -
                                    ===================      ===================

                                      F-51
<PAGE>


28.  COMMITMENTS AND CONTINGENT LIABILITIES (Cont'd)
     --------------------------------------
b.   Operating lease commitments

The Group had  operating  lease  commitments  in respect of rented  premises and
machinery under various non- cancellable operating lease agreements extending to
September 2006. The total commitments are analysed as follows:


                                                            2 0 0 1
                                          --------------------------------------
                                           Consolidated               Company
                                          --------------           -------------
                                             $'000                     $'000


Amounts payable                               1,784                      -
 -   within one year                          1,704                      -
 -   between one year and two years           2,081                      -
 -   between two years and five years           221                      -
 -   over five years                       -----------             ------------

                                              5,790                      -
                                           ===========             ============

The commitments payable within one year are analysed as follows:


                                                       2 0 0 1
                                          --------------------------------------
                                           Consolidated              Company
                                          ---------------        ---------------
                                             $'000                     $'000


Leases expiring                                     -                     -
-   within one year                             1,362                     -
-   within two to five years                      422                     -
-   over five years                       ------------             -----------

                                                1,784                     -
                                          ============             ===========

                                                       2 0 0 1
                                          --------------------------------------
                                            Consolidated             Company
                                            ------------             ---------
                                               $'000                  $'000

 Leases expiring                                  -                        -
   -   within one year                        1,362                        -
   -   within two to five years                 422                        -
   -   over five years                     ----------              ----------

                                              1,784                        -
                                           ==========              ==========

c.   Contingent liabilities


                                                       2 0 0 1
                                         ---------------------------------------
                                          Consolidated               Company
                                         --------------      -------------------
                                              $'000                   $'000

Bills discounted with recourse                 5,166                      -

Guarantees provided by the Company
in respect of banking                              -                344,980
    facilities of its subsidiaries
                                         ------------         --------------

                                               5,166                344,980
                                         ============         ==============


                                      F-52
<PAGE>

29.  PENSION SCHEME

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

During  the  period  from 1st  April,  2000 to 30th  November,  2000,  the Group
arranged for its Hong Kong  employees  to  participate  in defined  contribution
provident  funds ("the  Original  Scheme"),  which were  managed by  independent
trustees.  Each  of the  Group  and its  employees  in Hong  Kong  made  monthly
contributions to the Original Scheme at 5% of the employees' basic salaries. The
employees  were  entitled to receive their entire  contribution  and the accrued
interest thereon, 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 30% to 90% after  completing  three to nine
years of  service.  Any  forfeited  contributions  made by the Group and related
accrued  interest  were used to reduce the Group's  employer  contribution.  The
Original Scheme was terminated in December 2000.

From 1st December,  2000,  the Group has arranged for its Hong Kong employees to
join the Mandatory Provident Fund Scheme ("the MPF Scheme"). The MPF Scheme is a
defined  contribution  scheme managed by an independent  trustee.  Under the MPF
Scheme,  each of the Group and its employees make monthly  contributions  to the
scheme at 5% of the employees earnings as defined under the Mandatory  Provident
Fund  legislation.  Both the  employer's and the  employees'  contributions  are
subject to a cap of $1,000 per month and thereafter contributions are voluntary.

For the year  ended  31st  March,  2001,  the  aggregate  amount of the  Group's
employer   contributions   to  the  Original  Scheme  and  the  MPF  Scheme  was
approximately  $624,000  and there was no  forfeited  contribution  utilised  to
reduce the Group's employer contributions to the Original Scheme.

30.  BANKING FACILITIES AND PLEDGE OF ASSETS

As  at  31st  March,  2001,  the  Group  had  aggregate  banking  facilities  of
approximately  $432,186,000  from several banks for overdrafts,  loans and trade
financing.  Unused  facilities  as at the same date  amounted  to  approximately
$38,117,000. These facilities were secured by:

a.   mortgage  over the Group's land and  buildings  with a net a. book value of
     approximately $15,608,000 (see Note 11);

b.   pledges of the Group's bank deposits of $77,210,000 (see Note 17);

c.   the Group's  inventories  held under trust receipts bank loan  arrangements
     (see Note 15);

d.   mortgages  over certain  properties  owned by Mr. Lam Sai Wing and Ms. Chan
     Yam Fai, Jane, directors of the Company (see Note 3);

e.   personal guarantees provided by Mr. Lam Sai Wing and Ms. Chan Yam Fai, Jane
     (see Note 3);

f.   assignment  of the benefits in respect of the keyman  insurance for Mr. Lam
     Sai Wing amounting to $20,000,000; and

g.   guarantees provided by the Company.

In addition,  the Group is required to comply with certain  financial  covenants
imposed by a bank.

                                      F-53
<PAGE>


31.  SUMMARY OF DIFFERENCES BETWEEN HONG KONG AND UNITED STATES OF AMERICA
     GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
     ---------------------------------------------------------------------
The accounting policies adopted by the Company conform to accounting  principles
generally  accepted in Hong Kong ("HK GAAP")  which  differ in certain  respects
from accounting  principles  generally  accepted in the United States of America
("US  GAAP").  The  principal  differences  having a  significant  effect on its
financial statements are set out below:

a.   Accounting on Goodwill
     ----------------------
     Under HK GAAP,  goodwill arising on the acquisitions of affiliates has been
     charged directly to retained profit on consolidation.

     Under  US GAAP,  the  purchase  consideration  has  been  allocated  to the
     identifiable  net  assets  acquired  based on their fair  values,  with any
     residual  accounted for as goodwill and amortised over its estimated useful
     life and less any impairment in value.

b.   Investment properties
     ---------------------
     Under HK GAAP,  investment  properties are stated on the basis of appraised
     values  and  depreciation  is  not  provided.  Under  US  GAAP,  investment
     properties are stated at historical cost less accumulated depreciation.

c.   Share option scheme
     -------------------
     HFGTL follows the current practice in Hong Kong that no accounting entry is
     made on grant of share  options to employees.  Under US GAAP,  compensation
     expense for share options is recognised at the date of grant (in accordance
     with Accounting  Principles Board of Opinion ("APB") No. 25 or Statement of
     Financial  Accounting  Standards  ("SFAS") No. 123) and amortised  over the
     vesting  period.  The Company  adopted APB No. 25 under which the amount of
     compensation  expense is determined  based upon the excess,  if any, of the
     quoted market price of the shares over the exercise price of the options at
     the date of the  grant  and is  amortised  over the  vesting  period of the
     opinion concerned.

d.   Cash flows
     ----------
     There is no material  difference  in the cash flow  statements of the Group
     between HK GAAP and US GAAP for the year ended  March 31,  2001  except the
     following:

          i. Effect of cash flows from interest received, interest paid, profits
          tax paid, and dividends paid are separately presented in the cash flow
          statement under HK GAAP;

          ii. Cash and cash equivalents are short-term, highl liquid investments
          with  original  maturities  of less than three  months and are readily
          convertible  to known  amounts of cash.  They  include  bank loans and
          overdrafts  repayable  within  three  months that are  reflected  as a
          component of cash and cash equivalents under HK GAAP.

e.   Reclassifications
     -----------------
     The  reconciliation of net income (loss) and  shareholders'  equity from HK
     GAAP to US GAAP as  presented  below  include  those items which have a net
     effect on net income  (loss) or  shareholders'  equity.  There are no other
     major GAAP  differences  not  included  in the  reconciliation  which would
     affect the classification of assets and liabilities or income and expense.


                                      F-54
<PAGE>


31.  SUMMARY OF DIFFERENCES BETWEEN HONG KONG AND UNITED STATES OF AMERCIA
     GENERALLY ACCPEPTED ACCOUNTING PRINCIPLES  (Cont'd)
     -----------------------------------------
A reconciliation  of the financial  results of the Group from HK GAAP to US GAAP
in  relation  to net  income  (loss)  for the  year  ended  March  31,  2001 and
shareholders' equity as of March 31, 20001 is:

<TABLE>
                                                            Net income (loss) for the year ended   Shareholders' equity as of
                                                                       March 31, 2001                     March 31, 2001
                                                            -------------------------------------  ---------------------------
                                                              HK$'000             US$'000             HK$'000         US$'000
<S>                                                          <C>                  <C>                <C>              <C>

Balance under HK GAAP                                          52,164              6,688              506,614         64,951
 Adjustments:

   -   Provision for impairment in value of goodwill
       arising from acquisition of New Epoch
       Information (BVI) Company Limited under U
       GAAP; while goodwill is eliminated directS
       against retained profit under HK GAAP                 (188,142)           (24,121)                   -              -
   -   Reversal of revaluation deficit on investment
       properties                                                 250                 32                  373             48
   -   additional depreciation on investment properties                                                   (99)           (13)
   -   Stock compensation expense                             (20,307)            (2,603)             (20,307)        (2,603)
   -   Increase in additional paid-in capital                       -                  -               25,200          3,230
   -   Increase in deferred compensation expense                    -                  -               (4,893)          (627)
                                                           --------------   --------------         -------------  ------------

 Balance under US GAAP                                       (156,134)           (20,017)             506,888         64,986
                                                           ==============   ==============         =============  ============

 Basic loss per ordinary share under US GAAP               HK(3.49) cents   US(0.45) cents
                                                           ==============   ==============

 Diluted loss per ordinary share under US GAAP             HK(3.49) cents*  US(0.45) cents*
                                                           ==============   ==============
</TABLE>

*    Diluted loss per ordinary share under US GAAP is  antidilutive  as a result
     of the net operating loss; therefore, the basic loss per ordinary share and
     diluted loss per ordinary share are the same.

A reconciliation of the summarised cash flow statement of the Group from HK GAAP
to US GAAP for the year ended March 31, 2001 is:
<TABLE>

                                                                                             Returns on investment
                      Operating activities  Investing activitities  Financing activities  and servicing of finance     Taxation
                      --------------------- ----------------------- --------------------  ------------------------ -----------------
                        HK$'000    US$'000    HK$'000     US$'000     HK$'000   US$'000     HK$'000      US$'000    HK$'000  US$'000
<S>                    <C>        <C>        <C>         <C>         <C>        <C>       <C>            <C>       <C>       <C>

Balance under HK GAAP   10,527      1,350    (225,757)   (28,943)     91,809     11,770    (23,283)      (2,985)   (6,203)    (796)
                       ========   ========    ========   ========    ========   ========   ========      ========  ======== ========

Balance under US GAAP  (20,105)    (2,578)   (225,476)   (28,907)   (204,326)    26,196          -            -         -        -
                       ========   ========    ========   ========    ========   ========   ========      ========  ======== ========
</TABLE>


32.  NEW US GAAP ACCOUNTING STANDARDS
     --------------------------------
In June 1998, the Financial  Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative  Instruments and Hedging  Activities".  SFAS No.
133  establishes   accounting  and  reporting  standards  requiring  that  every
derivative  instrument  (including  certain derivative  instruments  embedded in
other  contracts)  be  recorded  on the  balance  sheet  as  either  an asset or
liability measured at its fair value. The statement requires that changes in the
derivative's  fair value be  recognised  currently in earnings  unless  specific
hedge  criteria are met.  Special  accounting  for  qualifying  hedges  allows a
derivative's  gains  and  losses to offset  related  results  on the item in the
income statement or other comprehensive income (depending on the type of hedge).
To adopt hedge  accounting,  a company must  formally  document,  designate  and
assess the effectiveness of transactions that receive hedge accounting. SFAS No.
138,  "Accounting  for  Certain  Derivative   Instruments  and  Certain  Hedging
Activities",  addresses a limited number of implementation difficulties involved
in applying SFAS No. 133.

                                      F-55
<PAGE>

32.  NEW US GAAP ACCOUNTING STANDARDS (Cont'd)
     --------------------------------
The adoption of SFAS No. 133 on April 1, 2001 will not have a significant effect
on the Group's financial statements reconciled to US GAAP.

33.  NEW HK GAAP ACCOUNTING STANDARDS
     --------------------------------
In February 2000, the Hong Kong Society of Accountants ("HKSA") issued Statement
of Standard  Accounting  Practice ("SSAP") No. 26 relating to segment reporting.
SSAP No. 26 is effective from January 1, 2001 and requires  certain  disclosures
regarding  an  enterprise's  primary  and  secondary  reportable  segments.  The
adoption  of SSAP No.  26 will  not have a  significant  effect  on the  Group's
financial results.

In  January  2001,  the  HKSA  issued  SSAP  No.  28,  "Provisions,   Contingent
Liabilities,  and Contingent Assets".  SSAP No. 28 clarifies the measurement and
disclosures for provisions,  contingent  liabilities and contingent assets. SSAP
No. 28 is effective  from January 1, 2001.  The adoption of SSAP No. 28 will not
have a significant effect on the Group's financial results.

In January 2001, the HKSA issued SSAP No. 29, "Intangible  Assets".  SSAP No. 29
establishes  the  recognition  criteria for intangible  assets not accounted for
under other  pronouncements.  SSAP No. 29 requires acquired intangible assets to
be  recognised  and  amortised  in financial  statements  to the extent they are
identifiable, controllable, and provide future economic benefits. SSAP No. 29 is
effective  from  January 1, 2001.  The  adoption  of SSAP No. 29 will not have a
significant effect on the Group's financial results.

In January  and June 2001,  the HKSA also  issued  the  following  new SSAPs and
interpretations of SSAPs:

*    SSAP 30, "Business Combinations"
*    SSAP 31, "Impairment of Assets"
*    SSAP 32, "Consolidated  Financial Statements and Accounting for Investments
     in Subsidiaries"
*    Interpretation  12, "Business  Combinations  Subsequent  adjustment of fair
     values and goodwill initially reported"
*    Interpretation  13,  "Goodwill - Continuing  requirements  for goodwill and
     negative goodwill previously eliminated against/credited to reserves"

These  pronouncements  will be effective for the Group's  fiscal year  beginning
April 1, 2001.

Under  the  requirements  of SSAP 30,  goodwill,  if any,  arising  from  future
business combinations undertaken by the Group, which are accounted for using the
purchase  method of accounting will be recognised as an asset and amortised on a
systematic basis over its useful life. In general,  the amortisation period will
not exceed twenty years as SSAP 30 makes a rebuttable assumption that the useful
life of goodwill will not exceed twenty years from initial recognition.

As permitted by the  transitional  provisions of SSAP 30,  goodwill and negative
goodwill previously eliminated against reserves need not be restated at the time
of adoption of SSAP 30.

In  accordance  with  the  provisions  of  Interpretation   13,  assessments  of
impairment of goodwill in accordance  with the  provisions of SSAP 31 will apply
to  goodwill  previously  eliminated  against  reserves  and  which  will not be
restated at the time of adoption of SSAP 30. Any impairment  loss  identified in
respect of goodwill  previously  eliminated against reserves will be immediately
recognised as an expense in the income statement.  The Group will be required to
assess at each balance sheet date whether there is any  indication of impairment
of the  goodwill.  If such  indications  exist,  the  recoverable  amount of the
goodwill  will need to be estimated to determine  the amount of  impairment,  if
any, to be recognised in the income  statement.  The Group has not yet completed
its  assessment  of the  impact  this  pronouncement  may  have  on the  Group's
financial statements.

Under the provisions of  interpretation 13 and SSAP 30, upon the future disposal
of an interest in a subsidiary or associate or joint  venture by the Group,  the
gain or loss on disposal will be calculated taking into account the attributable
amount of the purchased goodwill previously  eliminated against reserves and not
previously charged to the income statement.


                                      F-56
<PAGE>

33.  NEW HK GAAP ACCOUNTING STANDARDS (Cont'd)
     --------------------------------
SSAP 31 prescribes procedures to be applied to ensure that assets are carried at
not more than their recoverable amounts.  SSAP 31 defines the recoverable amount
of an asset to be the higher of its net  selling  price and its value in use. In
adopting  SSAP 31, the Group will be required to  determine  value in use of the
assets,  including fixed assets,  any goodwill arising on business  combinations
accounted for using the purchase  method and intangible  assets,  as the present
value of  estimated  future  cash  flows  from the use of the asset and from its
disposal at the end of its useful life.  The Group will be required to assess at
each balance  sheet date whether  there are any  indications  that assets may be
impaired,  and if there  are such  indications,  the  recoverable  amount of the
assets will be determined.  Any impairment losses identified will be immediately
expensed to the income statement.

The adoption of SSAP 32 on April 1, 2001 will not have a  significant  effect on
the Group's financial statements.


                                      F-57