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, 2002

[ ]  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
          -------------------------------------------------------------
               (Address of principal executive offices)(Zip code)

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

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

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

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

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

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

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

         As of July 29, 2002, 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 $234,750.

                       DOCUMENTS INCORPORATED BY REFERENCE

         None
<PAGE>

                                TABLE OF CONTENTS

                                                                          Page
                                                                         -------
PART I

         ITEM 1.  BUSINESS .................................................3
         ITEM 2.  PROPERTIES...............................................12
         ITEM 3.  LEGAL PROCEEDINGS........................................12
         ITEM 4.  SUBMISSION OF MATTERS TO A VOTE
                  OF SECURITY HOLDERS......................................12

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........................................28
         ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..............28
         ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
                  ON ACCOUNTING AND FINANCIAL DISCLOSURE...................28

PART III

         ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS,
                  AND CONTROL PERSONS......................................29
         ITEM 11. EXECUTIVE COMPENSATION...................................30
         ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
                  OWNERS AND MANAGEMENT....................................31
         ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
                  TRANSACTIONS.............................................32
         ITEM 14. CONTROLS AND PROCEDURES..................................33

PART IV

         ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
                  REPORTS ON FORM 8-K......................................33

                  SIGNATURES...............................................35

                  CERTIFICATIONS...........................................36

                  INDEX TO FINANCIAL STATEMENTS............................38

<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 23 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, 2002 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.


                                       2
<PAGE>

Company Structure

         The following chart sets forth the organization of the Company and its
principal subsidiaries and affiliates as of March 31, 2002:
<TABLE>
<S>             <C>         <C>                              <C>

                                 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)

             100%                                                     49.9%
  Macadam Profits Limited                            New ePoch Information (BVI) Company Limted
(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 Jewllery (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.

         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 2002 - Hang Fung Gold

         In March 2002, Hang Fung Gold completed a reduction of share premium
pursuant to which the entire amount of approximately $42.1 million standing to
the credit of the share premium account as at March 1, 2002 was cancelled and
transferred to the contributed surplus account and an amount of approximately
$25.7 million in the contributed surplus account was then applied to eliminate
the accumulated deficit as at March 31, 2001 amounting to approximately $25.7
million. The reduction in share premium against accumulated deficit will
facilitate the ability of Hang Fung Gold to declare dividends under applicable
law if it chooses to do so.

         Core jewelry operations continued during fiscal 2002 with increased
emphasis and marketing efforts being devoted to sales and promotion of business
in Hong Kong and Mainland China, including the first full year of operations of
the 3D-Gold Tourism Exhibition Hall to attract customers and increase the
profile of Hang Fung Gold in the region.

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.


                                       4
<PAGE>

         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.

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 $500                  $20

 - Product Design and Development

     The  Hang  Fung  Group  currently  maintains  a team  of  approximately  16
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 3,000 new product designs on an annual basis.

     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.


                                       5
<PAGE>

     During  2002,  the Hang Fung Group  introduced  house  brands,  such as the
"Everlasting  Fortune" and "Cupid-Cut"  brands in the 3D-Gold diamond  jewellery
series,  and began work to develop  higher-margin  sterling silver, 18K gold and
diamond jewelry product lines.

 - 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, 2002, the cost of
gold bullion  accounted  for  approximately  91% 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,  2002,  purchases  of gold from the Hang Fung
Group's five largest suppliers  accounted for approximately 89% 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.

     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 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, 2002, 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").

-- Production Facilities in the Hong Kong:  Hunghom Facility

     The Hunghom  Facility was  established  in 1988 and is now equipped with 15
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.

                                       6
<PAGE>


-- 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:

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.

                                       7
<PAGE>

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.

     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  manufacture 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.

                                       8
<PAGE>


 - Quality Control

     The Hang Fung Group's  quality  control team  consists of 40 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.

     During 2002,  Hang Fung Group was also  awarded the 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 2002 of approximately 3,200
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.

 - Sales and Marketing

     The Hang Fung Group's  marketing and sales  activities are carried out by a
team of  approximately  300 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.

                                       9
<PAGE>

     Since its  opening  by the Hang Fung  Group in January  2001,  the  3D-Gold
Tourism  Exhibition Hall (the "Exhibition Hall") is a core component of the Hang
Fung  Group's  marketing  efforts,  serving as both a showroom for the Hang Fung
Group's  products  and  technology  and as a  tourist  attraction  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,  the 12  Zodiac  of the Yuan  Ming  Yuan,  and the  Gold  and  Jewellery
Environmentally  Friendly  Washroom which has been cited in the Guinness Book of
World  Records as "the  world's  most  expensive  bathroom"  and as having  "the
world's most  expensive  toilet".  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.  During  its  first  year of  operations,  the
Exhibition  Hall  attracted  more  than  one  million  visitors.   In  order  to
accommodate an increase in visitors  anticipated to occur as a result of various
undertaking  by the Hong Kong  government  to attract  and  transport  increased
tourism,  the Hang Fung Group is expanding the Exhibition Hall with the addition
of 30,000 square feet of retail space scheduled to open in September 2002.

     Other promotional  activities undertaken by the Hang Fung Group include the
placing of  advertisements  in television,  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 designated 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 30 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.

     The  principal  markets  to  which  the  Hang  Fung  Group's  products  are
distributed  are the PRC,  Hong Kong,  South East  Asia,  the United  States and
Europe.  Sales by region  (excluding  Subcontracting  fees) for the three  years
ended March 31, 2002 have been as follows:

                              2000                2001               2002
                        ---------------    ----------------  ------------------
                        Amount             Amount              Amount
                        $,000   Percent    $,000    Percent    $,000    Percent
                        ------- --------   -------  -------  --------   -------
PRC and Hong Kong.....   51,605     41.9   98,408      57.8    152,776     76.0
Southeast Asia........   17,268     14.0   30,524      17.9     21,622     10.7
United States.........   19,179     15.6   18,065      10.6     17,372      8.6
Europe................   24,142     19.6   15,129       8.9      7,774      3.9
Others................   10,921      8.9    8,099       4.8      1,579      0.8
                       --------  ------- --------   -------   --------  -------
   Total..............  123,115    100.0  170,225     100.0    201,122    100.0
                        =======    =====  =======     =====   ========   ======

                                       10
<PAGE>

     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,  2002,  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,  2002,  the Hang  Fung  Group  five  largest
customers  accounted for  approximately  11.1% of sales.  During fiscal 2002, 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.

     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.

Staff

     As of  March  31,  2002,  the  Hang  Fung  Group  had  approximately  2,000
employees,  including  14  employees  of New  Epoch.  Of the Hang  Fung  Group's
employees,  approximately  280 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.

                                       11
<PAGE>

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.

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$2,395,000 (US$307,000) for fiscal 2002. 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 Hang Fung Group's  principal  showroom  and  marketing  facilities  are
located in the Exhibition  Hall which is described in "Item 1.  Business"  under
the heading  "Sales and  Marketing."  The space housing the  Exhibition  Hall is
leased by the Hang Fung Group from an unaffiliated third party for approximately
HK$1,090,000  (US$140,000)  per year  pursuant  to a lease  expiring in November
2003. A second lease  covering the current  pending  expansion of the Exhibition
Hall provides for annual lease payment of approximately  HK$342,000  (US$44,000)
with a term expiring in October 2004.

     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, 2002.

                                       12
<PAGE>

                                     PART II

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

Market Information

     While the  Company's  Common  Stock trades in the  over-the-counter  market
under  the  symbol  "CHRM.PK",  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 October 30, 2002, was $0.01.

Holders

     At November 7, 2002,  there were  approximately  108 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.

                                       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,
                                           ----------------------------------------------------------
                                             1998       1999        2000          2001         2002
                                           --------   --------    --------      --------     --------
                                                (amounts stated in US$,000, except per share data)
<S>                                        <C>        <C>         <C>           <C>          <C>

Income Statement Data (1):
Net sales..............................   $57,994    $ 85,005     $ 123,115     $  47,645    $       -
Subcontracting fees....................     4,308       2,195             -             -            -
                                          -------   ---------      ---------     ---------    --------
  Total revenues.......................    62,302      87,200       123,115        47,645            -
Gross profit...........................    15,143      17,705        23,655         8,408            -
Operating income.......................     8,145      11,120        12,886         4,621          (55)
Interest expense, net..................      (574)     (1,078)       (1,704)         (523)           -
Share of income (loss) of affiliates...         -           -             -        (6,670)       1,393
Loss on dilution of equity interests in
 subsidiaries..........................         -        (271)            -        (2,034)           -
Income (loss) before taxes.............     7,571       9,771        11,182        (4,606)       1,338
Minority interests.....................        --      (2,013)       (5,997)       (1,805)           -
Net income.............................   $ 6,285     $ 5,856       $ 6,781      $ (6,732)   $   1,338
                                          =======     =======       =======      =========    ========
Net income per share...................  $   0.49    $   0.46      $   0.53     $   (0.53)   $    0.10
                                         ========    ========      ========     ==========    ========
Weighted average shares
 outstanding...........................12,800,000  12,800,000    12,800,000     12,814,000  12,865,000
                                       ==========  ==========    ==========     ==========  ==========

Balance Sheet Data (1):
Working capital........................   $(1,170)   $ 19,555      $ 24,960     $     (303)  $    (303)
Total assets...........................    45,667      73,698        95,165         20,369      21,707
Long-term debt, less
 current portion.......................     4,405       3,363         3,422              -           -
Stockholders' equity...................    14,278      20,134        26,811         20,069      21,404
</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.


                                       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 23.

General

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

- Corporate Structure

         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,
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
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.

         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").

                                       15
<PAGE>

         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 and 2002, 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, 2002.

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

Critical Accounting Policies

         Our consolidated financial statements and related public financial
information are based on the application of generally accepted accounting
principles ("GAAP"). GAAP requires the use of estimates, assumptions, judgments
and subjective interpretations of accounting principles that have an impact on
the assets, liabilities, revenue and expense amounts reported. These estimates
can also affect supplemental information contained in the external disclosures
of our company including information regarding contingencies, risk and financial
condition. We base our estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances.
Valuations based on estimates are reviewed for reasonableness and conservatism
on a consistent basis throughout our company. Actual results may differ from
these estimates under different assumptions or conditions.

         Critical accounting policies are defined as those that are reflective
of significant judgments and uncertainties, and potentially result in materially
different results under different assumptions and conditions. We believe the
following critical accounting policies affect our more significant judgments and
estimates used in the preparation of our consolidated financial statements:

                                       16
<PAGE>

         - Principals of Consolidation and Accounting for Interests in
Subsidiaries and Affiliates. As a result of the Group Reorganization and the HFG
Placement, from and after August 28, 2000, the Company holds 100% of the
outstanding stock of Quality Prince and Quality Prince holds 31.4% of HFGTL and
HFGTL holds 49.9% of New Epoch. The consolidated financial statements of the
Company include the accounts of its wholly-owned subsidiary, Quality Prince.
However, the Company and Quality Prince are holding companies which carry on no
active business other than their ownership of interests in HFGTL and,
indirectly, New Epoch.

         The Company's investment in affiliates for which it ownership exceeds
20%, but which are not majority-owned or controlled by the Company, is accounted
for using the equity method of accounting. Under the equity method, the
Company's proportionate share of the affiliates' net income or loss is included
in the consolidated statement of operations. Accordingly, the Company's
proportionate share of the net income or loss of HFGTL, including its interest
in New Epoch, is reflected as a single line item under share of income (loss) of
affiliates. Prior to August 28, 2000 the Company included, and had the Company
retained greater than 50% control of HFGTL the Company would include, the
accounts of HFGTL in its consolidated financial statements and the portion of
any income or loss not attributable to the Company would be reflected as a
minority interest.

         - Revenue Recognition and Accounts Receivable. Revenue of Hang Fung
Gold consists of the net invoiced value of merchandise sold after allowances for
returns and discounts and rental income. Revenue is recognized 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 Hang Fung Gold.
Sales revenue is recognized when the merchandise is delivered and title has
passed. A reserve is established at that time for estimated sales returns,
discounts and uncollectible amounts. The reserve is based primarily on
management's evaluation of the financial condition of the customer and
historical data relating to returns, discounts and uncollectible receivables.
Hang Fung Gold has demonstrated the ability to make reasonable and reliable
estimates of product returns, discounts and uncollectible receivables. Rental
income is recognized on a straight-line basis over the period of the relevant
leases. Interest income is recognized on a time-proportion basis on the
principal outstanding and at the rate applicable.

         - Inventories. Inventories are stated at the lower of cost and net
realizable 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 labor and an appropriate proportion of production overheads. Net
realizable 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
recognized as an expense in the period in which the related revenue is
recognized. The amount of any write-down of inventories to net realizable value
and all losses of inventories are recognized 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 realizable value, is recognized as
a reduction in the amount of inventories recognized as an expense in the period
in which the reversal occurs.

         - Investment in Associates and Properties; Impairment of Assets. Hang
Fung Gold maintains investments in various privately held entities involved in
the development of e-commerce trading facilities. Investment in associates is
stated at Hang Fung Gold's share of the fair value of the identifiable net
assets of the associates at the time of acquisition, adjusted for Hang Fung
Gold's share of undistributed post-acquisition results and reserves of the
associates, distributions received from the associates and other necessary
alterations in Hang Fung Gold's proportionate interest in the associates arising
from changes in the equity of the associates that have not been included in the
income statement.

         Hang Fung Gold also maintains investments in various 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 recognized
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.

                                       17
<PAGE>

         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.

         Hang Fung Gold reviews long-lived assets, including its investments in
affiliates and in investment properties, for impairment whenever events or
changes in business circumstances indicate that the carrying amount of the
assets may not be fully recoverable. Where it is determined that an asset has
been impaired, a loss will be recorded and the value of the asset as reported
will be reduced to the estimated recoverable value. Due to the dramatic downturn
in the internet market, Hang Fung Gold recorded a charge of $1.1 million in
fiscal 2002 relating to the impairment of its investment in affiliates engaged
in development of an e-commerce trading facility.

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 HFGTL and its subsidiaries (including affiliates) are accounted for
as affiliates from the date of the New Epoch Transaction, prior year comparative
financial information may be of limited value.

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, 2002 Compared to Year Ended March 31, 2001
<TABLE>
                                                                                       Pro Forma
                                         HFGTL Group           New Epoch             Consolidated          Consolidated
                                    ------------------    ---------------------   ------------------   --------------------
Year ended March 31,                 2001       2002         2001        2002      2001        2002      2001        2002
                                    ------     -------    ---------    --------   -------    -------   -------      -------
<S>                                 <C>        <C>        <C>          <C>        <C>        <C>       <C>          <C>

(in US`000s)

     Revenues                     $ 170,225  $ 201,122     $    33           -   $      -          -   $ 47,645          -
     Cost of sales and services    (143,907)  (173,539)        (32)          -          -          -    (39,237)         -
                                   ---------- ---------    ---------   ---------- -------    --------  ---------    --------
     Gross profit                    26,318     27,583           1           -          -          -      8,408          -
     Selling, general and
        administrative expenses     (13,861)   (18,663)     (1,041)     (1,148)       (56)       (55)    (3,787)       (55)
                                   ---------- ---------    ---------   ---------- -------    --------  ---------    --------
     Operating income (loss)         12,457      8,920      (1,040)     (1,148)       (56)       (55)     4,621        (55)
     Interest expense, net           (2,741)    (2,951)       (191)       (515)         -          -       (523)         -
     Share of profits (losses)
      of affiliates                    (791)    (1,124)     (1,231)          -      2,358      1,393     (6,670)     1,393
     Write-back of (provision for)
      amount due from affiliates     (1,063)    (1,059)        176        (589)         -          -          -          -
     Impairment of goodwill
       relating to affiliates       (24,121)         -           -           -          -          -          -          -
     Gain (loss) on dilution of
       equity interests in subsidiaries   -          -           -           -          -          -     (2,034)         -
                                   ---------- ---------    ----------  ---------- -------    --------  ----------  ---------
     Income (loss) before
      income taxes                  (16,259)     3,786      (2,286)     (2,252)     2,302      1,338     (4,606)     1,338
     Reversal of (provision) for
      income taxes                   (1,174)       644           -           -       (369)         -       (321)         -
     Minority interests                   -          -           -          10          -          -     (1,805)         -
                                   ---------- ---------    ---------   ---------- -------    --------  ----------  ---------
     Net income (loss)            $ (17,433)  $  4,430    $ (2,286)   $ (2,242)   $ 1,933   $  1,338    $(6,732)   $ 1,338
                                   ========== =========    =========   ========== =======    ========  ==========  =========
</TABLE>

                                       18
<PAGE>

         Revenues and Gross Profit.

         Consolidated revenues for the year ended March 31, 2002 were nil as
compared to $47.7 million for the year ended March 31, 2001. The lack of
consolidated revenues for the current year was attributable to the
reclassification of HFGTL Group as affiliates following the New ePoch
Transaction in August 2000. Pro forma consolidated revenues were nil for both
the 2002 and 2001 fiscal years.

         HFGTL Group. Total revenues of HFGTL Group were $201.1 million for the
year ended March 31, 2002, an increase of 18.2% from $170.2 million for the year
ended March 31, 2001. The increase in revenues of HFGTL Group for the year was
primarily attributable to increased sales in Hong Kong and Mainland China which
were driven by increased marketing efforts in those markets, in particular the
contribution of the 3D-Gold Tourism Exhibition Hall, and by the adoption of more
competitive pricing. The revenue gains in Hong Kong and Mainland China were
partially offset by decreased revenues in other markets attributable to the
continued poor economic environment following the events of September 11.

         Geographically, within Southeast Asia (including Hong Kong and the PRC)
sales by HFGTL Group increased 35.3% to $174.4 million during the year ended
March 31, 2002 from $128.9 million during the prior year. Sales within Southeast
Asia accounted for 86.7% of total sales during the current period as compared to
75.7% during the same period in the prior year. Sales within the region
increased due to increased marketing effort, in particular in Hong Kong and the
PRC during the year, which was partially offset by week global economic
conditions, particularly following the events of September 11. Sales in Hong
Kong and the PRC increased approximately 55.3% to $152.8 million for the year
ended March 31, 2002 from $98.4 million for the prior year. Sales in Southeast
Asia (not including Hong Kong and the PRC) during the year ended March 31, 2002
decreased 29.2% to $21.6 million from $30.5 million for the same period in the
prior year.

         Outside of Southeast Asia (mainly in the United States and Europe),
HFGTL Group experienced a 35.3% decrease in sales with these sales accounting
for 13.3% of total sales in the 2002 fiscal year as compared to 24.3% of total
sales in the prior year. The decrease in sales outside of Southeast Asia was
attributable to increased marketing efforts in Southeast Asia regions and
deteriorating macroeconomic conditions worldwide. Sales in Europe decreased
approximately 48.3% to $7.8 million for the 2002 fiscal year from $15.1 million
in the prior year. Sales in the United States decreased approximately 3.8% to
$17.4 million during the 2002 fiscal year from $18.1 million in the prior year.

         Gross profit of HFGTL Group increased by 4.8% to $27.6 million during
the current period from $26.3 million during the prior fiscal year. The increase
in gross profit was mainly attributable to the increase in net sales. Gross
margin decreased to 13.7% in the current period from 15.5% in the prior fiscal
year period. The decrease in gross profit percentage during the current period
was primarily attributable to adoption of a more aggressive competitive pricing
strategy to cope with the increasingly competitive market and to boost market
share.

         New Epoch. Total revenues of New Epoch were nil during fiscal 2002 and
$33,000 during fiscal 2001. 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 2002
were $55,000 as compared to $3.8 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 $55,000 for the 2002
fiscal year and $56,000 for the prior year.

         HFGTL Group. Total operating expenses of HFGTL Group were $18.7 million
for fiscal 2002, an increase of 34.6% from $13.9 million for the prior year. The
increase in operating expenses of HFGTL Group for the year was primarily
attributable to increased sales and marketing costs associated with the opening
and operation of the 3D-Gold Tourism Exhibition Hall and the promotion of HFGTL
Group's "3D-Gold" and "La Milky Way" products and brands.

         New Epoch. Total operating expenses of New Epoch were $1,148,000 for
fiscal 2002, an increase of 10.3% from $1,041,000 for the prior year. As the
business of New Epoch is still at investment stage, New Epoch must maintain
staff costs, office rental and daily expenses to support its daily operations.

                                       19
<PAGE>

         Interest Expense, Net. Consolidated interest expense, net, for fiscal
2002 was nil as compared to $523,000 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
2002 and fiscal 2001.

         HFGTL Group. Net interest expense of HFGTL Group was $3 million for
fiscal 2002, an increase of 11.1% from $2.7 million for fiscal 2001. The
increase in net interest expense of HFGTL Group was primarily attributable to
increased short-term bank borrowings to support business expansion in Hong Kong
and the PRC.

         Share of Profit/(Losses) of Affiliates; Impairment of Goodwill Relating
to Affiliates. Consolidated share of profits of affiliates totaled $1.4 million
during fiscal 2002 as compared to a loss of $6.7 million during fiscal 2001.
Consolidated share of profits/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 $1.4 million for
fiscal 2002 and $2.4 million for fiscal 2001.

         The Company's share of losses of affiliates attributable to HFGTL
during fiscal 2001 was principally attributable to a $24.1 million expense
recorded by HFGTL for the impairment of goodwill relating to HFGTL's interest in
New Epoch.

         Loss on Dilution of Equity Interest in Subsidiaries. Consolidated loss
on dilution of equity interest in subsidiaries totaled nil during fiscal 2002 as
compared to $2 million during fiscal 2001. Consolidated 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 for fiscal 2002 was nil as
compared to $321,000 for fiscal 2001. 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. Pro forma
consolidated income tax expense were nil for fiscal 2002 and $369,000 for fiscal
2001.

         HFGTL Group. HFGTL Group reported a tax benefit of $644,000 for fiscal
2002, as compared to a tax expense of $1.2 million for fiscal 2001. The tax
benefit reported for fiscal 2002 was attributable to the reversal of an
over-provision for PRC taxes in prior years totaling $1 million.

         Minority Interest. Consolidated minority interest totaled nil during
fiscal 2002 as compared to $1.8 million during fiscal 2001. 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.


                                       20
<PAGE>

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         -         -           -          -
     Impairment of goodwill relating
       to affiliates                      -   (24,121)         -          -         -         -           -          -
     Gain (loss) on dilution of
       equity interests in subsidiaries   -         -          -          -     1,585         -           -     (2,034)
                                    -------- ---------  ---------    --------   -------  --------  ---------  ---------
     Income (loss) before
      income taxes                   11,203   (16,259)      (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)
                                   --------- ---------  ---------   ---------   -------  --------  ---------  ---------
     Net income (loss)              $12,799  $(17,433)  $   (479)   $(2,286)  $(2,072)  $ 1,933    $  6,780   $(6,732)
                                   ========= =========  =========   =========   =======  ========  =========  =========
</TABLE>

<PAGE>

         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.

                                       21
<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. Consolidated loss
on dilution of equity interest in subsidiaries totaled $2 million during fiscal
2001 as compared to nil during fiscal 2000. Consolidated 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.

                                       22
<PAGE>

         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.

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, including Hong Kong. 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.

                                       23
<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, followed by the events of September 11, 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
attempts to settle those purchases in local currencies, 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.
Weakness in the U.S. dollar during the first half of 2002 could, if not halted,
result in increased risk of loss due to adverse exchange rate fluctuations.

         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, 2002, the Company had no cash balances and a working
capital deficit of $303,000. This compares to no cash balance and a working
capital deficit of $303,000 at March 31, 2001. At March 31, 2002, Hang Fung
Group had cash balances of $11.5 million and working capital of $30.5 million as
compared to a cash balance of $14.2 million and working capital of $24.5 million
at March 31, 2001 and New Epoch had cash balances of $1.3 million and working
capital of $1.9 million as compared to cash balances of $3.9 million and working
capital of $4 million at March 31, 2001. Included in the cash balance of Hang
Fung Group were $10 million at March 31, 2002 and $9.9 million at March 31, 2001
which amounts were pledged as collateral to secure existing bank financing
facilities.

         For fiscal 2002, net cash used in operating activities amounted to
$55,000 as compared to $9.2 million for the prior year. This change resulted
from the reclassification of Hang Fung Group as an affiliate. Hang Fung Group
had cash flows from operations of $8.2 million during fiscal 2002 as compared to
$1.4 million during fiscal 2001. New Epoch used $1.6 million of cash in
operating activities during fiscal 2002 as compared to $928,000 of cash used in
operating activities during fiscal 2001.

         Net cash provided by investing activities totaled $55,000 during fiscal
2002 as compared to net cash used in investing activities of $20 million during
fiscal year 2001. This change was attributable to reclassification of Hang Fung
Group as an affiliate. Net cash used in investing activities by Hang Fung Group
totaled $9 million during fiscal 2002 as compared to $28.9 million during fiscal
2001, and were primarily attributable to decreased investment in machinery and
equipment and no further advances to affiliates. Net cash used in investing
activities by New Epoch totaled $622,000 during fiscal 2002 as compared to $1.7
million during fiscal 2001, and were primarily attributable to decreased
advances to affiliates in fiscal 2002.


                                       24
<PAGE>

         Net cash provided by financing activities totaled nil during fiscal
2002 as compared to $9.6 million during fiscal 2001. This change was
attributable to reclassification of Hang Fung Group as an affiliate. Net cash
provided by financing activities for Hang Fung Group totaled $4.6 million during
fiscal 2002 as compared to $11.8 million during fiscal 2001 and were primarily
attributable to placement of shares in 2000. Net cash provided by financing
activities for New Epoch totaled $63,000 during fiscal 2002 as compared to $6.5
million during fiscal 2001 and were primarily attributable to advances from Hang
Fung Group in fiscal 2001.

         At March 31, 2002, and at March 31, 2001, the Company had no long term
debt. Hang Fung Group had long term debt of $8.5 million at March 31, 2002 as
compared to $9.4 million at March 31, 2001 and New Epoch had long term debt of
$6.4 million at March 31, 2002 and 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, 2002, the Company had no material capital commitments.
Hang Fung Group intends to use available funds as needed to expand its wholesale
and retail business. Additionally, Hang Fung Group is expanding the 3D-Gold
Tourism Exhibition Hall with the addition of 30,000 square feet of retail space
scheduled to open in September 2002. New Epoch intends to use available funds to
develop and maintain its e-commerce trading facilities.

         At March 31, 2002, 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, 2002 were approximately
$60.9 million of which approximately $56.7 million had been used at such date.

         At March 31, 2002, 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, 2002, Hang Fung Group's capital lease obligations
totaled $4.5 million of which $2.3 million was attributable to current lease
obligations. Obligations under operating leases require minimum annual rental
payments by Hang Fung Group of approximately $340,000 in fiscal 2003.

         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.

                                       25
<PAGE>


Contractual Obligations and Commercial Commitments

         The Company operates exclusively through Hang Fung Group and, therefor,
has no contractual obligations or commercial commitments other than those of
Hang Fung Group. The following table gives information about Hang Fung Group's
existing material commitments under indebtedness and contractual obligations:
<TABLE>

------------------------ -------------------------------------------------------------------------
                                             Payments Due by Fiscal Year Ended March 31,
Contractual Obligations                                       ($,000)
------------------------ ---------- ---------- ---------- --------- --------- -------- -----------
                            Total      2003       2004      2005      2006      2007    thereafter
------------------------ ---------- ---------- ---------- --------- --------- -------- -----------
<S>                       <C>        <C>        <C>        <C>       <C>       <C>     <C>

Bank loans (1)            $ 16,835   $ 12,904    $ 1,043    $  784    $  662    $ 134     $ 1,308
------------------------ ---------- ---------- ---------- --------- --------- -------- -----------

Capital lease
obligations (2)              4,499      2,263      1,575       630        23        8           -
------------------------ ---------- ---------- ---------- --------- --------- -------- -----------

Operating leases (3)           698        340        189        80        61       28           -
------------------------ ---------- ---------- ---------- --------- --------- -------- -----------

Unconditional purchase
obligations (3)                 44         44          -         -         -        -           -
------------------------ ---------- ---------- ---------- --------- --------- -------- -----------

Total contractual cash
obligations
                            22,076     15,551      2,807     1,494       746      170       1,308
------------------------ ---------- ---------- ---------- --------- --------- -------- -----------

</TABLE>

(1) See note 19 and 20 to accompanying financial statements of Hang Fung Gold.
(2) See note 21 to accompanying financial statements of Hang Fung Gold.
(3) See note 30 to accompanying financial statements of Hang Fung Gold.

         The following table gives information about other commercial
commitments of Hang Fung:
<TABLE>

-------------------- ---------------------------------------------------------------------------------
  Other Commercial                           Amount of Commitment Expiring March 31,
     Commitments                                             ($,000)
-------------------- ----------- ----------- ----------- ----------- ---------- ---------- -----------
                       Total        2003        2004        2005       2006       2007     thereafter
-------------------- ----------- ----------- ----------- ----------- ---------- ---------- -----------
<S>                  <C>         <C>         <C>         <C>         <C>         <C>       <C>

Lines of credit (1)    $ 37,861    $ 37,861           -           -          -          -           -
-------------------- ----------- ----------- ----------- ----------- ---------- ---------- -----------

Standby letters of
credit                      631         631           -           -          -          -           -
-------------------- ----------- ----------- ----------- ----------- ---------- ---------- -----------

Total commercial
commitments              38,492      38,492           -           -          -          -           -
-------------------- ----------- ----------- ----------- ----------- ---------- ---------- -----------
</TABLE>

(1)  Lines of credit include bank overdrafts and trust receipts bank loans which
     are utilized as of March 31, 2002.


                                       26
<PAGE>

Transactions with Related and Certain Other Parties

         The Company and the Hang Fung Group have periodically engaged in
transactions with parties affiliated with the Company and the Hang Fung Group.
All of such transactions and arrangements are reflected in the balance sheet and
statement of operations of the Company and/or the Hang Fung Group.

         During the fiscal year ended March 31, 2001 and March 31, 2002, the
Hang Fung Group paid rental payments of $41,538 and $20,769, respectively, to
Mr. Lam in connection with the lease of a residential premises for Mr. Lam's
residence. Such payments are made pursuant to Mr. Lam's employment agreement
with the Hang Fung Group and are reflected in the statement of operations of the
Hang Fung Group.

         The Company has from time to time both advanced to and borrowed funds
from Mr. Lam. At March 31, 2001 and 2002, the Company owed Mr. Lam $303,000. All
of such loans are unsecured, non-interest bearing and without pre-determined
repayment terms and are reflected on the balance sheet of the Company.

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

         Mr. Lam has also advanced funds to the Hang Fung Group from time to
time. At March 31, 2002, the total amount owed by the Hang Fung Group to Mr. Lam
was $780,513. Loans from Mr. Lam to the Hang Fung Group are unsecured,
non-interest bearing and without pre-determined repayment terms. Those loans are
reflected on the balance sheet of the Hang Fung Group.

         At March 31, 2002, the Hang Fung Group had advanced funds to the
Company in the amount of $90,128. Those advances are unsecured, non-interest
bearing and without pre-determined repayment terms. The advances are reflected
on the balance sheet of the Hang Fung Group as current receivables and are
reflected on the balance sheet of the Company as a reduction in the investment
in affiliates account.

         At March 31, 2002 and 2001, New Epoch, a 49.9% owned affiliate of the
Hang Fung Group, owed $6.4 million to the Hang Fung Group. Such amount is
secured by the 50.1% equity interest in New Epoch not owned by the Hang Fung
Group, bears interest at the rate of 2.5% over the prime lending rate as quoted
by The Honkkong and Shanghai Banking Corporation Limited and is repayable after
September 2003. Interest on the amounts due from New Epoch totaled $570,000
during fiscal 2002 and $244,000 during fiscal 2001. At March 31, 2002, the Hang
Fung Group had established a reserve against the advance to New Epoch in the
amount of $2.1 million to reflect the amount expected to be recoverable from the
advance. The amount of the reserve is reflected in the balance sheet as an
offset to the receivable accounted for under investment in affiliates and as a
charge on the statement of operations.

Seasonality

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

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

                                            Fiscal Year Ended March 31,
                                    2000                      2001            2002
                          (US$,000)            (US$,000)             (US$,000)
                           Amount      %        Amount      %         Amount        %
                          ---------  ------     ------    -----      ---------    -----
<S>                       <C>        <C>       <C>        <C>        <C>         <C>

1st Quarter (4/1-6/30)    $ 24,398    19.8    $ 27,211     16.0       42,002       20.9
2nd Quarter (7/1-9/30)      28,892    23.5      28,075     16.5       37,248       18.5
3rd Quarter (10/1-12/31)    31,098    25.3      47,776     28.1       44,913       22.3
4th Quarter (1/1-3/31)      38,727    31.4      67,163     39.4       76,959       38.3
                         ---------  ------    --------    -----     --------      -----
    Total                 $123,115   100.0    $170,225    100.0     $201,122      100.0
                          ========   =====    ========    =====     ========      =====
</TABLE>

                                       27
<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
2002 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 $5 million, ranged
from Hong Kong prime lending rate less 1.75% to Hong Kong prime lending rate
plus 1.75% in fiscal 2002. 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 Moore
Stephens Wurth Frazer & Torbet ("MSWFT"), Certified Public Accountants, appears
following the Index to Financial Statements on page 38 of this report.

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

         On June 26, 2002, Arthur Andersen & Co. ("AA") advised the Company
that, in connection with its combination with PricewaterhouseCoopers ("PWC"), it
was resigning as the Company's independent accountant effective June 30, 2002.

         AA's audit report on the financial statements of the Company as of
March 31, 2001 and for the two years ended March 31, 2001 contained no adverse
opinion or disclaimer of opinion and was not qualified or modified as to
uncertainty, audit scope, or accounting principles.

         During the Company's two most recent fiscal years and any subsequent
interim period preceding the resignation of AA, there were no disagreements with
AA on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreement(s) if not
resolved to the satisfaction of AA, would have caused AA to make reference to
the subject matter of the disagreement(s) in connection with its report.

         During the Company's two most recent fiscal years and any subsequent
interim period preceding the resignation of AA, there have been no reportable
events of the type required to be disclosed by Item 304(a)(1)(v) of Regulation
S-K.

                                       28
<PAGE>

         On August 22, 2002, the Company, after being advised by PWC, the
successor to AA, that it had declined to accept the engagement as the Company's
independent accountants, the Company appointed MSWFT as its new independent
accountants. Prior to the engagement of MSWFT, the Company did not consult with
such firm regarding the application of accounting principles to a specific
completed or contemplated transaction, or any matter that was either the subject
of a disagreement or a reportable event. The Company also did not consult with
MSWFT regarding the type of audit opinion which might be rendered on the
Company's financial statements and no oral or written report was provided by
MSWFT.

                                    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.........   47  Chairman, Chief Executive Officer and President
Chan Yam Fai, Jane...   39  Vice President, Chief Financial Officer and Director
Ng Yee Mei...........   40  Vice President and Director
Cheng Wa On..........   39  Director

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 2002.

                                       29
<PAGE>

         All of the filing requirements were satisfied on a timely basis in
fiscal 2002. 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 (all amounts are paid by the 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, 2002:
<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........................... 2002   $ 413,461   $     -    $ 65,558            $   0
  Chief Executive Officer,............. 2001     191,666   320,512      66,178                0
  Chairman and President............... 2000     166,880   507,060      56,222                0
</TABLE>

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

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 current Employment Agreement with Mr. Lam commenced October 1, 2001 and
runs for a term of three years.  The agreement  provides for a monthly salary of
HK$416,666  with annual  adjustments  based on review by the board of directors.
The agreement also provides for 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,  or a  monthly  rental  allowance  of  HK$100,000,  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 current  Employment  Agreement with Ms. Chan commenced  October 1, 2001
and runs for a term of three years. The agreement  provides for a monthly salary
of HK$108,333 with annual adjustments based on review by the board of directors.
The agreement also provides for 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.

                                       30
<PAGE>

Provident Plan

         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, 2002 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)     51.3%
Lam Mo Wan (3).....................................   2,930,000          22.7%
Chan Wai Sum (3)...................................     670,000           5.2%
Lam Sai Wing (2)...................................   6,600,000  (2)     51.3%
Carhill Limited (4)................................     800,000           6.2%
Chan Yam Fai, Jane.................................     300,000           2.3%
Ng Yee Mei.........................................           0           -
Cheng Wa On........................................           0           -
All officers and directors as a group (4 persons)..   6,900,000  (2)     53.6%

(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.


                                       31
<PAGE>

Preferred Stock

         Series A Preferred Stock. The following table is furnished as of June
15, 2002 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, 2001 and March 31, 2002, the
Hang Fung Group paid rental payments of $41,538 and $20,769, respectively, to
Mr. Lam in connection with the lease of a residential premises for Mr. Lam's
residence. Such payments are made pursuant to Mr. Lam's employment agreement
with the Hang Fung Group and are reflected in the statement of operations of the
Hang Fung Group.

         The Company has from time to time both advanced to and borrowed funds
from Mr. Lam. At March 31, 2001 and 2002, the Company owed Mr. Lam $303,000. All
of such loans are unsecured, non-interest bearing and without pre-determined
repayment terms and are reflected on the balance sheet of the Company.

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

         Mr. Lam has also advanced funds to the Hang Fung Group from time to
time. At March 31, 2002, the total amount owed by the Hang Fung Group to Mr. Lam
was $780,513. Loans from Mr. Lam to the Hang Fung Group are unsecured,
non-interest bearing and without pre-determined repayment terms. Those loans are
reflected on the balance sheet of the Hang Fung Group.

         At March 31, 2002, the Hang Fung Group had advanced funds to the
Company in the amount of $90,128. Those advances are unsecured, non-interest
bearing and without pre-determined repayment terms. The advances are reflected
on the balance sheet of the Hang Fung Group as current receivables and are
reflected on the balance sheet of the Company as a reduction in the investment
in affiliates account.

         At March 31, 2002 and 2001, New Epoch, a 49.9% owned affiliate of the
Hang Fung Group, owed $6.4 million to the Hang Fung Group. Such amount is
secured by the 50.1% equity interest in New Epoch not owned by the Hang Fung
Group, bears interest at the rate of 2.5% over the prime lending rate as quoted
by The Hongkong and Shanghai Banking Corporation Limited and is repayable after
September 2003. Interest on the amounts due from New Epoch totaled $570,000
during fiscal 2002 and $244,000 during fiscal 2001. At March 31, 2002, the Hang
Fung Group had established a reserve against the advance to New Epoch in the
amount of $2.1 million to reflect the amount expected to be recoverable from the
advance. The amount of the reserve is reflected in the balance sheet as an
offset to the receivable accounted for under investment in affiliates and as a
charge on the statement of operations.

                                       32
<PAGE>

         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.

ITEM 14. CONTROLS AND PROCEDURES

         (a) Our chief executive officer and our chief financial officer, after
evaluating the effectiveness of the Company's "disclosure controls and
procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-14(c)
and 15-d-14(c)) as of a date (the "Evaluation Date") within 90 days before the
filing date of this annual report, have concluded that as of the Evaluation
Date, our disclosure controls and procedures were adequate and designed to
ensure that material information relating to us and our consolidated
subsidiaries would be made known to them by others within those entities.

         (b) There were no significant changes in our internal controls or to
our knowledge, in other factors that could significantly affect our disclosure
controls and procedures subsequent to the Evaluation Date.

                                     PART IV

ITEM 15. 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 38 of this report for financial statements
                  and supplementary data filed as part of this report.

          (2)     Financial Statement Schedules

                  None

          (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   Sales Agency Agreement between Hang Fung Jewellery Co., Ltd. and China
            Jewellery Import & Export Co. (1)
     10.2   Agreement for Jewellery Assembling between Hang Fung Jewellery Co., Ltd.
            and China Jewellery Import & Export Co. (1)
     10.3   Sales Cooperation Agreement between Hang Fung Jewellery Co., Ltd. and
            China Jewellery Import & Export Co. (1)
     10.4   Confirmation Agreement between Hang Fung Jewellery Co., Ltd. and
            China Jewellery Import & Export Co. (1)
     10.5   Lease Agreement between Chan Yam Fai, Jane and Hang Fung Jewellery Co., Ltd.
            re: executive offices (1)
     10.6   Warrant Agreement with Phenomenal Limited (3)
     10.7   Convertible Note with Phenomenal Limited (3)
     10.8   Deed Amendment (3)
     10.9++ Employment Agreement between Hang Fung Gold and Ng Yee Mei dated February 27, 1999 (4)
     10.10  Agreement between Hang Fung Gold Technology Limited, New Epoch Holdings International Limited,
            and Quality Prince Limited dated June 24, 2000 (5)
</TABLE>


                                       33
<PAGE>
<TABLE>

     <S>    <C>

     10.11  Facility Agreement between Hang Fung Gold Technology Limited and New Epoch Information
            (BVI) Limited dated June 24, 2000 (5)
     10.12* Employment Agreement between Hang Fung Gold and Lam Sai Wing dated October 1, 2001
     10.13* Employment Agreement between Hang Fung Gold and Chan Yam Fai Jane dated October 1, 2001
     99.1*  Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
            the Sarbanes-Oxley Act of 2002
</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

         Form 8-K dated January 17, 2002 (filed January 17, 2002) reporting
         under Item 9, the issuance of a press release relating to a reduction
         in share premium by Hang Fung Gold Technology.

         Form 8-K dated March 22, 2002 (filed March 22, 2002) reporting under
         Item 9, the issuance of a press release reporting the earnings of SW
         Lam and Hang Fung Gold Technology for the quarter ended December 31,
         2001.


                                       34
<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:   November 21, 2002

         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  November 21, 2002
-----------------------   (Principal Executive Officer) and
Lam Sai Wing              Chairman of the Board


/s/ Chan Yam Fai, Jane    Vice President, Chief Financial      November 21, 2002
-----------------------   Officer (Principal Accounting
Chan Yam Fai, Jane        and Financial Officer) and Director


/s/ Ng Yee Mei            Vice President and Director          November 21, 2002
-----------------------
Ng Yee Mei


 /s/ Cheng Wa On           Director                            November 21, 2002
-----------------------
Cheng Wa On


                                       35
<PAGE>

                                 CERTIFICATIONS

I, Lam Sai Wing, certify that:

         1. I have reviewed this annual report on Form 10-K of S.W. Lam, Inc.;

         2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

         3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

         4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

                  a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

                  b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and

                  c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

         5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

                  a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

                  b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal controls; and

         6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Dated: November 21, 2002

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


                                       36
<PAGE>

I, Chan Yam Fai, Jane, certify that:

         1. I have reviewed this annual report on Form 10-K of S.W. Lam, Inc.;

         2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

         3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

         4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

                  a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

                  b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and

                  c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

         5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

                  a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

                  b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal controls; and

         6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Dated: November 21, 2002

By: /s/ Chan Yam Fai, Jane
------------------------------
Chan Yam Fai, Jane
Chief Financial Officer

                                       37
<PAGE>
                                 S.W. LAM, INC.

                          Index to Financial Statements

                                                                            Page
                                                                           -----

S.W. Lam, Inc.

Report of Independent Public Accountants                                     F-1

Consolidated Balance Sheets as of March 31, 2001 and 2002                    F-3

Consolidated Statements of Operations and Comprehensive Income for the
   Years ended March 31, 2000, 2001 and 2002                                 F-4

Consolidated Statements of Changes in Shareholders' Equity for the
   Years ended March 31, 2000, 2001 and 2002                                 F-5

Consolidated Statements of Cash Flows for the Years ended March 31, 2000,
   2001 and 2002                                                             F-6

Notes to Consolidated Financial Statements                                   F-7

Hang Fung Gold Technology Limited

Report of Independent Public Accountants                                    F-22

Consolidated Income Statement for the Year ended March 31, 2002             F-23

Balance Sheets as at March 31, 2002                                         F-24

Consolidated Cash Flow Statement for the Year ended March 31, 2002          F-25

Notes to Financial Statements                                               F-26

Report of Independent Public Accountants                                    F-56

Consolidated Income Statement for the Year ended March 31, 2001             F-57

Consolidated Statement of Recognised Gains and Losses for the Year
ended March 31, 2001                                                        F-58

Balance Sheets as at March 31, 2001                                         F-59

Consolidated Cash Flow Statement for the Year ended March 31, 2001          F-60

Notes to Financial Statements                                               F-61


                                       38
<PAGE>

INDEPENDENT AUDITORS' REPORT

To The Board of Directors
S. W. Lam, Inc.
Hunghom, Hong Kong

We have audited the consolidated balance sheet of The S. W. Lam, Inc. and
subsidiary (the Company) as of March 31, 2002, and the related consolidated
statements of operations and comprehensive income, changes in shareholders'
equity, and cash flows for year then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit. The consolidated financial statements of the
Company for the years ended March 31, 2001 and 2000 were audited by other
auditors whose report, dated July 14, 2001, expressed an unqualified opinion on
those statements.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of S. W. Lam, Inc. and
subsidiary as of March 31, 2002, and the results of their operations and their
cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States of America.

/s/ Moore Stephens Wurth Frazer and Torbet, LLP


September 13, 2002
Walnut, California

                                      F-1
<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.


                                             /s/ Arthur Andersen & Co

                                             ARTHUR ANDERSEN & CO
                                             Certified Public Accountants
                                             Hong Kong

Hong Kong,
July 14, 2001


This report is a copy of a previously issued accountants' report of Arthur
Andersen & Co. This report has not been reissued by Arthur Andersen & Co.

                                      F-2
<PAGE>

                                 S. W. LAM, INC.

                           CONSOLIDATED BALANCE SHEETS
                          AS OF MARCH 31, 2001 and 2002

<TABLE>

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

ASSETS

Investment in affiliates                 3          158,882        169,315        21,707
                                                =============  ============  ============

LIABILITIES, MINORITY INTERESTS
   AND SHAREHOLDERS' EQUITY

Current liabilities:
   Due to a director                     8            2,368          2,367           303
                                                -------------  ------------  ------------

Shareholders' equity:
   Common stock, par value US$0.001
     each:
     - authorized - 25,000,000 shares
     - outstanding and fully paid -
         12,865,000 shares                              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                         4,118          4,118           528
   Retained earnings                                152,295        162,729        20,863
                                                -------------  ------------  ------------

         Total shareholders' equity                 156,514        166,948        21,404
                                                -------------  ------------  ------------

         Total liabilities and
           shareholders' equity                     158,882        169,315        21,707
                                                =============  ============  ============

</TABLE>

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

                                      F-3
<PAGE>

                                 S. W. LAM, INC.


         CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
                FOR THE YEARS ENDED MARCH 31, 2000, 2001 and 2002


<TABLE>

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


Revenues                             9.a         959,070          371,630              -               -

Cost of sales                                   (774,794)        (306,048)             -               -
                                          ---------------  ---------------  ------------- ---------------

         Gross profit                            184,276           65,582              -               -

Selling, general and
   administrative expenses                       (83,896)         (29,541)          (433)            (55)
Interest expense                                 (19,492)          (7,244)             -               -
Interest income                                    6,216            3,166              -               -
Share of profits (losses) of
   affiliates                                          -          (52,025)        10,867           1,393
Loss on dilution of equity
   interests in subsidiaries          6                -          (15,864)             -               -
                                          ---------------  ---------------  ------------- ---------------

         Income (Loss) before
           income taxes                           87,104          (35,926)        10,434           1,338

(Provision for) Reversal of
   income taxes                       5           12,432           (2,500)             -               -
                                          ---------------  ---------------  ------------- ---------------

         Income (Loss) before
           minority interests                     99,536          (38,426)        10,434           1,338

Minority interests                               (46,716)         (14,079)             -               -
                                          ---------------  ---------------  ------------- ---------------

         Net income (loss) and
           comprehensive income
           (loss)                                 52,820          (52,505)        10,434           1,338
                                          ===============  ===============  ============= ===============

Earnings (Loss) per common share          HK$      4.13    HK$     (4.10)   HK$     0.81   US$     0.104
                                          ===============  ===============  ============= ===============

Weighted average number of
   common shares                              12,800,000       12,814,000     12,865,000      12,865,000
                                          ===============  ===============  ============= ===============
</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, 2000, 2001 and 2002

<TABLE>
                                  Common stock          Series A preferred stock
                            --------------------------  ------------------------
                             Number of      Amount       Number of      Amount     Additional     Retained
                                                                                    paid-in
                              shares                      shares                    capital       earnings
                            ------------  ------------  ------------  ---------- --------------- ----------
                               '000         HK$'000        '000         HK$'000     HK$'000       HK$'000
<S>                         <C>           <C>           <C>            <C>        <C>             <C>

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 7)                65             -             -             -         158             -
                          -----------  ------------  ------------  ------------- ------------ -------------

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

Net income                         -             -             -             -           -        10,434
                          -----------  ------------  ------------  ------------- ------------ -------------

Balance as of March 31,
   2002                       12,865           101           100             -       4,118       162,729
                          ===========  ============  ============  ============= ============ =============
</TABLE>

              The accompanying notes are an integral part of these
                             financial statements.
                                      F-5

<PAGE>
                                 S. W. LAM, INC.


                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                FOR THE YEARS ENDED MARCH 31, 2000, 2001 and 2002
<TABLE>


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

Cash flows from operating activities:
Net income (loss)                              52,820          (52,505)           10,434             1,338
Adjustments to reconcile net income
   (loss) to net cash provided by (used in)
operating activities - Depreciation
   of property, machinery
     and equipment                             55,580           26,954                 -                 -
   Share of (profits) losses of
     affiliates                                     -           52,025           (10,867)           (1,393)
   Loss on dilution of equity
     interests in subsidiaries                      -           15,864                 -                 -
   Minority interests                          46,716           14,079                 -                 -

(Increase) Decrease in operating assets -
   Accounts receivable, net                   (30,189)          15,113                 -                 -
   Prepayments and deposits                     1,596           (9,691)                -                 -
   Inventories, net                           (75,736)        (144,913)                -                 -
Increase (Decrease) in operating
   liabilities -
   Accounts payable                             1,940            9,462                 -                 -
   Accrued liabilities                          2,985           (3,654)                -                 -
   Due to a director                            1,325            2,766                 -                 -
   Taxation payable                           (18,278)           2,500                 -                 -
   Deferred taxation                            3,449                -                 -                 -
                                          ------------- ----------------  ----------------  ---------------

   Net cash provided by (used in)
     operating activities                      42,208          (72,000)             (433)              (55)
                                          ------------- ----------------  ----------------  ---------------

Cash flows from investing activities:
Increase in amount due to an affiliate              -              281               433                55
Additions to property, machinery and
   equipment                                  (83,420)         (32,919)                -                 -
Net cash outflow from dilution of
   equity interests in  subsidiaries
   (Note 10)                                        -         (122,486)                -                 -
                                          ------------- ----------------  ----------------  ---------------

   Net cash used in investing
         activities                           (83,420)        (155,124)              433                55

Cash flows from financing activities:
-------------------------------------
Net proceeds from issuance of new
   ordinary shares                                  -              158                 -                 -
Dividend paid to a minority
   shareholder of a subsidiary                (14,328)               -                 -                 -
Increase (Decrease) in bank overdrafts         (1,953)           5,942                 -                 -
Increase in trust receipts bank loans          85,785           58,683                 -                 -
New short-term bank loans                      12,000           18,547                 -                 -
Repayment of short-term bank loans             (2,000)          (2,000)                -                 -
Repayment of long-term bank loans              (2,807)            (854)                -                 -
Repayment of capital element of
   capital lease obligations                  (12,544)          (5,737)                -                 -
                                          ------------- ----------------  ----------------  ---------------

   Net cash provided by financing
     activities                                64,153           74,739                 -                 -
                                          ------------- ----------------  ----------------  ---------------

   Net increase (decrease) in cash and
     bank deposits                             22,941         (152,385)                -                 -

Cash and bank deposits, as of
   beginning of year                          129,444          152,385                 -                 -
                                          ------------- ----------------  ----------------  ---------------

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

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

                                      F-6

<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.


                                      F-7
<PAGE>

1. ORGANIZATION (Cont'd)

As most of the Group's operations are conducted through HFGTL 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. These include risks associated
with, among others, the political, economic and legal environments and foreign
currency exchange. The Group's results may be adversely affected by changes in
the political and social conditions in the 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.

2.   Subsidiary

Details of the Company's subsidiary as of March 31, 2002 are as follows:

       Name                  Place of        Percentage of   Principal activity
                                            equity interest
                          incorporation          held
-----------------------  ----------------   --------------- -------------------

Quality Prince Limited    British Virgin         100%        Investment holding
                             Islands

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

3.   AFFILIATES

Investment in affiliates consisted of:

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

Investment in Hang Fung Gold Technology
    Limited and its subsidiaries ("HFGTL")  159,163        170,029       21,799

Due to an affiliate                            (281)          (714)         (92)
                                          ------------   -----------  ----------

                                            158,882        169,315       21,707
                                          ============   ===========  ==========

Quoted market value of investment in HFGTL  167,407        219,303       28,116
                                          ============   ===========  ==========

As of March 31, 2002, 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
jewelry 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,
2002.

                                      F-8
<PAGE>

3. AFFILIATES (Cont'd)

The amount due to an affiliate is unsecured, non-interest bearing and not
repayable before April 1, 2003.

Summarized financial information of HFGTL, prepared under the accounting
principles generally accepted in the United States of America, are as follows:
<TABLE>

Balance sheet
                                                As of                As of March 31,
                                           March 31, 2001                 2002
                                          ---------------- ---------------------------------
                                               HK$'000           HK$'000          US$'000
<S>                                       <C>                <C>               <C>

Current assets                                  647,719           755,419           96,849
Non-current assets                              389,199           370,239           47,467
                                          ---------------   ---------------   --------------

    Total assets                              1,036,918         1,125,658          144,316
                                          ===============   ===============   ==============

Current liabilities                             456,333           517,909           66,399
Non-current liabilities                          73,697            66,255            8,494
                                          ---------------   ---------------   --------------

    Total liabilities                           530,030           584,164           74,893
                                          ---------------   ---------------   --------------

Shareholders' equity                            506,888           541,494           69,423
                                          ---------------   ---------------   --------------

    Total liabilities and shareholders'
       equity                                 1,036,918         1,125,658          144,316
                                          ===============   ===============   ==============
</TABLE>

Statement of operations

                                   For the year ended      For the year ended
                                    March 31, 2001           March 31, 2002
                                   -------------------  ------------------------
                                       HK$'000           HK$'000        US$'000

Net sales                             1,327,753         1,568,757        201,123
Gross profit                            205,278           215,150         27,583
Profit (loss) before income taxes      (126,671)           29,584          3,793
Net profit (loss)                      (135,827)           34,606          4,437
                                    ==============     ===========   ===========

Separate audited consolidated financial statements of HFGTL as of and for the
year ended March 31, 2002, in accordance with the accounting principles
generally accepted in Hong Kong ("HK GAAP"), are included in this Form 10-K.

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:

                                      F-9
<PAGE>

3. AFFILIATES (Cont'd)

a.   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.

b. 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 recognized 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 amortized 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 amortized over the
vesting period of the option concerned.

A reconciliation of net income and shareholders' equity from HK GAAP to the
accounting principles generally accepted in the United States of America ("US
GAAP") in relation to net income for the year ended March 31, 2002 and
shareholders' equity as of March 31, 2002 is:

                                                  Net income of HFGTL for the
                                                  year ended March 31, 2002
                                                 -------------------------------
                                                  HK$'000           US$'000

Balance under HK GAAP                               34,555            4,430

Adjustments:

1.  Reversal of revaluation deficit
    and additional depreciation
    on investment property ($150,000 - $99,000)        51                7
2.  Recognition of deferred tax assets
    and provision of valuation allowance
    ($1,271,000 - $1,271,000)                           -                -
                                                 ---------- ----------------
Balance under US GAAP                               34,606            4,437
                                                 ========== ================

                                      F-10
<PAGE>

3. AFFILIATES (Cont'd)

Shareholders' equity:

                                         Shareholders' equity of HFGTL as
                                                 of March 31, 2002
                                        ------------------------------------
                                           HK$'000           US$'000

Balance under HK GAAP                      541,169           69,381

Adjustments:


1. Reversal of revaluation deficit
   and additional depreciation on
   investment property                         325               42
2. Recognition of deferred tax assets
   and provision of valuation allowance
   ($1,271,000 - $1,271,000)                     -                -
                                        ------------ ----------------
Balance under US GAAP                      541,494           69,423
                                        ============ ================

Hang Fung Gold Technology Limited erroneously reported an adjustment between HK
GAAP and US GAAP in their notes to the March 31, 2001 financial statements
relating to compensation expense determined under APB No. 25 in the amount of
HK$20,307,000 (US$2,603,000), rather than the correct amount of HK$254,000
(US$32,564). As the amount of the compensation expense was deemed to be
immaterial to the financial statements at March 31, 2001, it was not recorded in
the financial statements of S.W. Lam, Inc. for the year so ended.

This error in the footnote disclosure of the subsidiary's financial statements
as at March 31, 2001 has no effect on reported net income or earnings per share
of S.W. Lam, Inc. for the years ended March 31, 2001 and 2002.

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.

                                      F-11
<PAGE>


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

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.       Advertising and promotion costs

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

g.       Borrowing costs

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

h.       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-12
<PAGE>


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

i.       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.

j.       Comprehensive income

         The Group has adopted Statement of Financial Accounting Standards 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.

k.       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$127,000, HK$(9,000) and nil for the years ended March
         31, 2000, 2001 and 2002, respectively.

         Translation of amounts from Hong Kong dollars ("HK$") to United States
         dollars ("US$") for the most recent balance sheet and income statement
         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, 2002 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-13
<PAGE>


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

l. 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, 12,814,000 and,
         12,865,000 shares for the years ended March 31, 2000, 2001 and 2002,
         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, 2000, 2001 and 2002.

m. Use of estimates

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

n. Fair value of financial instruments

         The carrying amount for amount due to a director approximates its fair
         value because of the short maturity of this.

o. Recent accounting standards

         In June 2001, The Financial Accounting Standards Board ("FASB") issued
         Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
         Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets."
         SFAS No. 141 requires all business combinations completed after 30th
         June, 2001 to be accounted for using the purchase method and also
         prescribes explicitly the criteria for the recognition of intangible
         assets separately from goodwill. Under SFAS No. 142 which will be
         effective for fiscal years beginning 1st April, 2002 for the Group,
         goodwill will no longer be amortized but will be subject to impairment
         tests upon adoption and annually thereafter.

         In addition, under SFAS No. 141, an intangible asset shall be
         recognized as an asset apart from goodwill if it arises from
         contractual or other legal rights (regardless of whether those rights
         are transferable or separable from the acquired entity or from other
         rights and obligations).

         In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
         Retirement Obligations". SFAS No. 143 prescribes that the fair value of
         retirement obligations in relation to tangible long-lived assets be
         recognized when they are incurred and displayed as liabilities. The
         associated asset retirement costs are capitalized as part of the
         carrying amount of the long-lived asset.


                                      F-14
<PAGE>


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

o. Recent accounting standards (cont'd)

         In August 2001, the FASB issued SFAS No. 144, "Accounting for the
         Impairment or Disposal of Long Lived Assets". SFAS No. 144 prescribes
         that, if the carrying value of long-lived assets to be disposed of is
         less than its undiscounted cash flows, they should be adjusted downward
         to the lower of carrying value and fair value less cost to sell. In
         addition, SFAS No. 144 broadens the presentation of discontinued
         operations in the income statement to include a component of an entity
         if its operations and cash flows can be clearly distinguished from the
         rest of the Group and these components are to be eliminated from the
         ongoing operations of the entity.

         In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
         Associated with Exit or Disposal Activities." SFAS No. 146 addresses
         financial accounting and reporting for costs associated with exit or
         disposal activities and requires that a liability for a cost associated
         with an exit or disposal activity be recognized at fair value when the
         liability is incurred, rather than at the date of an entity's
         commitment to an exit plan. The provisions of SFAS No. 146 are
         effective for exit or disposal activities that are initiated after
         December 31, 2002, with early application encouraged.

         The effect of adopting the abovementioned standards is not expected to
         have a significant effect on the Group's financial position or results
         of operations.


5.       INCOME TAXES

(Provision for) reversal of income taxes consisted of the following:
<TABLE>

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


Current Hong Kong profits tax           (5,217)       (2,500)         -                 -

Over-provision of Hong Kong profits
    tax in prior years (a)              21,098             -          -                 -

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

                                        12,432        (2,500)         -                 -
                                     ===========  ============   =========  ==============
</TABLE>

Note -

a.   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.

                                      F-15
<PAGE>

5.   INCOME TAXES (Cont'd)

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.

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>

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

Hong Kong statutory income tax rate              16.0%           16.0%           16.0%
Non-taxable income
    -  share of profits of affiliates             -               -             (16.0%)
    -  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                          -              (7.1%)           -
Over-provision of taxation in prior years       (24.2%)           -               -
Deferred tax assets for which no benefits
    have been recognized due to the
    establishment of valuation allowances         2.8%            -               -
Other non-deductible items                       (0.9%)           -               -
                                             --------------   -------------   -------------

                                                (14.3%)          (7.0%)           -
                                             ==============   =============   =============
</TABLE>

Components of deferred tax balances as of March 31, 2001 and 2002 are as
follows:
<TABLE>


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

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

Valuation allowance                            2,538               -                -
                                         -------------   -------------   --------------

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

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.


                                      F-16
<PAGE>

5. INCOME TAXES (Cont'd)

Tax Filings and Penalties

The Company is currently in the process of filing its United States federal
income tax returns for the years ended March 31, 1997 through 2002, all of which
show nil tax liability. The tax returns may potentially be subject to penalties
for late filing; however the Company believes that no such amounts will be
assessed. As the final outcome is indeterminate, no provision has been made in
the accounts.

6.   LOSS ON DILUTION OF EQUITY INTERESTS IN SUBSIDIARIES

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.

7.   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).

8.   RELATED PARTY TRANSACTIONS

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

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


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

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

                                       2 0 0 1                 2 0 0 2
                                    -------------    ---------------------------
                                       HK$'000        HK$'000         US$'000
        Due to a director
            -  Mr. Lam Sai Wing         2,368          2,367             303
                                    =============    ===========   =============

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


                                      F-17
<PAGE>

9.   SEGMENT INFORMATION

Prior to August 23, 2000, the Group, through HFGTL, was principally engaged in
manufacturing and sales of gold and jewelry products. Effective on August 23,
2000, the Company's interest in HFGTL was diluted from 53.15% to 35.01%, and
further diluted from 35.01% to 31.4% on August 28, 2000. 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>

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

         Sales of gold and jewelry
             products to customers in
             -  Hong Kong/Mainland China    402,010          191,819               -                -
             -  South East Asia             134,517           57,665               -                -
             -  The United States of
                   America                  149,405           52,433               -                -
             -  Europe                      188,065           42,040               -                -
             -  Others                       85,073           27,673               -                -
                                        ------------  --------------- ---------------  ---------------

                                            959,070          371,630               -                -
                                        ============  =============== ===============  ===============

b.       Operating profit *

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

         Sales of gold and jewelry
            products                     100,380            36,041               -                -
                                        ============  =============== ===============  ===============
</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 1                2 0 0 2
        -------------------
                                  -------------   ------------------------------
                                      HK$'000        HK$'000           US$'000

        Hong Kong/Mainland China      158,882          169,315           21,707
                                  =============    =============    ============

        Capital expenditures

        Hong Kong/Mainland China       32,919                -                -
                                  =============    =============    ============

        Depreciation

        Hong Kong/Mainland China       26,954                -                -
                                  =============    =============    ============


                                      F-18
<PAGE>


9.       SEGMENT INFORMATION (Cont'd)

d.       Major customers

         There are no individual customers accounting for more than 5% of the
         Group's sales for the years ended March 31, 2000, 2001 and 2002.

e.       Major suppliers

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

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

         Heraeus Limited - supplied gold
             bullions                           67.4%          52.2%          -
         Chinese Wall Technology Company
             Limited                             7.8%          15.7%          -
         Johnson Matthey Hong Kong Limited       5.8%          21.7%          -
                                           ============  ============  =========

10.      Supplemental Disclosure of Cash Flow Information

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

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

         Interest paid     18,599            7,244             -            -
                         ==============  =============== ===========  ==========

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

b. Cash received for interest income is as follows:

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

         Interest received        6,216         3,166           -             -
                               ===========  ============= ==========  ==========



                                      F-19
<PAGE>


10.      Supplemental Disclosure of Cash Flow Information (Cont'd)

c.       As mentioned in Note 1, the Company's interest in HFGTL was diluted
         from 53.15% to 35.01% 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
                                                                   -------------

        Cash and bank deposits                                         122,486
                                                                   =============

d. Non-cash investing activities:

         During the years ended March 31, 2000, 2001 and 2002, capital lease
         obligations of approximately HK$15,070,000, nil and nil, respectively,
         were incurred to finance the Group's additions of new machinery and
         equipment.


                                      F-20
<PAGE>

11.               OTHER SUPPLEMENTAL INFORMATION
<TABLE>

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

Depreciation of property, machinery
   and equipment
   - owned assets                              44,215           22,527                 -                 -
   - assets held under capital leases          11,365            4,427                 -                 -
Allowance for bad and doubtful accounts         5,000                -                 -                 -
Interest on
   - bank overdrafts and loans                 17,636            6,680                 -                 -
   - capital lease obligations                  1,856              564                 -                 -
Operating lease rentals for
   - premises                                   3,754            1,044                 -                 -
   - machinery and equipment                       82               30                 -                 -
Advertising and promotion                       7,772            2,206                 -                 -
Repairs and maintenance                           774              310                 -                 -
Rental income                                      48               32                 -                 -
Net foreign exchange gain (loss)                  127               (9)                -                 -
Interest income from bank deposits              6,216            3,166                 -                 -
                                          ============= ================  ================  ===============
</TABLE>

                                      F-21
<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. 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 judgments 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, 2002 and of the
profit and cash flows of the group for the year then ended, and have been
properly prepared in accordance with the disclosure requirements of the Hong
Kong Companies Ordinance.

/s/ PricewaterhouseCoopers

PricewaterhouseCoopers
Certified Public Accountants

Hong Kong, 24th July, 2002

                                      F-22
<PAGE>

                        HANG FUNG GOLD TECHNOLOGY LIMITED


                          CONSOLIDATED INCOME STATEMENT

                       FOR THE YEAR ENDED 31ST MARCH, 2002

                    (Amounts expressed in Hong Kong dollars)

<TABLE>

                                                     Note       2 0 0 2               2 0 0 1
                                                   ---------   ---------------   -------------------
                                                                 $'000                 $'000
                                                                                  (Restated - Note
                                                                                      2.a.ii)
<S>                                                <C>          <C>               <C>

Turnover                                              4            1,568,757        1,327,753

Cost of sales                                                     (1,353,607)      (1,122,475)
                                                               ---------------   --------------

Gross profit                                                         215,150          205,278

Other income                                          4                4,486                -
Selling, distribution and marketing expenses                         (62,878)         (16,856)
General and administrative expenses                                  (87,180)         (91,260)
                                                               ---------------   --------------

Profit from operations                                                69,578           97,162

Interest income                                       4                7,452            8,723
Interest expense                                                     (30,471)         (30,105)
Share of losses of associates and provision against
    advance to an associate                           14             (17,026)         (14,460)
Impairment of goodwill relating to associates                              -         (188,142)
                                                               ---------------   --------------

Profit (Loss) before taxation                         5               29,533         (126,822)

Taxation credit (charge)                              7                5,022           (9,156)
                                                               ---------------   --------------

Profit (Loss) attributable to shareholders            8               34,555         (135,978)

Retained profit, beginning of year                                   125,074          261,052

Transfer from share premium                           27             200,693                -
                                                               ---------------   --------------

Retained profit, end of year                          9              360,322          125,074
                                                               ===============   ==============

Earnings (Loss) per share                             10
    -  Basic                                                       0.65 cents      (3.04) cents
                                                               ===============   ==============

    -  Diluted                                                     0.65 cents      N/A
                                                               ===============   ==============
</TABLE>

No consolidated statement of recognized gains and losses has been prepared as
the Group had no recognized gains or losses other than those recorded in the
consolidated income statement.


                                      F-23
<PAGE>


                        HANG FUNG GOLD TECHNOLOGY LIMITED


                                 BALANCE SHEETS

                             AS AT 31ST MARCH, 2002

                    (Amounts expressed in Hong Kong dollars)

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

NON-CURRENT ASSETS
Fixed assets                         11            349,885         351,978                -                -
Investment property                  12              1,450           1,600                -                -
Investment in subsidiaries           13                  -               -          307,430          339,327
Investment in associates             14             18,579          35,347                -                -
                                             --------------  ---------------  ---------------  --------------

Total non-current assets                           369,914         388,925          307,430          339,327
                                             --------------  ---------------  ---------------  --------------

CURRENT ASSETS
Inventories                          15            381,859         314,343                -                -
Accounts receivable                  16            269,754         214,847                -                -
Prepayments and deposits                             8,371           7,824              121              121
Due from holding companies            3                714             281                -                -
Investments                          17              4,891               -                -                -
Pledged bank deposits                18             77,830          77,210                -                -
Cash and bank deposits                              12,000          33,214                -                -
                                             --------------  ---------------  ---------------  --------------

Total current assets                               755,419         647,719              121              121
                                             --------------  ---------------  ---------------  --------------

CURRENT LIABILITIES
Short-term bank borrowings           19           (395,968)       (355,492)               -                -
Finance lease obligations,
   current portion                   21            (16,534)        (12,973)               -                -
Accounts payable                     22            (54,983)        (30,933)               -                -
Accruals and other payables                        (12,209)        (14,337)               -                -
Due to a director                     3             (6,088)         (5,956)               -                -
Taxation payable                     23            (32,127)        (36,642)               -                -
                                             --------------  ---------------  ---------------  --------------

Total current liabilities                         (517,909)       (456,333)               -                -
                                             --------------  ---------------  ---------------  --------------

Net current assets                                 237,510         191,386              121              121
                                             --------------  ---------------  ---------------  --------------

Total assets less current
   liabilities                                     607,424         580,311          307,551          339,448
                                             --------------  ---------------  ---------------  --------------

NON-CURRENT LIABILITIES
Long-term bank loans,
   non-current portion               20            (30,662)        (35,580)               -                -
Finance lease obligations,
   non-current portion               21            (16,906)        (18,086)               -                -
Deferred taxation                    24            (18,687)        (20,031)               -                -
                                             --------------  ---------------  ---------------  --------------

Total non-current liabilities                      (66,255)        (73,697)               -                -
                                             --------------  ---------------  ---------------  --------------

Net assets                                         541,169         506,614          307,551          339,448
                                             ==============  ===============  ===============  ==============

Representing:

SHARE CAPITAL                        25             53,320          53,320           53,320           53,320

RESERVES                             27            127,527         328,220          286,128          486,821

RETAINED PROFIT (ACCUMULATED
   DEFICIT)                                        360,322         125,074          (31,897)        (200,693)
                                             --------------  ---------------  ---------------  --------------

Shareholders' equity                               541,169         506,614          307,551          339,448
                                             ==============  ===============  ===============  ==============
</TABLE>

                Approved by the Board of Directors on 24th July,
2002:

             LAM SAI WING                          CHAN YAM FAI, JANE
               Chairman                              Deputy Chairman


                                      F-24
<PAGE>

                        HANG FUNG GOLD TECHNOLOGY LIMITED


                        CONSOLIDATED CASH FLOW STATEMENT

                       FOR THE YEAR ENDED 31ST MARCH, 2002

                    (Amounts expressed in Hong Kong dollars)
<TABLE>

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

Net cash inflow from operating activities                  28.a                 63,894                10,527
                                                                     -------------------   -------------------

Returns on investments and servicing of finance
    Interest received                                                            7,194                 6,822
    Interest paid                                                              (30,471)              (30,105)
                                                                     -------------------   -------------------

                                                                               (23,277)              (23,283)
                                                                     -------------------   -------------------
Taxation
    Hong Kong profits tax paid                                                  (1,192)               (6,203)
    Hong Kong profits tax refunded                                                 355                     -
                                                                     -------------------   -------------------

                                                                                  (837)               (6,203)
                                                                     -------------------   -------------------

Investing activities
    Additions of fixed assets                                                  (65,046)             (175,476)
    Proceeds from disposal of fixed assets                                         379                     -
    Increase in investments                                                     (5,226)                    -
    Advances to an associate                                                         -               (50,000)
    Increase in the amounts due from holding
       companies                                                                  (433)                 (281)
                                                                     -------------------   -------------------

                                                                               (70,326)             (225,757)
                                                                     -------------------   -------------------

Net cash outflow before financing activities                                   (30,546)             (244,716)
                                                                     -------------------   -------------------

Financing activities                                       28.b
    Issue of shares                                                                  -                62,700
    Share issue expenses                                                             -                (3,321)
    New long-term bank loans                                                     3,710                37,480
    Repayment of long-term bank loans                                           (7,910)               (2,900)
    New short-term bank loans                                                   67,983                26,547
    Repayment of short-term bank loans                                          (1,991)              (12,000)
    Repayment of capital element of finance lease
       obligations                                                             (25,738)              (15,832)
    Increase (Decrease) in amount due to a director                                132                  (865)
                                                                     -------------------   -------------------

                                                                                36,186                91,809
                                                                     -------------------   -------------------

Increase (Decrease) in cash and cash equivalents                                 5,640              (152,907)

Cash and cash equivalents
    Beginning of year                                                         (211,126)              (58,219)
                                                                     -------------------   -------------------

    End of year                                            28.d               (205,486)             (211,126)
                                                                     ===================   ===================
</TABLE>

                                      F-25
<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 jewelry products. Its associates are
principally engaged in trading and the operation of internet portal sites to
facilitate China trade.

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 summarized below:

a. Adoption of new/revised Statements of Standard Accounting Practice

         Effective from 1st April, 2001, the Company, and its subsidiaries and
         associates (together "the Group") have adopted, for the first time, the
         following Statements of Standard Accounting Practice ("SSAPs") issued
         by the Hong Kong Society of Accountants:

         SSAP 9 (revised)    Events after the balance sheet date
         SSAP 14 (revised)   Leases
         SSAP 26             Segment reporting
         SSAP 28             Provisions, contingent liabilities and contingent
                             assets
         SSAP 29             Intangible assets
         SSAP 30             Business combinations
         SSAP 31             Impairment of assets
         SSAP 32             Consolidated financial statements and accounting
                             for investments in subsidiaries

                                      F-26
<PAGE>

2. PRINCIPAL ACCOUNTING POLICIES (Cont'd)

a. Adoption of new/revised Statements of Standard Accounting Practice (Cont'd)

         The adoption of the above new/revised SSAPs had no material effect on
         the Group's financial statements, other than as described below:

         i. SSAP 26 - Segment reporting

                  Segment information of the Group has been disclosed in Note 29
                  to the financial statements.

         ii. SSAP 30 - Business combinations

                  Prior to 1st April, 2001, goodwill was eliminated against
                  reserves in the year in which it arose. With the introduction
                  of SSAP 30, goodwill arising on or after 1st April, 2001 is
                  capitalized in the balance sheet and is amortized to the
                  income statement on a straight-line basis over its estimated
                  economic life. The Group has taken advantage of the
                  transitional provisions in SSAP 30 whereby all goodwill
                  arising from acquisitions before 1st April, 2001, previously
                  eliminated against reserves, has not been restated, and any
                  subsequent impairment of such goodwill is recognized in the
                  income statement in accordance with SSAP 31 - Impairment of
                  assets. Following the transitional provisions of SSAP 30,
                  where an impairment loss has arisen since the date of
                  acquisition on goodwill previously eliminated against
                  reserves, this change in accounting policy for recognition of
                  goodwill impairment has been applied retrospectively and the
                  impairment losses have been recognized as a prior year
                  adjustment in accordance with SSAP 2 - Net profit or loss for
                  the period, fundamental errors and changes in accounting
                  policies. In this respect, goodwill of approximately
                  $188,142,000 previously eliminated against retained profit has
                  been assessed by the Group and the Group determined that an
                  impairment loss of $188,142,000 should be recorded during the
                  year ended 31st March, 2001. As a result, the Group's
                  previously reported profit attributable to shareholders for
                  the year ended 31st March, 2001 of $52,164,000 has become a
                  loss attributable to shareholders of approximately
                  $135,978,000, however there is no impact on the Group's
                  retained profit as at 1st April, 2001.

         In addition to the adoption of the above standards, the Group has
         adopted the consequential changes made to SSAP 10 - Accounting for
         investments in associates, SSAP 17 - Property, plant and equipment,
         SSAP 18 - Revenue, and SSAP 21 - Accounting for interests in joint
         ventures. The adoption of these consequential changes had no material
         effect on the Group's financial statements.

         The 2001 comparative figures presented herein have incorporated the
         effect of adjustments, where applicable, resulting from the adoption of
         the new/revised SSAPs.

b. Basis of measurement

         The financial statements have been prepared on the historical cost
         basis, as modified by the revaluation of investment properties (see
         Note 2.h) and stating investments at fair value (see Note 2.i).

                                      F-27
<PAGE>

2. PRINCIPAL ACCOUNTING POLICIES (Cont'd)

c.       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 associates under the
         equity method of accounting. The results of subsidiaries and associates
         acquired or disposed of during the year are included in the
         consolidated financial statements from or to their effective dates of
         acquisition or disposal. Significant intra-group transactions and
         balances have been eliminated on consolidation.

d.       Goodwill

         Goodwill represents the difference between the fair value of the
         consideration given and the Group's share of the aggregate fair value
         of the identifiable net assets acquired. Goodwill is recognized as an
         asset in the balance sheet and is amortized on a straight-line basis
         over its estimated economic life. The carrying value of goodwill is
         assessed periodically or when factors indicating an impairment are
         present. Any impairment of goodwill is recognized as an expense in the
         period in which the impairment occurs.

e.       Subsidiaries

         A subsidiary is a company over which the Group can exercise control,
         which is normally evidenced when the Group has the power to govern its
         financial and operating policies so as to obtain benefits from its
         activities. In the Company's financial statements, investment in
         subsidiaries is stated at cost less any impairment losses, while income
         from subsidiaries is recorded to the extent of dividends received and
         receivable.

f.       Associates

         An associate is a company over which the Group has significant
         influence, but not control or joint control, over its financial and
         operating policy decisions. In the consolidated financial statements,
         investment in associates is accounted for under the equity method of
         accounting, whereby the investment is initially recorded at cost and is
         adjusted thereafter to recognize the Group's share of the
         post-acquisition results of associates, distributions received from
         associates, other necessary alterations in the Group's proportionate
         interest in associates arising from changes in the equity of associates
         that have not been included in the income statement of associates,
         amortization of the difference between the cost of investment and the
         Group's share of the aggregate fair value of the identifiable net
         assets acquired at the date of acquisition (goodwill), and any
         impairment losses. The Group's share of post-acquisition results of
         associates is included in the consolidated income statement.


                                      F-28
<PAGE>

2. PRINCIPAL ACCOUNTING POLICIES (Cont'd)

g. Fixed assets and depreciation

         Fixed assets are stated at cost less accumulated depreciation and any
         impairment losses. Major expenditures on modifications and betterments
         of fixed assets which will increase their future economic benefits are
         capitalized, 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 impairment losses and
         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                  15% to 20%
                  Furniture and office equipment           12% to 20%
                  Motor vehicles                                  20%

         The depreciation methods and useful lives are reviewed periodically to
         ensure that the methods and rates of depreciation are consistent with
         the expected pattern of economic benefits from fixed assets.

         Gains and losses on disposal of fixed assets are recognized 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.

h.       Investment properties

         Investment properties are leasehold interests in land and buildings
         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 independent qualified valuers. Changes
         in the value of investment properties are dealt with in the investment
         properties revaluation reserve unless the balance 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. Where a deficit has
         previously been charged to the income statement and a revaluation
         surplus subsequently arises, this surplus is credited to the income
         statement to the extent of the deficit previously charged. When an
         investment property is disposed of, previously recognized 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.

i.       Investments

         Short-term investments are carried at fair value in the balance sheet.
         Any unrealized holding gain or loss is recognized in the income
         statement in the period when it arises. Upon disposal of investments,
         any gain or loss thereon is accounted for in the income statement.

                                      F-29
<PAGE>

2. PRINCIPAL ACCOUNTING POLICIES (Cont'd)

j.       Inventories

         Inventories are stated at the lower of cost and net realizable value.
         Cost includes costs of raw materials calculated using the first-in,
         first-out method of costing and, in the case of work-in-progress and
         finished goods, also direct labor and an appropriate proportion of
         production overheads. Net realizable 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
         recognized as an expense in the period in which the related revenue is
         recognized. The amount of any write-down of inventories to net
         realizable value and all losses of inventories are recognized 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 realizable value, is recognized as a reduction in the amount of
         inventories recognized as an expense in the period in which the
         reversal occurs.

k.       Impairment of assets

         Assets are reviewed for impairment whenever events or changes in
         circumstances indicate that the carrying amount of an asset may not be
         recoverable. Whenever the carrying amount of an asset exceeds its
         recoverable amount, an impairment loss representing the difference
         between the carrying amount and the recoverable amount of an asset is
         recognized in the income statement. The recoverable amount is the
         higher of an asset's net selling price and value in use. The net
         selling price is the amount obtainable from the sale of an asset in an
         arm's length transaction less the costs of disposal, while value in use
         is the present value of estimated future cash flows expected to arise
         from the continuing use of an asset and from its disposal at the end of
         its useful life.

         Reversal of an impairment loss of an asset recognized in prior years is
         recorded when there is an indication that the impairment loss
         recognized for the asset no longer exists or has decreased. The
         reversal is recorded in the income statement.

l.       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 recognized 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
         recognized when the merchandise is delivered and title has passed.
         Rental income is recognized on a straight-line basis over the period of
         the relevant leases. Interest income is recognized on a time proportion
         basis on the principal outstanding and at the rates applicable.

                                      F-30
<PAGE>

2. PRINCIPAL ACCOUNTING POLICIES (Cont'd)

m.       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
         recognized unless the related benefits are expected to crystallize in
         the foreseeable future.

n.       Advertising and promotion costs

         Costs of advertising and promotion are expensed as incurred.

o.       Employee retirement benefits

         Costs of employee retirement benefits are recognized as an expense in
         the period in which the employees' services are rendered.

p.       Borrowing costs

         Borrowing costs that are directly attributable to the acquisition,
         construction or production of an asset that takes a substantial period
         of time to prepare for its intended use or sale are capitalized as part
         of the cost of that asset at rates based on the actual cost of the
         specific borrowings. All other borrowing costs are recognized as an
         expense in the period in which they are incurred.

q.       Provisions and contingencies

         A provision is recognized 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 recognized 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
         recognized in the financial statements but disclosed when an inflow of
         economic benefits is probable.

                                      F-31
<PAGE>

2. PRINCIPAL ACCOUNTING POLICIES (Cont'd)

r.       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 lease payments at the
         inception of the leases, with equivalent liabilities categorized as
         appropriate under current or non-current liabilities. Interest expense,
         which represents the difference between the minimum lease 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 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.

s.       Cash equivalents

         For the purpose of the consolidated cash flow statement, cash
         equivalents represent short-term highly liquid investments which are
         readily convertible into known amounts of cash and which were within
         three months of maturity when acquired, less advances from banks
         repayable within three months from the date of the advance.

t.       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 in which they arise.

u.       Subsequent events

         Post year-end events that provide additional information about
         financial position at the balance sheet date or those that indicate the
         going concern assumption is not appropriate ("adjusting events") are
         reflected in the financial statements. Post year-end events that are
         not adjusting events are disclosed in the notes when material.

v.       Use of estimates

         The preparation of financial statements in conformity with accounting
         principles generally accepted 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.

                                      F-32
<PAGE>

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.

a. Significant transactions with related parties are summarized below:

         (i)      During the year ended 31st March, 2002, the Group paid rental
                  of approximately $162,000 (2001 - $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.

         (ii)     The amount due from an associate of $50,000,000 (2001 -
                  $50,000,000) (see Note 14) is secured by the 50.1% equity
                  interest in the associate not owned by the Group, bears
                  interest at the rate of 2.5% over the prime lending rate as
                  quoted by The Hongkong and Shanghai Banking Corporation
                  Limited, and is repayable after September 2003. During the
                  year, interest earned from this advance amounted to
                  approximately $4,449,000 (2001 - $1,901,000).

b. Details of the amounts due from holding companies (consolidated) are:
<TABLE>

                                      Balance as at 31st  Balance as at 31st   Maximum balance
                                                                                outstanding
                                         March, 2002       March, 2001        during the year
                                       ---------------    ----------------    ----------------
                                              $'000            $'000                $'000
        <S>                            <C>                <C>                 <C>


        Quality Prince Limited, an
            immediate holding company            11                6                   11

        S.W. Lam, Inc., an intermediate
            holding company                     703              275                  703
                                       ---------------    -----------------   ================

                                                714              281
                                       ===============  ===============
</TABLE>

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

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

                                  Balance as at 31st       Balance as at
                                      March, 2002         31st March, 2001
                                  --------------------   -------------------
                                         $'000                 $'000

        Mr. Lam Sai Wing                6,088                  5,956
                                  ====================   ===================

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

d.       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 assignment of the benefits in
         respect of the keyman insurance of Mr. Lam Sai Wing amounting to
         $20,000,000.


                                      F-33
<PAGE>

4.                TURNOVER and revenue

Turnover and revenue (consolidated) consisted of:

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

Sales of merchandise                 1,568,659              1,327,657

Rental income                               98                     96
                                 ---------------    ------------------

Turnover                             1,568,757              1,327,753

Other income                             4,486                      -

Interest income                          7,452                  8,723
                                 ---------------    ------------------

Total revenue                        1,580,695              1,336,476
                                 ===============    ==================

                                      F-34
<PAGE>

5.                PROFIT (lOSS) BEFORE TAXATION

Profit (Loss) before taxation (consolidated) was determined after charging or
crediting the following items:
<TABLE>


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

After charging -

Interest on
    -  gold loans and forward contracts wholly repayable within
          five years                                                 5,483                 -
    -  bank overdrafts and borrowings wholly repayable within
          five years                                                22,367            27,272
    -  bank borrowings wholly repayable after five years               609               647
    -  finance leases                                                2,012             2,186

Employment costs (including directors' emoluments)                  55,002            47,321

Advertising and promotion costs                                     20,162             7,772

Operating lease rentals in respect of
    -  office and factory premises                                   5,141             4,485
    -  machinery and equipment                                         132                82

Website development expense                                            565             3,969

Depreciation of fixed assets
    -  owned assets                                                 80,180            63,662
    -  assets held under finance leases                             14,226            11,774

Net loss on disposal of fixed assets                                   473               377

Deficit on revaluation of an investment property                       150               250

Provision for bad and doubtful debts                                     -             2,500

Provision for slow-moving and obsolete inventories                     600             1,200

Net exchange loss (including translation loss on gold loans)         5,407                75

Auditors' remuneration                                                 780               780
                                                                ============    =============

After crediting -

Interest income from
    -  bank deposits                                                 3,003             6,822
    -  amount due from an associate (see Notes 3 and 14)             4,449             1,901

Rental income, less outgoings                                           84                82
                                                                ============    ============
</TABLE>

                                      F-35
<PAGE>

6.                DIRECTORS' AND SENIOR EXECUTIVES' EMOLUMENTS

a. Details of directors' emoluments are:

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

        Fees for executive directors                       -               -

        Fees for non-executive directors                 128             120

        Other emoluments for executive directors
            -  Basic salaries and allowances           4,191           2,460
            -  Bonus *                                     -           2,500
            -  Contributions to pension scheme            24               4
                                                 ------------    ------------

                                                       4,343           5,084
                                                 ============    ============

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

        Executive directors
            -  Nil to $1,000,000                          1                 1
            -  $3,500,001 to $4,000,000                   1                 -
            -  $4,500,001 to $5,000,000                   -                 1

        Non-executive directors
            -  Nil to $1,000,000                          3                 5
                                                ------------     -------------

                                                          5                 7
                                                ============     =============

b.       Details of emoluments of the five highest paid individuals (including
         directors and other employees) are:
                                              2 0 0 2              2 0 0 1
                                          -----------------     --------------
                                               $'000              $'000

        Basic salaries and allowances             5,690              4,364

        Bonus                                         -              2,500

        Contributions to pension scheme              60                 20
                                          --------------     --------------

                                                  5,750              6,884
                                          ==============     ==============

                                      F-36
<PAGE>

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

b. (Cont'd)

         Two (2001 - 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.

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

        -   Nil to $1,000,000                       4                      4
        -   $3,500,001 to $4,000,000                1                      -
        -   $4,500,001 to $5,000,000                -                      1
                                        --------------     ------------------

                                                    5                      5
                                        ==============     ==================


7.                TAXATION

Taxation credit (charge) (consolidated) consisted of:
<TABLE>

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

Current taxation
    -  Hong Kong profits tax                                          (5,181)           (2,519)
    -  Write-back of over-provision of Hong Kong profits tax in
          prior years                                                  1,001                 -
    -  Write-back of over-provision of Mainland China taxes in
          prior years (see Note 23)                                    7,858                 -
                                                                 -------------    -------------

                                                                       3,678            (2,519)

Deferred taxation
    -  Write-back of (Provision for) deferred taxation                 1,344            (6,637)
                                                                 -------------    -------------

                                                                       5,022            (9,156)
                                                                 =============    =============
</TABLE>

The Company is exempted from taxation in Bermuda until 2016. Hong Kong profits
tax has been provided at the rate of 16% (2001 - 16%) on the estimated
assessable profit arising in or derived from Hong Kong. No Mainland China tax
has been provided as the Group had no taxable profit subject to such tax during
the year.

                                      F-37
<PAGE>

8.   PROFIT (LOSS) ATTRIBUTABLE TO SHAREHOLDERS

The consolidated profit attributable to shareholders included a loss of
approximately $31,897,000 (2001 - $200,701,000) dealt with in the financial
statements of the Company.



9.   RETAINED PROFIT

Retained profit consisted of:

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

Company and subsidiaries            375,253            131,241

Associates                          (14,931)            (6,167)
                                ----------------    --------------

                                    360,322            125,074
                                ================    ==============


10.  EARNINGS (loss) PER SHARE

The calculation of basic earnings (loss) per share for the year ended 31st
March, 2002 is based on the consolidated profit attributable to shareholders of
approximately $34,555,000 (2001 - loss of $135,978,000) and on the weighted
average number of approximately 5,332,000,000 shares (2001 - 4,468,231,000
shares) in issue during the year.

The calculation of diluted earnings per share for the year ended 31st March,
2002 is based on the consolidated profit attributable to shareholders of
approximately $34,555,000 and on the weighted average number of approximately
5,351,772,000 shares in issue, after adjusting for the effects of all dilutive
potential shares.

A reconciliation of the weighted average number of shares used in calculating
the basic earnings per share and the diluted earnings per share for the year
ended 31st March, 2002 is as follows:

                                                                       `000

Weighted average number of shares used in calculating basic
earnings per share                                                   5,332,000

Adjustment for potential dilutive effect in respect of
outstanding employee share options                                      19,772
                                                                    -----------

Weighted average number of shares used in calculating diluted
 earnings per share                                                  5,351,772
                                                                    ===========

No diluted loss per share for the year ended 31st March, 2001
is presented as the outstanding share options were anti-dilutive.

                                      F-38
<PAGE>

11.  FIXED ASSETS

a. Movements of fixed assets (consolidated) were:
<TABLE>

                                                        2 0 0 2                                  2001
                            ----------------------------------------------------------------  -----------
                            Land and     Machinery     Furniture      Motor        Total        Total
                                         and          and office
                            buildings    equipment     equipment     vehicles
                            -----------  -----------  ------------ ------------  -----------  -----------
                              $'000        $'000         $'000        $'000        $'000        $'000
        <S>                 <C>           <C>          <C>          <C>           <C>          <C>

         Cost

         Beginning of year      16,700      387,081      160,611        1,054       565,446      363,209
         Additions               5,300       45,977       41,079          809        93,165      202,627
         Disposals                   -            -         (997)           -          (997)        (390)
                            -----------  -----------  ------------ ------------  -----------  -----------

         End of year            22,000      433,058      200,693        1,863       657,614      565,446
                            -----------  -----------  ------------ ------------  -----------  -----------

         Accumulated
            depreciation

         Beginning of year         105      177,657       34,778          928       213,468      138,045
         Provision for the
            year                 1,100       74,122       19,117           67        94,406       75,436
         Disposals                   -            -         (145)           -          (145)         (13)
                            -----------  -----------  ------------ ------------  -----------  -----------

         End of year             1,205      251,779       53,750          995       307,729      213,468
                            -----------  -----------  ------------ ------------  -----------  -----------

         Net book value

         End of year            20,795      181,279      146,943          868       349,885      351,978
                            ===========  ===========  ============ ============  ===========  ===========

         Beginning of year      16,595      209,424      125,833          126       351,978      225,164
                            ===========  ===========  ============ ============  ===========  ===========
</TABLE>

b. Land and buildings:

         Land and buildings are located in Hong Kong and are held under
         medium-term leases. Land and buildings with a net book value of
         approximately $19,857,000 (2001 - $15,608,000) are mortgaged as
         collateral for the Group's banking facilities (see Note 32).

c. Finance leases:

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

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

        Cost                                       71,131             58,868
        Less: Accumulated depreciation            (27,318)           (20,382)
                                           ---------------     --------------

        Net book value                             43,813             38,486
                                           ===============     ==============

        Depreciation for the year                  14,226             11,774
                                           ===============     ==============

                                      F-39
<PAGE>

12.               INVESTMENT PROPERTY

Movements of investment property (consolidated) were:

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

Beginning of year                   1,600       1,850
Deficit on revaluation               (150)       (250)
                             -------------  ------------

End of year                         1,450       1,600
                             =============  ============

The investment property is located in Hong Kong and is held under a long-term
lease. It is stated at open market value at 31st March, 2002 as determined by
DTZ Debenham Tie Leung Limited, independent qualified valuers.

Details of the investment property as at 31st March, 2002 are as follows:

          Location                      Group's interest         Existing use
-------------------------------------  -------------------      ---------------

Flat B4 on 14th Floor, Peace Building,       100%                Residential
    3 Peace Avenue, Ho Man Tin,
    Kowloon, Hong Kong


13.  INVESTMENT IN SUBSIDIARIES

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

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

Unlisted shares, at cost                          158,743            158,743

Due from subsidiaries                             379,741            381,285
                                             --------------    --------------

                                                  538,484            540,028

Less: Impairment losses and provision
          against due from subsidiaries          (231,054)          (200,701)
                                             --------------    --------------

                                                  307,430            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 and the Group's management, not less than its carrying
amount as at 31st March, 2002.

As of 31st March, 2002, the Company had given guarantees to banks of
approximately $421,329,000 (2001 - $344,980,000) to secure banking facilities of
certain subsidiaries.

                                      F-40
<PAGE>

13. INVESTMENT IN SUBSIDIARIES (Cont'd)

Details of the principal subsidiaries as at 31st March, 2002 were as follows:
<TABLE>

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


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

Hang Fung Jewellery             Hong Kong             Class A                 -          Manufacturing and
   Company Limited                                   (non-voting)                          selling of gold
                                                    ordinary - $4           100%           and jewelry
                                                         (ii)                              products
                                Class B (voting)
                                                    ordinary - $2

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

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

Macadam Profits Limited       British Virgin           US$2                 100%         Investment holding
                               Islands/Hong
                                   Kong

Soycue Limited                British Virgin           US$1                 100%         Investment holding
                               Islands/Hong
                                   Kong
</TABLE>

Notes -

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

(ii)     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.

(iii)    Hang Fung Jewellery (Shenzhen) Co., Ltd. is a wholly foreign owned
         enterprise 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, 2002.


                                      F-41
<PAGE>

14.      Investment in Associates

Investment in associates (consolidated) consisted of:
                                                2 0 0 2            2 0 0 1
                                               -------------    ------------
                                                   $'000           $'000

Unlisted shares, at cost                           186,048         186,048

Advance to an associate                             50,000          50,000

Accrued interest                                     2,159           1,901

Impairment of goodwill                            (188,142)       (188,142)

Share of post-acquisition losses of associates     (14,931)         (6,167)

Provision against advance to an associate          (16,555)         (8,293)
                                               ------------      -----------

                                                    18,579          35,347
                                               ============      ===========

The amount due from an associate (New Epoch Information (BVI) Company Limited)
of $50,000,000 is secured by the 50.1% equity interest in the associate not
owned by the Group, bears interest at the rate of 2.5% over the prime lending
rate as quoted by The Hongkong and Shanghai Banking Corporation Limited, and is
repayable after September 2003.

The underlying value of investment in associates is, in the opinion of the
Company's Directors and the Group's management, not less than its carrying
amount as at 31st March, 2002.

Details of the principal associates as at 31st March, 2002 were as follows:
<TABLE>


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


Asia Trader Associates        British Virgin             US$450,000      16.5% (ii)      Operation of
   Limited ("ATAL")            Islands/Hong                                                Internet portal
                                   Kong                                                    sites

China International             Hong Kong               $20,000,000         24.5%        Operation of
   Electronic Commerce                                                                     Internet portal
   (HK) Limited                                                                            sites to
                                                                                           facilitate China
                                                                                           trade

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

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

</TABLE>


                                      F-42
<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 and the Group's management, 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 and the Group's management, result in particulars of
excessive length.

15.               INVENTORIES

Inventories (consolidated) consisted of:

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

Raw materials                                        266,164            160,912

Finished goods                                       119,495            156,631
                                              ----------------    --------------

                                                     385,659            317,543

Less: Provision for slow-moving and obsolete
    inventories                                       (3,800)            (3,200)
                                              ----------------    --------------

                                                     381,859            314,343
                                              ================    ==============

As at 31st March, 2002, inventories of approximately $3,309,000 (2001 -
$2,161,000) were stated at net realizable value.

Inventories of approximately $286,965,000 (2001 - $317,543,000) were held under
trust receipts bank loan arrangements (see Note 32).


                                      F-43
<PAGE>

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

0 to 90 days                                     271,097            215,249
91 to 180 days                                     3,946              7,295
181 to 270 days                                    4,711              2,303
                                           ---------------    --------------

                                                 279,754            224,847

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

                                                 269,754            214,847
                                           ===============    ==============

17.  INVESTMENTS

Investments (consolidated) consisted of:

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

Unlisted investments, at cost                      5,226                      -

Less: Unrealized holding loss                       (335)                     -
                                         -----------------    ------------------

                                                   4,891                      -
                                         =================    ==================

As at 31st March, 2002, investments represented units in investment funds
managed by investment companies in Hong Kong.



18.  PLEDGED BANK DEPOSITS

As at 31st March, 2002, the Group's bank deposits of approximately $77,830,000
(2001 - $77,210,000) were pledged as collateral for the Group's banking
facilities (see Note 32).


                                      F-44
<PAGE>

19.               SHORT-TERM BANK BORROWINGS

Short-term bank borrowings (consolidated) consisted of:

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

Bank overdrafts                                         8,351                 84

Trust receipts bank loans                             286,965            321,466

Gold loans from banks                                  41,954                  -

Other short-term bank loans                            50,585             26,547
                                               ----------------    -------------

                                                      387,855            348,097

Long-term bank loans, current portion (Note 20)         8,113              7,395
                                               ----------------    -------------

                                                      395,968            355,492
                                               ================    =============

Short-term bank borrowings are secured and bear interest at rates ranging from
1.90% to 1% over prime lending rate. Refer to Note 32 for details of the Group's
banking facilities.

20.  LONG-TERM BANK LOANS

Long-term bank loans (consolidated) consisted of:
<TABLE>

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

Amounts repayable within a period
    -  not exceeding one year                                      8,113          7,395
    -  more than one year but not exceeding two years              8,134          7,703
    -  more than two years but not exceeding five years           12,323         18,714
    -  more than five years                                       10,205          9,163
                                                              ------------    ----------

                                                                  38,775         42,975

Less: Amounts repayable within one year included under current
          liabilities (Note 19)                                   (8,113)        (7,395)
                                                              ------------    ----------

                                                                  30,662         35,580
                                                              ============    ==========
</TABLE>

Long-term bank loans are secured and bear interest at rates ranging from 1.75%
below prime lending rate to 1.75% above that. Refer to Note 32 for details of
the Group's banking facilities.


                                      F-45
<PAGE>

21.        FINANCE LEASE OBLIGATIONS

Finance lease obligations, net of future finance charges (consolidated),
consisted of:
<TABLE>

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

Total minimum lease payments under finance leases
    -  not exceeding one year                                 17,648            14,866
    -  more than one year and not exceeding two years         12,286            11,454
    -  more than two years but not exceeding five years        5,161             7,859
                                                         -------------    -------------

                                                              35,095            34,179

Less: Future finance charges                                  (1,655)           (3,120)
                                                         -------------    -------------

                                                              33,440            31,059
                                                         =============    =============


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

The present value of finance lease obligations
    -  not exceeding one year                                 16,534            12,973
    -  more than one year but not exceeding two years         11,846            10,548
    -  more than two years but not exceeding five years        5,060             7,538
                                                         -------------    -------------

                                                              33,440            31,059

Less: Amounts repayable within one year included under
          current liabilities                                (16,534)          (12,973)
                                                         -------------    -------------

                                                              16,906            18,086
                                                         =============    =============
</TABLE>

22.  ACCOUNTS PAYABLE

The ageing analysis of accounts payable (consolidated) is as follows:

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

0 to 90 days                     53,101             28,636
91 to 180 days                    1,476              1,716
181 to 270 days                     406                581
                            -------------    --------------

                                 54,983             30,933
                            =============    ==============



                                      F-46
<PAGE>

23.               TAXATION PAYABLE

Taxation payable (consolidated) consisted of:

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

Hong Kong profits tax                              3,343                -

General provision for Mainland China tax *        28,784           36,642
                                            --------------    ------------

                                                  32,127           36,642
                                            ==============    ============

*        Prior to 1st April, 1999, the Group earned contract processing fees
         based on the utilization of equipment and technology provided by the
         Group to its Mainland China contracting partners, and provision for
         Mainland China tax in relation to these fees has been made. The amount
         of such provision is reviewed periodically and will be written back if
         it is unlikely that it would be crystallized after carrying over the
         provision for a period of six years.

24.  DEFERRED TAXATION

Movements of deferred taxation (consolidated) were:

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

Beginning of year                                   20,031           13,394
Provision for net timing differences                     -            6,637
Write-back of over-provision in prior years         (1,344)               -
                                               -------------    ------------

End of year                                         18,687           20,031
                                               =============    ============

Deferred taxation represents the taxation effect of accelerated depreciation of
fixed assets for taxation purposes. There were no significant unprovided
deferred tax liabilities as at 31st March, 2002.


                                      F-47
<PAGE>

25.               SHARE CAPITAL

Movements were:
<TABLE>


                                                   2 0 0 2                             2 0 0 1
                                     ------------------------------------ -----------------------------------
                                     Number of shares    Nominal value    Number of shares    Nominal value
                                     -----------------  ----------------- -----------------  ----------------
                                           '000              $'000              '000              $'000
<S>                                  <C>                <C>               <C>                <C>

Authorized - ordinary shares of
----------
    $0.01 each                            20,000,000            200,000        20,000,000            200,000
                                     =================  ================= =================  ================

Issued and fully paid - ordinary
---------------------
    shares of $0.01 each
   Beginning of year                       5,332,000             53,320         3,150,000             31,500
   Issue of shares for acquisition
     of associates                                 -                  -         1,632,000             16,320
   Issue of shares through a
     placement                                     -                  -           550,000              5,500
                                     -----------------  ----------------- -----------------  ----------------

   End of year                             5,332,000             53,320         5,332,000             53,320
                                     =================  ================= =================  ================

</TABLE>

26.  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.

Movements of employee share options during the year ended 31st March, 2002 are:
<TABLE>


                                                                           Number of share options
                                                                 ---------------------------------------------
    Date of grant          Exercise period         Exercise      Beginning of      Exercised     End of year
                                                                                  during the
                                                     price           year            year
----------------------- -----------------------  --------------  --------------  -------------- --------------
                                                                     '000            '000           '000
<S>                     <C>                      <C>             <C>             <C>            <C>

9th June, 2000          9th June, 2001 to        $        0.109
                        26th February, 2009                          315,000               -        315,000
                                                                 ==============  ============== ==============

</TABLE>

                                      F-48
<PAGE>

27.               RESERVES

Movements of reserves were:
<TABLE>

                                                     2 0 0 2                                 2 0 0 1
                            ----------------------------------------------------------   -----------------
                               Share premium        Contributed            Total               Total
                                                     surplus
                            ------------------  ------------------   -----------------   -----------------
                                  $'000               $'000               $'000               $'000
<S>                         <C>                 <C>                  <C>                  <C>

Consolidated

Beginning of year                    328,220                   -              328,220             104,613
Premium on issue of shares                 -                   -                    -             226,928
Share issue expenses                       -                   -                    -              (3,321)
Effect of reduction in share
   premium (i)                      (328,220)            127,527             (200,693)                  -
                            ------------------  ------------------   -----------------   -----------------

End of year                                -             127,527              127,527             328,220
                            ==================  ==================   =================   =================

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

Company

Beginning of year                    328,220             158,601              486,821             263,214
Premium on issue of shares                 -                   -                    -             226,928
Share issue expenses                       -                   -                    -              (3,321)
Effect of reduction in share
   premium (i)                      (328,220)            127,527             (200,693)                  -
                            ------------------  ------------------   -----------------   -----------------

End of year                                -             286,128              286,128             486,821
                            ==================  ==================   =================   =================
</TABLE>

Note -

(i)      Following a shareholders' resolution passed on 1st March, 2002, the
         Company transferred the entire amount of share premium of approximately
         $328,220,000 to contributed surplus ($127,527,000) and retained profit
         ($200,693,000).

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 realizable value of its assets would thereby be less
than the aggregate of its liabilities and its issued share capital and share
premium account.

As at 31st March, 2002, the Company had reserves of approximately $254,231,000
available for distribution to shareholders (2001 - Nil).

                                      F-49
<PAGE>

28.  NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT

a. Reconciliation of profit (loss) before taxation to net cash inflow from
operating activities:
<TABLE>

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


        Profit (Loss) before taxation                             29,533           (126,822)
        Interest income                                           (7,452)            (8,723)
        Interest expense                                          30,471             30,105
        Impairment of goodwill relating to associates                  -            188,142
        Share of losses of associates and provision against
            advance to an associate                               17,026             14,460
        Depreciation of fixed assets                              94,406             75,436
        Net loss on disposal of fixed assets                         473                377
        Deficit on revaluation of an investment property             150                250
        Unrealized holding loss on investments                       335                  -
        Increase in inventories                                  (67,516)          (107,094)
        Increase in accounts receivable                          (54,907)           (63,330)
        Increase in prepayments and deposits                        (547)            (4,776)
        Increase in accounts payable                              24,050              3,866
        (Decrease) Increase in accruals and other payables        (2,128)             8,636
                                                            -------------     --------------

        Net cash inflow from operating activities                 63,894             10,527
                                                            =============     ==============
</TABLE>

b. Analysis of changes in financing:
<TABLE>


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


          As at 1st April,
             2000                    6,821      136,113       12,000        8,395        19,740      183,069
          Decrease in amount
             due to a
             director                 (865)           -            -            -             -         (865)
          Issue of shares                -      248,748            -            -             -      248,748
          Share issue
             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                    5,956      381,540       26,547       42,975        31,059      488,077
          Increase in amount
             due to a
             director                  132            -            -            -             -          132
          Effect of
             reduction in
             share premium               -     (328,220)           -            -             -     (328,220)
          New finance leases
             obligations                 -            -            -            -        28,119       28,119
          Repayment of
             capital element
             of finance
             lease
             obligations                 -            -            -            -       (25,738)     (25,738)
          New bank loans                 -            -       67,983        3,710             -       71,693
          Repayment of bank
             loans                       -            -       (1,991)      (7,910)            -       (9,901)
                                -----------  -----------  ------------ ------------  -----------  -----------
           As at 31st March,
             2002                    6,088       53,320       92,539       38,775        33,440      224,162
                                ===========  ===========  ============ ============  ===========  ===========
</TABLE>


                                      F-50
<PAGE>

28. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (Cont'd)

c. Major non-cash transactions:

         During the year, the Group acquired fixed assets of approximately
         $28,119,000 (2001 - $27,151,000) under finance leases.

d. Analysis of cash and cash equivalents:

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

        Cash and bank deposits             89,830           110,424

        Bank overdrafts                    (8,351)              (84)

        Trust receipts bank loans        (286,965)         (321,466)
                                     -------------     -------------

                                         (205,486)         (211,126)
                                     =============     =============

29.  SEGMENT INFORMATION

a.       Business segments

         The Group is organized into two operating units: (i) wholesaling,
         trading and retailing of gold products, other precious metal products
         and jewelry products; and (ii) investment holding.

         An analysis by business segment is as follows:
<TABLE>

                                                       2 0 0 2
                                     -----------------------------------------------
                                      Wholesaling,     Investment       Total
                                      trading and
                                      retailing         holding
                                     -------------   -------------   ---------------
                                         $'000          $'000           $'000
<S>                                  <C>              <C>            <C>

        Turnover

        Sales to external customers    1,568,659             98        1,568,757
                                     =============== =============   ==============

        Operating results

        Segment results                   70,181        (17,629) *        52,552
                                     =============== =============

        Interest income                                                    7,452
        Interest expense                                                 (30,471)
        Taxation                                                           5,022
                                                                     --------------

        Profit attributable to shareholders                               34,555
                                                                     ==============
</TABLE>

                                      F-51
<PAGE>

29.      SEGMENT INFORMATION (Cont'd)

a.       Business segments (Cont'd)
<TABLE>

                                                                    2 0 0 2
                                           ----------------------------------------------------------
                                             Wholesaling,         Investment             Total
                                              trading and
                                               retailing            holding
                                           ------------------  ------------------  ------------------
                                                 $'000               $'000               $'000
         <S>                                <C>                <C>                 <C>

         Other information

         Assets                                  1,084,509              40,824           1,125,333
                                           ==================  ==================  ==================

         Liabilities                               565,030              19,134             584,164
                                           ==================  ==================  ==================

         Capital expenditures                       87,865               5,300              93,165
                                           ==================  ==================  ==================

         Depreciation                               93,306               1,100              94,406
                                           ==================  ==================  ==================
          Non-cash expenditures other than
            depreciation                               600                   -                 600
                                           ==================  ==================  ==================

</TABLE>


<TABLE>
                                                              2 0 0 1
                                     --------------------------------------------------------
                                       Wholesaling,         Investment             Total
                                        trading and
                                         retailing            holding
                                     ------------------  ------------------  ----------------
                                           $'000               $'000               $'000
        <S>                           <C>                <C>                  <C>

         Turnover

         Sales to external customers      1,327,657                 96           1,327,753
                                     ==================  ==================  ================

         Operating results

         Segment results                     97,606           (203,046) **        (105,440)
                                     ==================  ==================

         Interest income                                                             8,723
         Interest expense                                                          (30,105)
         Taxation                                                                   (9,156)
                                                                                 ------------

         Loss attributable to shareholders                                        (135,978)
                                                                                 ============
</TABLE>

<TABLE>

                                                                     2 0 0 1
                                            ----------------------------------------------------------
                                              Wholesaling,          Investment            Total
                                               trading and
                                                retailing            holding
                                            ------------------   -----------------   -----------------
                                                  $'000               $'000               $'000
        <S>                                  <C>                 <C>                  <C>

         Other information

         Assets                                       983,102               53,542           1,036,644
                                            ==================   =================   =================

         Liabilities                                  512,887               17,143             530,030
                                            ==================   =================   =================

         Capital expenditures                         185,927              202,748             388,675
                                            ==================   =================   =================

         Depreciation                                  75,331                  105              75,436
                                            ==================   =================   =================

         Non-cash expenditures other than
            depreciation                                3,700                    -               3,700
                                            ==================   =================   =================
</TABLE>


                                      F-52
<PAGE>

29.      SEGMENT INFORMATION (Cont'd)

b.       Geographical segments

         The Group's activities are conducted predominantly in Hong Kong,
         Mainland China, South-East Asia, the United States of America, Europe
         and others. An analysis by geographical segment is as follow:
<TABLE>

                                                                 2002
                               -------------------------------------------------------------------------
                               Hong Kong/   South-East  The           Europe       Others      Total
                                                        United
                                Mainland                States of
                                  China        Asia      America
                               ------------ ----------- ----------- ------------ ----------- -----------
                                  $'000       $'000       $'000        $'000       $'000       $'000
         <S>                   <C>           <C>        <C>         <C>          <C>         <C>


         Turnover                 1,191,651    168,650     135,503      60,634       12,319   1,568,757
                               ============ =========== =========== ============ =========== ===========

         Segment results             10,844 *    6,275      22,657      12,564          212      52,552
                               ============ =========== =========== ============ =========== ===========

         Assets                   1,125,333          -           -           -            -   1,125,333
                               ============ =========== =========== ============ =========== ===========

         Capital expenditures        93,165          -           -           -            -      93,165
                               ============ =========== =========== ============ =========== ===========

                                                                 2001
                               -------------------------------------------------------------------------
                               Hong Kong/   South-East  The           Europe       Others      Total
                                                        United
                                Mainland                States of
                                  China        Asia      America
                               ------------ ----------- ----------- ------------ ----------- -----------
                                  $'000       $'000       $'000        $'000       $'000       $'000

         Turnover                   767,585    238,083     140,903     118,006       63,176   1,327,753
                               ============ =========== =========== ============ =========== ===========

         Segment results       (169,763)
                                         **     11,564      25,161      25,793        1,805    (105,440)
                               ============ =========== =========== ============ =========== ===========

         Assets                   1,036,644          -           -           -            -   1,036,644
                               ============ =========== =========== ============ =========== ===========

         Capital expenditures       388,675          -           -           -            -     388,675
                               ============ =========== =========== ============ =========== ===========
</TABLE>

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

         *    Including share of losses of associates and provision against
              advance to an associate of approximately $17,026,000 for the year
              ended 31st March, 2002.

         **   Including share of losses of associates and provision against
              advance to an associate of approximately $14,460,000 and
              impairment of goodwill relating to associates of approximately
              $188,142,000 for the year ended 31st March, 2001.

                                      F-53
<PAGE>

30.               COMMITMENTS

The Group and the Company had the following commitments which were not provided
for in the financial statements:

a.       Capital commitments

         Capital commitments, which were all authorized and contracted for, are
analyzed as follows:
<TABLE>

                                                   Consolidated                         Company
                                         ---------------------------------  ---------------------------------
                                             2 0 0 2           2 0 0 1          2 0 0 2           2 0 0 1
                                         ---------------  ----------------  ---------------  ----------------
                                             $'000             $'000            $'000             $'000
        <S>                              <C>              <C>               <C>              <C>


         Acquisition of fixed assets          343               9,587              -                -
                                         ===============  ================  ===============  ================
</TABLE>

b. Operating lease commitments

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

                                               Consolidated                         Company
                                     ---------------------------------  ------------------------------
                                        2 0 0 2           2 0 0 1          2 0 0 2           2 0 0 1
                                     ---------------  ----------------  ---------------  -------------
                                         $'000             $'000            $'000             $'000
<S>                                  <C>              <C>               <C>               <C>

         Amounts payable
            - within one year             2,651            1,784                 -                -
            - between one year and
                two years                 1,477            1,704                 -                -
            - between two years and
                five years                1,323            2,081                 -                -
            - over five years                 -              221                 -                -
                                     ----------  ----------------  ---------------  ----------------

                                          5,451            5,790                 -                -
                                     ==========  ================  ===============  ================

</TABLE>

31.               Pension scheme

From 1st December, 2000, the Group has arranged for its Hong Kong employees to
join the Mandatory Provident Fund Scheme ("the MPF Scheme"), 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, 2002, the amount of the Group's employer contributions to
the MPF Scheme was approximately $1,764,000 (2001 - $624,000).

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

                                      F-54
<PAGE>

32.  BANKING FACILITIES AND PLEDGE OF ASSETS

As at 31st March, 2002, the Group had aggregate banking facilities of
approximately $475,277,000 (2001 - $432,186,000) from several banks for
overdrafts, loans and trade financing. Unused facilities as at the same date
amounted to approximately $32,783,000 (2001 - $38,117,000). These facilities
were secured by:

a.   mortgage  over the  Group's  land and  buildings  with a net book  value of
     approximately $19,857,000 (2001 - $15,608,000) (see Note 11);

b.   the Group's inventories of approximately $286,965,000 (2001 - $317,543,000)
     held under trust receipts bank loan arrangements (see Note 15);

c.   pledges of the Group's bank deposits of approximately  $77,830,000  (2001 -
     $77,210,000) (see Note 18);

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.   assignment  of the benefits in respect of the keyman  insurance for Mr. Lam
     Sai Wing amounting to $20,000,000 (see Note 3); and

f.   guarantees provided by the Company.

In addition, the Group has agreed with the banks to comply with certain
restrictive financial covenants.

                                      F-55
<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.

                                               /s/ Arthur Andersen & Co.

                                                 ARTHUR ANDERSEN & CO
                                             Certified Public Accountants
                                                     Hong Kong

Hong Kong, 14th July, 2001.

This report is a copy of a previously issued accountants' report of Arthur
Andersen & Co. This report has not been reissued by Arthur Andersen & Co.

                                      F-56
<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-57
<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-58
<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
Fixed assets                                     11               351,978                  -
Investment property                              12                 1,600                  -
Investment in subsidiaries                       13                     -            339,327
Investment in associates                         14                35,347                  -
                                                           ---------------    ---------------

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

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

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

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

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

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

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

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

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

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

SHARE CAPITAL                                    24                53,320             53,320

RESERVES                                         26               328,220            486,821

RETAINED PROFIT (ACCUMULATED DEFICIT)                             125,074          (200,693)
                                                           ---------------    ---------------

Shareholders' equity                                              506,614            339,448
                                                           ===============    ===============

</TABLE>

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

         LAM SAI WING                             CHAN YAM FAI, JANE
           Chairman                                Deputy Chairman


                                      F-59
<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-60
<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 he 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-61
<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-62
<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-63
<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-64
<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, 2001     outstanding during
                                                                                the year
                                                      ------------------   -------------------
                                                           $'000                    $'000
<S>                                                   <C>                  <C>

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:

                          Balance as at 31st             Maximum balance due
                              March, 2001               from a director during
                                                               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-65
<PAGE>

4. TURNOVER AND REVENUE (Cont'd)

a. By major product category -

                                                     2 0 0 1
                                  ----------------------------------------------
                                      Turnover           Contribution to profit
                                                             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-66
<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
          -       bank borrowings wholly repayable after
                  five years                                                 647
          -       finance leases                                           2,186

    Employment costs (including directors' emoluments)                    47,321

    Advertising and promotion costs                                        7,772

Website development expense                                                3,969

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

    Depreciation of fixed assets
       - owned assets                                                     63,662
       - assets held under finance leases                                 11,774

    Net loss on disposal of fixed assets                                     377

    Deficit on revaluation of an investment property                         250

    Provision for bad and doubtful debts                                   2,500

    Provision for slow-moving and obsolete inventories                     1,200

    Derivative trading loss *                                                  -

    Net exchange loss                                                         75

    Auditors' remuneration                                                   780
                                                                 ===============

    After crediting -

    Derivative trading gain *                                                450

    Interest from
       - bank deposits                                                     6,822
       - amount due from an associate (see Notes 3 and 14)                 1,901

    Rental income, less outgoings                                             82

    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-67
<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
       - Nil to $1,000,000                                                1
       - $4,500,001 to $5,000,000                                         1
       - $5,500,001 to $6,000,000                                         -

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

                                                                          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-68
<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
       - Current year                                              2,519
       - Write-back of over-provision in prior years                   -
                                                          ---------------

                                                                   2,519

    Deferred taxation - Hong Kong profits tax                      6,637
                                                          ---------------

                                                                   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-69
<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 Office        Moter
                                   buildings           and             Equipment         Vehicles       Total
                                    equipment
                               --------------  -----------------  -----------------  ------------  ------------
                                     $'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          1054       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-70
<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,          100%            Residential
    3 Peace Avenue, Ho Man Tin,
    Kowloon, Hong Kong


                                      F-71
<PAGE>

13.      INVESTMENT IN SUBSIDIARIES

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-72
<PAGE>

13. INVESTMENT IN SUBSIDIARIES (Cont'd)

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


              Name              Place of           Issued and fully      Percentage of      Principal activities
                                incorporation/     paid share capital    equity interest
                                operations                               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                   -             Manufacturing and
   Company Limited                                    (non-voting)                            selling of gold
                                                      ordinary - $4            100%           and jewellery
                                                      (i) products Class B
                                                      (voting)
                                                      ordinary - $2

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

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

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

   Macadam Profits Limited       British Virgin       US$2                     100%           Investment holding
                                  Islands/Hong
                                      Kong

   Soycue Limited                British Virgin       US$1                     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-73
<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                         (8293)
                                                               ----------------

                                                                        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>


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

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

  China International              Hong Kong            $20,000,000         24.5%         Trading and
  Electronic Commerce (HK)                                                                developing and
  Limited                                                                                 operating of
                                                                                          e-commerce trading
                                                                                          facilities between
                                                                                          Mainland China 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              Hong Kong             $5,000,000         49.9%         Trading and investment
Company Limited                                                                           holding

</TABLE>


                                      F-74
<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-75
<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                                       7,395
       - more than one year but not exceeding two years               7,703
       - more than two years but not exceeding five years            18,714
       - more than five years                                         9,163
                                                             ---------------

                                                                     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-76
<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
       - not exceeding one year                                      12,973
       - more than one year but not exceeding two years              10,548
       - more than two years but not exceeding five years             7,538
                                                            ----------------

                                                                     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-77
<PAGE>

23.      DEFERRED TAXATION

Movements of deferred taxation (consolidated) were:

                                                                      2001
                                                                ----------------
                                                                    $'000

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

    End of year                                                          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:

                                                           2 0 0 1
                                                --------------------------------
                                                Number of shares   Nominal value
                                                ----------------   -------------
                                                     '000             $'000

    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
                                                 ============     ==============


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-78
<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
                              ----------------------------------------------
                              Share premium     Contributed         Total
                                                 surplus
                              -------------    -------------    ------------
                                  $'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-79
<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                                                     Total
                                           capital        Short-term    Long-term     Finance
                                           and            bank          bank          lease
                                           share           loans         loans        obligations
                                           premium
                                       -------------  ------------  ------------  ------------  ------------
                                            $'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        186,048             -             -             -       186,048
      associate
    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                       -                      (2,900)            -
                                                          (12,000)                                  (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-80
<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-81
<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
     -   within one year                         1,784                    -
     -   between one year and two years          1,704                    -
     -   between two years and five years        2,081                    -
     -   over five years                           221                    -
                                          -------------     ----------------

                                                 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                          -                      -
     -   within two to five years             1,362                      -
     -   over five years                        422                      -
                                  ------------------     ------------------

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



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

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

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



c.       Contingent liabilities
<TABLE>

                                                              2 0 0 1
                                                  ---------------------------------
                                                  Consolidated         Company
                                                  -------------     ---------------
                                                     $'000               $'000
    <S>                                           <C>                <C>


    Bills discounted with recourse                        5,166                   -

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

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

                                                          5,166             344,980
                                                  ==============     ===============
</TABLE>



                                      F-82
<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 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-83
<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,  highly 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-84
<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        Shareholders' equity as of
                                                  year ended 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          (188,142)        (24,121)              -                -
       of goodwill arising from acquisition
       of New Epoch Information (BVI) Company
       Limited under US GAAP; while
       goodwill is eliminated directly against
       retained profit under HK GAAP
       - Reversal of revaluation deficit on              250              32             373               48
       investment properties
       - additional depreciation on                      (99)            (13)            (99)             (13)
       investment properties
       - Stock compensation expense                  (20,307)         (2,603)        (20,307)          (2,603)
       - Increase in additional paid-in                    -               -          25,200            3,230
       capital
       - Increase in deferred compensation                 -               -          (4,893)            (627)
       expense
                                                --------------  --------------  ---------------  --------------

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

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

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

                              Operating        Investing         Financing        Returns on        Taxation
                             activities        activities       activities      investment and
                                                                                 servicing of
                                                                                   finance
                           ---------------- ----------------- ---------------- ----------------- ----------------
                           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>


   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-85
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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-86
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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-87
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