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, 1997

[ ]  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, 2nd Floor, Block B, Focal Industrial Centre
                       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 August 1, 1997,  12,800,000  shares of common stock of the Registrant
were  outstanding.  As of such date,  the  aggregate  market value of the voting
stock held by non-affiliates,  based on the only sale to non-affiliates to date,
was approximately $7,375,000.

                       DOCUMENTS INCORPORATED BY REFERENCE

     None.

<PAGE>
                                TABLE OF CONTENTS

                                                                          Page

PART I

     ITEM  1.  BUSINESS................................................      3

     ITEM  2.  PROPERTIES..............................................      9

     ITEM  3.  LEGAL PROCEEDINGS.......................................      9

     ITEM  4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.....      9

PART II

     ITEM  5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
               STOCKHOLDER MATTERS.....................................     10

     ITEM  6.  SELECTED FINANCIAL DATA.................................     11

     ITEM  7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
               CONDITION AND RESULTS OF OPERATIONS.....................     12

     ITEM  8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.............     16

     ITEM  9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
               ACCOUNTING AND FINANCIAL DISCLOSURE.....................     16

PART III

     ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT......     17

     ITEM 11.  EXECUTIVE COMPENSATION..................................     18

     ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
               MANAGEMENT..............................................     19

     ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..........     20

     ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
               ON FORM 8-K.............................................     21

SIGNATURES.............................................................     22

<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  "Trends and
Contingencies" beginning on page 14 of this Form 10-K.

     The Company  operates  through its various  subsidiaries,  all of which are
located outside of the United States.  Unless otherwise indicated or the context
otherwise  requires,  the term Company refers collectively to S.W. Lam, Inc. and
its  subsidiaries.  All  references  to  China  or the PRC  are to the  Peoples'
Republic of China.  The Company's  financial  statements are presented in United
States Dollars ("US$"). The Company's sales are principally in Hong Kong Dollars
("HK$") and Renminbi ("Rmb"). At March 31, 1997, the prevailing exchange rate of
US$ into HK$ and Rmb was US$1.00 = HK$7.752 and US$1.00 = Rmb 8.297.

ITEM 1. BUSINESS

     S.W.  Lam,  Inc.  (the  "Company"),  a  Nevada  corporation,   through  its
subsidiaries,  is engaged in the design, manufacturing and marketing of gold and
silver jewelry,  gold and silver  decorative  items, and diamond and color stone
jewelry and decorative products.  All of the Company's operations are located in
Hong Kong and the People's Republic of China (the "PRC").

History and Development of the Company

     The Company's business began with the formation by Lam Sai Wing ("Mr. Lam")
of an  unincorporated  sole  proprietorship to manufacture and market jewelry at
facilities in Dongguan, PRC (the "Dongguan Facility") in 1983. Subsequently,  in
1987, Shenzhen Hang Fung Jewellery Factory, a sole proprietorship  formed by Mr.
Lam, established a modern manufacturing facility in Shenzhen, PRC (the "Shenzhen
Facility").  In 1990, Beijing Hang Fung Jewellery Factory, a sole proprietorship
formed by Mr. Lam, entered into a sino-foreign  joint venture to manufacture and
market  jewelry in  Beijing,  PRC (the  "Beijing  Facility").  In 1991,  Mr. Lam
transferred  operations  of the  Dongguan  Facilities  to  Dongguan  No. 2 Light
Industry Jewelry Bureau, an unaffiliated third party.

     In November of 1994, Mr. Lam incorporated  Soycue Limited ("Soycue") in the
British Virgin Islands and transferred  operations of the Shenzhen  Facility and
the Beijing Facility to Soycue.  Certain other  operations  conducted by Mr. Lam
were transferred to Hang Fung Jewellery  Company Limited ("Hang Fung Jewellery")
in September of 1995.  In December of 1996,  Mr. Lam and his wife,  Lam Chan Yam
Fai, Jane ("Ms. Chan"), transferred ownership of Soycue, Hang Fung Jewellery and
Kai Hang Jewellery Company Limited,  a Hong Kong corporation  engaged in jewelry
marketing and owned by Mr. Lam and Ms. Chan ("Kai Hang  Jewellery"),  to Quality
Prince Limited,  a holding  company  organized in the British Virgin Islands and
owned by Mr. Lam and Ms. Chan ("Quality Prince")(Soycue, Hang Fung Jewellery and
Kai Hang  Jewellery  are  collectively  referred  to herein  as the  "Hang  Fung
Group").

In December of 1996, the Hang Fung Group completed a "reverse  acquisition" with
S.W. Lam, Inc.  pursuant to which the companies  comprising the Hang Fung Group,
representing  all  of  the  jewelry   manufacturing  and  marketing   operations
controlled  by Mr. Lam and Ms. Chan,  became  wholly owned  subsidiaries  of the
Company.  S.W. Lam, Inc. was originally  incorporated  in the State of Tennessee
under the name New Wine, Inc. ("New Wine"). New Wine was formed in April of 1994
to develop,  finance and produce record albums, cassette tapes and compact discs
and videotape and television  productions for domestic  distribution and foreign
licensing;  to operate a music  publishing firm; and, to engage generally in the
business of providing  personal  business  management  services for professional
entertainers.  New Wine  completed  an offering of common  stock in September of
1995  selling  225,000  shares  for  $45,000  pursuant  to Rule  504  under  the
Securities  Act of 1933,  as amended (the  "Act").  The  operations  of New Wine
proved  unsuccessful and were discontinued and New Wine began efforts to acquire
or combine with an operating  business.  Pursuant to  discussions  with the Hang
Fung Group, New Wine  reincorporated in the State of Nevada and changed its name
to S.W.  Lam,  Inc. in November of 1996.  In December of 1996,  New Wine entered
into an agreement with the shareholders of Quality Prince, Mr. Lam and Ms. Chan,
pursuant to which New Wine agreed to issue 10,500,000 shares of common stock and
100,000  shares of Series A Preferred  Stock in exchange  for 100% of the issued
and  outstanding  shares of  Quality  Prince  (the  "Exchange").  Following  the
Exchange, management of the Hang Fung Group assumed control of management of the
Company and the  Company,  through  its  subsidiaries,  the Hang Fung Group,  is
continuing the operations of the Hang Fung Group.


                                        3
<PAGE>
Overview

     The Company's  operations  include the  manufacturing  and sale of gold and
silver jewelry and ornamental items in the PRC and Hong Kong.

     Because of regulatory  issues  relating to operations  and the marketing of
gold and silver in the PRC, the Company's production and marketing activities in
the PRC are conducted  pursuant to a series of agreements  with entities  having
operations or appropriate  licenses in the PRC. The principal agreements in that
regard  are (1) a  subcontracting  agreement  with  Shenzhen  Crafts  Hang  Fung
Jewellery Factory ("Shenzhen Crafts") pursuant to which gold and silver products
are  produced  for  export,  (2) an  agreement  with  Yiu Ping  Gold and  Silver
Manufacturing  Factory  ("Yiu  Ping")  pursuant to which Yiu Ping sells gold and
silver  products  on the  Company's  behalf  in the PRC,  (3) an  Agreement  for
Jewellery   Assembling  with  China  Jewellery   Import  &  Export  Co.  ("China
Jewellery") pursuant to which China Jewellery is responsible for the assembly of
gold and silver  assembly  operations  at facilities  jointly  operated with the
Company in Beijing,  (4) a Sales Agency Agreement with China Jewellery  pursuant
to which China  Jewellery acts as the Company's  agent in selling jewelry in the
PRC in  exchange  for an agency fee and the  Company  acts as China  Jewellery's
agent in selling  jewelry in Hong Kong in exchange for an agency fee, and (5) an
Agreement for Jewellery Assembling, Sales Agency Agreement and Sales Cooperation
Agreement with Tai Yuen Jewellery  Crafts Factory ("Tai Yuen") pursuant to which
Tai Yuen assembles and sells gold and silver products on the Company's behalf in
the PRC.

     Shenzhen  Crafts,   Yiu  Ping,  Tai  Yuen  and  China  Jewellery  are  each
state-owned  enterprises  organized  under  the  laws  of the  PRC  and  holding
requisite  licenses to import,  export and sell gold and silver  products in the
PRC.

     The Company presently  markets its products  primarily in Hong Kong and the
PRC, and to a lesser extent in other Southeast Asian countries, the Middle East,
Europe and the United  States.  The Company  plans to expand its business in the
near term by (1)  expanding  the  marketing  of its  products  in Europe and the
Middle East, and (2) expanding production and marketing  capabilities in the PRC
through the construction and relocation of its current manufacturing  operations
in  Beijing  to  an  expanded  modern  manufacturing  facility  presently  under
construction adjacent to the existing manufacturing operations in Beijing.

Products

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

     The Company  classifies  its products in four distinct  segments:  (1) fine
gold  products,  consisting of jewelry and ornamental  products  crafted from 24
carat gold, (2) other gold products, consisting of a broad array of lesser value
electro-form   casted  fine  gold  jewelry   including   jewelry   incorporating
semi-precious  stones, (3) non-gold/silver  ornamental  products,  consisting of
serving sets,  plaques and other  decorative  or  ornamental  items crafted from
materials other than gold or silver,  and (4) silver  products,  consisting of a
broad array of jewelry and  decorative or  ornamental  items  otherwise  falling
within one of the other product segments but crafted from silver.  The Company's
products range in wholesale price from  approximately $10 to over $100,000.  The
mean selling price of the Company's products is between $200 and $220.

     The following  table  illustrates  the typical range and average  wholesale
price of the Company's products by segment:

                                       Wholesale                  Average
                                      Price Range            Wholesale Price
                                     -------------           ---------------

Fine gold products.............      $20 to $1,000                 $300
Other gold products............      $10 to $1,000                 $500
Ornamental products............      $50 to $1,000                 $500
Silver products................       $2 to $100                    $10


                                        4
<PAGE>
     For the two years ended March 31, 1997,  sales by segment and major product
line  and as a  percentage  of sales  (including  subcontracting  fees)  were as
follows:

                                           1996                       1997
                                   -------------------        ------------------
                                   Amount      Percent         Amount    Percent
                                   ($'000)                    ($'000)
Fine gold products
 Bracelets...................      $ 3,762        14 %         $ 5,734       14%
 Chains......................        3,619        13             5,734       14
 Rings.......................        4,501        17             6,553       16
 Earrings....................        1,926         7             2,457        6
 Ornamental..................        5,000        19             9,831       24
Other gold products
 Bracelets...................          333         1               410        1
 Chains......................          502         2               819        2
 Rings.......................        1,326         5             1,638        4
 Earrings....................          982         3               819        2
 Other.......................          191         1               410        1
Silver products
 Bracelets...................        1,420         5             1,638        4
 Chains......................        1,438         5             2,048        5
 Rings.......................          946         4             1,638        4
 Earrings....................          485         2               410        1
 Ornamental..................          437         2               819        2

Product Design and Development

     The Company  maintains an in-house  product design and development  team in
its  Hong  Kong  offices  consisting  of  approximately  10 staff  members.  The
Company's product design staff continuously monitors jewelry trends and consumer
preferences and is engaged in ongoing efforts to design new products  consistent
with such  trends  and  preferences.  After  conceiving  of a new  product,  the
Company's  design  staff will  produce  detailed  drawings  and molds for use in
actual production.  The Company's design staff currently produces  approximately
500 new products annually.

Purchasing

     The principal  materials in the  manufacture  and assembly of the Company's
products  are  gold,   silver  and  color  stones  which   typically   represent
approximately  50% to 70% of the total costs of  producing  the  Company's  gold
products and 30% to 50% of the total costs of  producing  the  Company's  silver
products.

     The Company  purchases  gold  primarily  from suppliers in South Africa and
Hong Kong.  Silver  purchases are primarily from  suppliers in Hong Kong.  Color
stones are purchased primarily from suppliers in Burma and Thailand.

     The Company  maintains no long term  contractual  arrangements  to purchase
materials.  Although purchases of raw materials are made from a relatively small
number of suppliers, the Company believes there are numerous alternative sources
for all materials and products,  and that the failure of any principal  supplier
would  not  have a  material  adverse  effect  on  operations  or the  Company's
financial condition.  To date, the Company has not experienced any difficulty in
securing product.

     The  Company  does not  presently  engage in any  hedging  activities  with
respect to possible  fluctuations  in the prices of raw  materials.  The Company
believes  that the risk of not  engaging in such  activities  is minimal,  since
historically the Company has been able to adjust prices as material fluctuations
have occurred.


                                        5
<PAGE>
Manufacturing and Assembly

     The  Company's   principal   manufacturing  and  assembly   operations  are
undertaken  at  facilities  located in Shenzhen  and  Beijing,  PRC  pursuant to
agreements with Shenzhen Crafts and China Jewellery.

     The Company's largest manufacturing  operations take place at the Company's
Beijing Facility which is jointly operated with China Jewellery.  Pursuant to an
Agreement for Jewellery Assembling entered into in November of 1994, formalizing
existing  manufacturing  operations which commenced in 1992, China Jewellery has
provided the use of the  existing  Beijing  Facility as well as a labor  supply,
water,  electricity  and other  support  services  and the Company has  provided
equipment,  tools,  technical  expertise  and  materials  necessary  to carry on
jewelry  manufacturing  operations.  Under the  agreement,  China  Jewellery  is
responsible  for actual  jewelry  assembly  and  manufacturing  and the  Company
provides raw materials and technical expertise. The Company pays assembling fees
to China  Jewellery  in an amount equal to HK$1.00  (US$0.13)  per gram for fine
gold  jewelry,  HK$3.00  (US$0.39) per gram for  karat-gold  jewelry and HK$0.60
(US$0.08) per gram for silver  jewelry and gem  assembling.  The Agreement  also
provides that China  Jewellery may perform  jewelry  manufacturing  and assembly
operations  for other  parties  using the Beijing  Facility  provided  that such
operations do not interfere with the manufacturing  and assembly  operations and
requirements  of the Company and provided  that such  products are  manufactured
exclusively for domestic  consumption within the PRC. The Company is entitled to
receive a fee from China Jewellery with respect to all jewelry  manufactured for
third  parties  at the  Beijing  Facility  with the  amount  of such  fees to be
determined on a case-by-case  basis  ("Subcontracting  Fees"). The Agreement for
Jewellery Assembling with China Jewellery expires in November of 2004.

     The Company also carries on jewelry  manufacturing and assembly  operations
at its Shenzhen  Facility  pursuant to an agreement with Shenzhen Craft which is
substantially  similar to the  manufacturing  arrangement  with China  Jewellery
except  on a  smaller  scale  and  except  that the  Shenzhen  Facility  is used
exclusively for manufacturing  products for the Company.  Shenzhen Craft is paid
manufacturing  fees in an amount equal to  approximately  $2,000 per month . The
agreement with Shenzhen Craft expires in December of 2010.

     Actual  manufacturing  and  assembly  operations  are  performed by skilled
workers  under  the  supervision  of  a  team  of  technicians.   Before  actual
manufacturing or assembly  commences,  product  specifications  are established,
product design is undertaken and raw materials are purchased and inspected.  The
manufacturing  and  assembly  process is tailored to the  specifications  of the
items being manufactured. 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.  The wire is then  stretched to produce a finer wire which is then cut and
strung to form chains. The chains are then cut, sized and graded.  Manufacturing
of other jewelry  items,  including  ornaments  which may be attached to chains,
typically  begins with the  construction  of a metal  prototype.  A mold is then
formed  around the model.  Molds are,  in turn,  used to produce  wax models and
hardened  plastic  molds.  For solid  gold or  silver  pieces,  casting  is then
performed  by filling or  injecting  molds with melted gold or silver  which has
been mixed with appropriate alloys to achieve the desired level of purity. As an
alternative to the traditional casting method, the Company casts  "electro-form"
jewelry utilizing a proprietary  technique to bond gold to an underlying jewelry
form.  The plaster mold is then removed and the  constituent  jewelry  parts are
cleaned,  assembled,  soldered  and  pre-polished.  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.  Virtually  all final  assembly is performed by hand at row
tables at which all  necessary  tools to perform fine  assembly  operations  are
available.

     In addition  to  manufacturing  undertaken  to fill the  Company's  product
requirements  and  manufacturing  undertaken by China Jewellery at the Company's
Beijing  Facility,  the Company  provides  contract  jewelry  manufacturing  for
certain customers who provide all product specifications and raw materials.  The
Company is paid negotiated  subcontracting  fees for manufacturing such products
(also, "Subcontracting Fees").

     The  Company  presently  has  adequate  facilities  and  support  staff  to
manufacture  and  assemble  approximately  500,000  pieces of jewelry  annually.
Manufacturing  capacity is expected to increase to approximately  800,000 pieces
annually upon moving into the Company's new facilities in Beijing.


                                        6
<PAGE>
Quality Control

     Strict quality  control  procedures are followed  before and throughout the
manufacturing  process to assure that products are manufactured with the highest
degree of precision in  compliance  with the  Company's  design  specifications.
Before the commencement of  manufacturing,  all raw materials undergo a thorough
inspection to assure that stones  purchased  are of the right type,  quality and
quantity.  Trained technicians monitor and test the purity of all gold to assure
the karat accuracy of all gold  produced.  Quality checks are carried out on all
products  at each  stage of  production  to ensure  that the  products  meet the
Company's quality standards.  To ensure the quality of all jewelry produced, all
production  workers receive  production and quality control training and quality
control  supervisors  are present and oversee  all  production  operations  and,
finally,  all finished goods are checked by the Company's  quality  control team
before shipment to customers.

Inventory Policy and Control

     The Company  manufactures  products in accordance  with  customer  purchase
orders and sales forecasts of management.  The Company's  production schedule is
closely monitored by the production  management team. The Company's policy is to
manufacture  and  maintain  approximately  20 to 30 days' stocks in inventory to
ensure customer's delivery schedules are met.

     Raw materials are normally purchased based on production  schedules and are
generally ordered 7 to 14 days before the production commences.  At the assembly
line,  workers are  provided  only the raw  materials  required  for assembly of
scheduled production. Materials are weighed before and after each production run
and all  production  workers are required to account for any losses of stones or
gold or silver over prescribed limits.

     Stocks of raw materials and finished products are stored in secure areas in
the  Company's  Hong Kong  offices,  access to which is restricted to authorized
personnel.

Sales and Marketing

     Marketing  of the  Company's  products  is  carried  out  by the  Company's
internal sales and marketing  force for all products sold outside of the PRC and
by China Jewellery, Yiu Ping and Tai Yuen for all products sold within the PRC.

     The Company's  internal sales staff is located in the Company's  offices in
Hong Kong and carries out sales and marketing  activities  under the guidance of
senior management which oversees the sales staff and overall marketing strategy.
The  Company's  sales staff is  responsible  for  establishing  and  maintaining
relations  with  independent  sales  representatives  and  customers  as well as
marketing the Company's  products to potential  customers.  The Company's senior
management  and marketing  staff  regularly  attends major jewelry fairs in Hong
Kong to promote the  Company's  products and new  customers.  Additionally,  the
Company  periodically  advertises in jewelry magazines and makes direct mailings
of new product catalogues.

     Marketing of products within the PRC is conducted exclusively through China
Jewellery, Yiu Ping and Tai Yuen as agents for the Company. China Jewellery, Yiu
Ping and Tai Yuen  possess  the  requisite  licenses  to market  gold and silver
within the PRC. Pursuant to a Sales Agency Agreement with China Jewellery, China
Jewellery handles  substantially all aspects of marketing the Company's products
in the PRC in exchange for an agency fee in the amount of fifteen  percent (15%)
of the sales price of fashion  jewelry,  ten percent (10%) of the sales price of
silver  and karat  gold  jewelry  and Rmb 1.00  (US$0.12)  per gram on fine gold
jewelry. The Company, in turn, acts as agent for China Jewellery with respect to
sales of China  Jewellery  products  in Hong  Kong,  for  which the  Company  is
entitled  to agency  fees in the same  amounts  payable by the  Company to China
Jewellery.  The Sales Agency Agreement with China Jewellery  expires in November
of 2004.

     The  Company  also sells  jewelry in the PRC  through Yiu Ping and Tai Yuen
pursuant to  agreements  which are similar to the Sales  Agency  Agreement  with
China Jewellery. Pursuant to such agreement, the Company pays agency fees to Yiu
Ping and Tai Yuen  consisting  of  approximately  3% to 5% of the sales price of
jewelry sold.


                                        7
<PAGE>
     During  the  year  ended  March  31,   1997,   the   Company's   sales  and
Subcontracting  Fees were approximately  $15.6 million,  or 38.1%, in Hong Kong,
$12.2 million,  or 29.7%, in the PRC, $5.7 million,  or 14%, in the Middle East,
$4.6 million,  or 11.3%,  elsewhere in Southeast Asia, $1.5 million, or 3.7%, in
Europe, and $1.3 million, or 3.2%, in the United States.

     The  Company's  presently  intends  to seek and hire  additional  sales and
marketing personnel in order to expand the Company's marketing efforts in Europe
and the Middle East.

Customers

     The Company's  customers consist  principally of a combination of wholesale
distributors  and jewelry  retailers in the PRC, Hong Kong,  Europe,  the Middle
East and Southeast  Asia. At March 31, 1997,  the Company had  approximately  30
regular  customers  and its  products  were sold in  approximately  2,500 retail
outlets in the PRC and Hong Kong. The Company's five largest customers accounted
for  approximately  32.3% of net sales  during the fiscal  year ended  March 31,
1997.  Chow Tai Fook  Jewellery Co.,  Ltd.,  which  accounted for 12.3% of sales
during fiscal 1997, is the only  customer  which  accounted for more than 10% of
sales in that period. The Company has no long term contracts with any customers.
Chow Tai Fook  Jewellery  Co.,  Ltd. has been a customer of the Company for more
than 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 Company believes its competitive position is enhanced
by the  Company's  broad  customer  base,  experienced  management  team and the
Company's close relationship with its customers and vendors. Therefore, although
the competition is intense,  the Company  believes that it is well positioned to
compete in the jewelry industry.

Employees

     As of March 31,  1997,  the  Company  had  approximately  1,200  employees,
including 7 executive  officers,  22 other management  personnel,  45 persons in
administration,  1,054 persons in manufacturing and production and 72 persons in
sales and marketing. Of the Company's employees, approximately 78 are located in
Hong Kong with the  remaining  employees  being  located in the PRC. None of the
Company's  employees is governed by  collective  bargaining  agreements  and the
Company considers its relations with its employees to be satisfactory.

Certain Foreign Operation Considerations

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

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


                                        8
<PAGE>
     The Company's  operations in the PRC are subject to special  considerations
and significant risks not typically associated with companies operating in North
America and Western Europe.  These include risks  associated  with, among other,
the political,  economic and legal  environments and foreign currency  exchange.
The Company's results may be adversely  affected by changes in the political and
social  conditions  in the PRC,  and by changes in  governmental  policies  with
respect to laws and regulations,  inflationary measures, currency conversion and
remittance  abroad,  and rates and methods of taxation,  among other things.  In
addition,  a portion of the Company's revenue is denominated in Renminbi ("Rmb")
which must be converted into other currencies before remittance outside the PRC.
Both the  conversion of Remninbi into foreign  currencies  and the remittance of
foreign currencies abroad require approvals of the PRC government.

ITEM 2. PROPERTIES

     The Company operates three distinct facilities in Hong Kong and the PRC.

     The Company's  executive offices are located at Unit 302-303A and Unit 410,
Fu Hang Industrial  Building,  1 Hok Yuen Street East, Hunghom,  Hong Kong. Such
facility  consists of  approximately  11,000 square feet of office  space.  Unit
302-303A is leased from Ms. Chan,  an officer and  director of the Company,  for
HK$1.35  million  (US$175,000)  per year pursuant to a lease  expiring March 31,
1998.  Unit 410 is  leased  from an  unaffiliated  third  party  for  HK$300,000
(US$39,000)  per annum  pursuant to a lease  expiring  September 19, 1998.  Such
office space also houses certain marketing, product design and high quality gold
production operations.

     The Company's  principal  production  operations  are located in facilities
located in Shenzhen and Beijing, PRC. The Shenzhen facility consists of a modern
multi-story industrial building of which the Company's manufacturing  operations
occupy one floor,  or  approximately  20,000 square feet. The Company leases the
physical  facility from Shenzhen City Highway  Construction Co., Ltd. for a term
of 20 years expiring January,  2007. Monthly lease payments on such facility are
$6,420.

     The Company's  operations  in Beijing are presently  housed in a five story
60,000 square foot facility  consisting of three floors of manufacturing  space,
one floor of office and  administrative  space and one floor of staff  quarters.
The existing facilities in Beijing are held pursuant to a 20 year lease expiring
2010 with China  Jewellery and providing  for monthly lease  payments of $5,048.
Adjacent to the Beijing facility is a 5,000 square foot building which serves as
the facility's power plant. A 14-story building is presently under  construction
adjacent to the Company's facility in Beijing. Upon completion, the Company will
lease 3 floors of the new building  (approximately 100,000 square feet) and move
all of its Beijing  operations to the new building.  The Company expects to move
into the new  building  in early  1998  and  will  sign a 20 year  lease on such
premises at an anticipated  monthly rental rate,  including  management fees, of
$22,500.

     The Company  believes that its existing  facilities  and  facilities  under
construction  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, 1997.


                                        9
<PAGE>
                                     PART II

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

Market Information

     There is no  established  public  trading  market for the Company's  Common
Stock.  The  Common  Stock  trades on a sporadic  basis in the  over-the-counter
market.  While the Company intends to commence trading of its shares on the NASD
Electronic  Bulletin  Board,  there is no assurance  that a trading  market will
develop or that any such market which may develop will be sustained.

Holders

     At March 31,  1997,  there were  approximately  114  record  holders of the
Company's Common Stock.

Dividends

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

Sales of Unregistered Securities

     During the fiscal year ended March 31, 1997, the Company sold the following
unregistered  securities without the use of underwriters and without the payment
of any discounts or commissions, except as otherwise noted:

          (1) In December of 1996, the Company issued an aggregate of 10,500,000
     shares of common  stock and 100,000  shares of Series A Preferred  Stock to
     the then  shareholders  of the Hang Fung Group in  exchange  for all of the
     issued and outstanding shares of the Hang Fung Group.

          (2) In January of 1997,  the Company  issued an  aggregate  of 800,000
     shares  of  common  stock  for  $1,000,000  in cash to a single  accredited
     investor. The Company paid commissions in connection with the sale totaling
     $122,500.

     The issuance of the above  securities to the  shareholders of the Hang Fung
Group and to the accredited  investor referred to in (2) above were deemed to be
exempt from registration under the Securities Act in reliance on Section 4(2) of
the  Securities  Act  based on the  limited  number of  purchasers  and based on
representations from the purchasers that they were acquiring for investment only
and not with a view to or for sale and  restrictive  legends were affixed to the
share certificates issued in such transactions.


                                        10
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA

     The following tables present  selected  historical  consolidated  financial
data derived from the  consolidated  financial  statements  of the Company which
appear elsewhere herein.  Quality Prince was acquired by the Company in December
of 1996 in a transaction  accounted for as a recapitalization  of Quality Prince
with Quality  Prince as the acquiror (a "reverse  acquisition").  On this basis,
the  historical  consolidated  financial  statements  of the  Company  prior  to
December 31, 1996 are those of Quality Prince and the  historical  shareholders'
equity of Quality  Prince as of March 31,  1995 and 1996 has been  retroactively
restated to reflect the  equivalent  number of shares of the Company  issued for
such acquisition.  The acquisition of the various members of the Hang Fung Group
by Quality Prince in December of 1996 has been accounted for as a reorganization
of  entities  under  common  control,  similar  to a pooling of  interests.  The
following data should be read in  conjunction  with the  consolidated  financial
statements of the Company included elsewhere herein.

<TABLE>
<CAPTION>

                                                             Year Ended March 31,
                                        ------------------------------------------------------------
Income Statement Data:                    1993         1994         1995         1996          1997
                                        --------     --------     --------     --------     --------
<S>                                   <C>          <C>          <C>          <C>          <C>
Net sales...........................    $ 10,568     $ 13,197     $ 18,478     $ 19,348     $ 32,748
Subcontracting fees.................       2,786        3,481        4,902        7,520        8,210
                                        --------     --------     --------     --------     --------
  Total revenues....................      13,354       16,678       23,380       26,868       40,958
Gross profit........................       3,668        4,585        7,004        8,046       10,971
Operating income....................       1,870        2,262        4,335        5,312        7,344
Other income (expense), net.........      ( 169)       ( 185)       ( 274)       ( 329)       ( 741)
Income before taxes.................       1,701        2,077        4,061        4,983        6,603
Net income..........................     $ 1,032      $ 1,311      $ 2,589      $ 3,333      $ 4,475
                                         =======      =======      =======      =======      =======
Net income per share (1)............     $  0.10      $  0.12      $  0.22      $  0.28       $ 0.37
                                         =======      =======      =======      =======       ======
Weighted average shares
 outstanding (1)....................  10,500,000   10,500,000   11,736,575   11,899,521   12,197,260
                                      ==========   ==========   ==========   ==========   ==========
</TABLE>

<TABLE>
<CAPTION>

                                                            Year Ended March 31,
                                           ---------------------------------------------------------
Balance Sheet Data:                         1993       1994         1995         1996        1997
                                           --------   --------     --------     --------     -------
<S>                                        <C>        <C>          <C>          <C>          <C>
Working capital.....................       $ 107      $ 1,042      $ 3,024      $   613      $ 2,768
Total assets........................         992       14,288       17,517       15,676       21,409
Long-term debt, less
 current portion....................          54          338          286          879        1,550
Stockholders' equity (2)............         279        1,579        4,531        3,038        8,017
</TABLE>
------------------------
(1)  Net income per share is computed  assuming (i) the 10,500,000 shares issued
     pursuant to the Exchange were outstanding for all periods  presented,  (ii)
     the 1,275,000  shares issued in  connection  with initial  formation of New
     Wine were issued April 12, 1994 and (iii) the 225,000  shares issued by New
     Wine pursuant to a Rule 504 offering were issued September 11, 1995.
(2)  Stockholders'  equity at March 31, 1996  reflects the payment of a dividend
     in the amount of $5,000,000 by the Hang Fung Group prior to the acquisition
     of the Hang Fung Group by the Company.


                                        11
<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  "Trends and
Contingencies" beginning on page 14 of this Form 10-K.

General

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

     Prior to  December of 1996,  the Company was engaged in limited  operations
relating to the production and distribution of record albums, cassette tapes and
compact discs and videotape and television productions for domestic distribution
and foreign licensing; operation of a music publishing firm; and, generally, the
business of providing  personal  business  management  services for professional
entertainers. On December 19, 1996, the Company acquired the Hang Fung Group and
entered  into  the  jewelry   manufacturing  and  distribution   business.   The
acquisition  of the Hang Fung Group has been  accounted  for using the  purchase
method of  accounting  with the  transaction  being  accounted for as a "reverse
acquisition."  The  Company  does  not  consider  the  operations  prior  to the
acquisition  of the Hang Fung Group to be  material to an  understanding  of the
Company. Accordingly, this discussion relates to the operations of the Hang Fung
Group for all periods  presented,  excluding the former  operations of New Wine,
Inc.

     Hang Fung's historical operations have consisted of designing,  assembling,
merchandising  and  distributing a full line of gold and silver jewelry products
and other ornamental products on a wholesale basis in Hong Kong, China,  Europe,
the Middle East and Southeast Asia.  Revenues from such operations are generated
through the  manufacturing  and wholesaling of the Company's  jewelry  products,
subcontract  jewelry  manufacturing  for  selected  customers  and through  fees
payable to the Company by its business partners in the PRC, China Jewellery, for
marketing  services outside of China and for use of the Company's  manufacturing
facilities in the production of jewelry by China  Jewellery  (fees earned by the
Company  for (1)  subcontract  manufacturing  of jewelry  on behalf of  selected
customers who provide all raw materials and product  specifications  and (2) the
manufacture  of jewelry by China  Jewellery at the Beijing  Facility for sale to
customers of China Jewellery, are referred to, collectively,  as "Subcontracting
Fees").

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

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

Results of Operations

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


                                       12
<PAGE>
                                        Year Ended March 31,
                                    1995      1996      1997
                                   -----      ----      ----
Total revenues..................   100.0%    100.0%    100.0%
Cost of sales...................    70.0      70.1      73.2
                                    ----     -----     -----
Gross profit....................    30.0      29.9      26.8
Operating expenses..............    11.4      10.2       8.9
                                    ----      ----     -----
Income from operations..........    18.6      19.7      17.9
Other income (expense)..........    (1.2)     (1.2)     (1.8)
                                    ----      ----      -----
Income before income taxes......    17.4      18.5      16.1
Income taxes....................    (6.3)     (6.2)     (5.2)
                                    ----      ----      -----
Net income......................    11.1      12.3      10.9
                                    ====      ====      ====

Year Ended March 31, 1997 Compared to Year Ended March 31, 1996

     Revenues and Gross Profit.  Operating  revenues increased by 52.4% to $40.9
million for the year ended  March 31, 1997 as compared to the $26.9  million for
fiscal 1996.  Sales of Company  products were up 69.3% to $32.7  million  during
fiscal  1997  as  compared  to  $19.3  million  in  sales  during  fiscal  1996.
Subcontracting  Fees increased by a 9.2% to $8.2 million during fiscal 1997 from
$7.5 million  during  fiscal 1996.  The  increase in sales was  attributable  to
growing  demand for  electro-form  jewelry  and gold card  ornaments  as well as
increased  demand in the PRC resulting  from a recovery in the PRC economy.  The
increase in  Subcontracting  Fees was  attributable to increased demand for gold
products in Hong Kong which  resulted  in an  increase in orders by  subcontract
manufacturing  customers.  Geographically,  sales in Hong  Kong  were up  during
fiscal  1997 due to  growing  demand for gold  jewelry  and  improving  economic
conditions,  increasing  approximately 55.3% to $15.6 million from $10.1 million
in fiscal  1996,  sales in the PRC were up during  fiscal 1997 due to  improving
economic conditions and higher income,  increasing  approximately 20.6% to $12.2
million  from $10.1  million in fiscal  1996,  sales in Europe  were down during
fiscal  1997  due  to  continued  weakness  in  European  economies,  decreasing
approximately  29.9% to $1.5 million from $2.1 million in fiscal 1996,  sales in
the Middle East were up during fiscal 1997 due to increased marketing efforts by
the Company, increasing approximately 74.7% to $5.7 million from $3.3 million in
fiscal 1996, sales in Southeast Asia during fiscal 1997 were up due to increases
in orders by existing  customers,  increasing  260.2% to $4.6  million from $1.3
million in fiscal  1996,  and sales in the United  States  totaled  $1.3 million
during fiscal 1997 with the commencement of selling efforts in the United States
during the fourth quarter of fiscal 1997.

     Gross profits  increased by 36.4% to $11.0 million in fiscal 1997 from $8.0
million  during fiscal 1996. The increase in gross profits was  attributable  to
increased sales and  Subcontracting  Fees during the period which were partially
offset by a  reduction  in gross  margins.  Gross  margins  were down during the
period to 26.8% from  29.9%.  However,  excluding  Subcontracting  Fees,  profit
margins  improved on sales of Company  products during the period as a result of
increased  demand  and  accompanying  higher  profit  margins  for  electro-form
jewelry.

     Operating  Expenses.  Operating expenses totaled $3.6 million during fiscal
1997,  an increase of 32.7% from  operating  expenses of $2.7  million in fiscal
1996.  The  increase  in  operating  expenses  during the  period was  primarily
attributable to increased marketing expenses associated with higher sales volume
and the impact of inflation in certain expenses in Hong Kong and China.

     Other  Income/Expense.  Other income/expense during the period consisted of
gains/losses  from  trading of fashion  jewelry,  interest  income and  interest
expense and expenses attributable to the reverse acquisition.  Net other expense
totaled  $0.7 million  during  fiscal 1997 as compared to $0.3 million in fiscal
1996.  The  increase  in net other  expense  during  the  period  was  primarily
attributable  to  expenses  associated  with the  reverse  acquisition  totaling
$350,000.


                                       13
<PAGE>
     Income  Taxes.  Income  taxes  increased by 29.0% from  approximately  $1.6
million in fiscal 1996 to $2.1  million in fiscal  1997.  The increase in income
taxes during the period was attributable to the increase in the taxable earnings
of the Company.

Year Ended March 31, 1996 Compared to Year Ended March 31, 1995

     Revenues and Gross Profit.  Operating  revenues increased by 14.9% to $26.9
million during the fiscal year ended March 31, 1996 as compared to $23.4 million
during  fiscal 1995.  Sales of Company  products  were up 4.7% to $19.3  million
during fiscal 1996 as compared to $18.5 million in sales during fiscal 1995. The
Company also reported a 53.4%  increase in  Subcontracting  Fees to $7.5 million
during  fiscal 1996 from $4.9  million  during the prior year.  The  increase in
sales was  attributable to increased  sales of electro-form  items and gold card
ornaments  as well as market  expansion  in Hong Kong and the Middle  East.  The
increase in  Subcontracting  Fees was  attributable to increased demand for gold
products  which  resulted  in the  addition  of new  sub-contract  manufacturing
customers and an increase in  manufacturing  by China Jewellery at the Company's
facilities on behalf of its customers.  Geographically,  sales in Hong Kong were
up during  fiscal  1996 due to growing  demand for gold  jewelry  and  improving
economic conditions,  increasing  approximately 31.3% to $10.1 million from $7.7
million  in  fiscal  1995,  sales in the PRC were up during  fiscal  1996 due to
growth in the PRC economy,  increasing approximately 15.9% to $10.1 million from
$8.7 million in fiscal 1995, sales in Europe were down during fiscal 1996 due to
weak economic conditions,  decreasing  approximately 23.4% to $2.1  million from
$2.8 million in fiscal 1995,  and sales in the Middle East were up during fiscal
1996  due  to   increasing   marketing   efforts  by  the  Company,   increasing
approximately  59.6% to $3.3 million from $2.1 million in fiscal 1995.  Sales in
Southeast  Asia were down during 1996  approximately  40.4% to $1.3 million from
$2.1 million in fiscal 1995 due to an increase in the number of Southeast  Asian
customers buying jewelry through their offices in Hong Kong.

     Gross  profits  increased by 14.9% to $8.0 million in fiscal 1996 from $7.0
million  during fiscal 1995. The increase in gross profits was  attributable  to
increased  sales during the period and an improvement  in gross  margins.  Gross
margins were down during the period to 29.9% from 30.0%.

     Operating  Expenses.  Operating expenses totaled $2.7 million during fiscal
1996, an increase of 2.4% from fiscal 1995.  The increase in operating  expenses
during the period was primarily  attributable  to increased  marketing  expenses
associated with increased sales and expenses for expansion in overseas markets.

     Other  Income/Expense.  Other income/expense during the period consisted of
gains/losses  from  trading of fashion  jewelry,  interest  income and  interest
expense.  Net other expense  totaled  $329,000  during the period as compared to
$274,000  in 1995.  The  increase  in net other  expense  during  the period was
attributable  to  interest  expense   associated  with  capital  leases  of  new
equipment.

     Income  Taxes.  Income  taxes  increased by 12.1% from  approximately  $1.5
million in fiscal 1995 to $1.7  million  during  fiscal  1996.  The  increase in
income taxes during the period was  attributable  to the increase in the taxable
earnings of the Company.

Trends and Contingencies

     Future  operating  results  are  expected  to be  impacted  by the  ongoing
expansion of manufacturing operations in Beijing.  Expanded modern manufacturing
facilities are presently  being  constructed  which are expected to increase the
Company's overall  manufacturing  capacity by approximately 100%.  Completion of
such facilities is presently  anticipated by early 1998. In conjunction with the
expansion of manufacturing capacity, the Company is presently planning to expand
its  marketing  efforts in Europe and the Middle East during  fiscal  1998.  The
expansion of manufacturing  operations and marketing efforts will entail certain
increased  operating  costs,  including  one-time costs associated with such new
operations,  which may adversely  impact  operating  margins in the  short-term.
However,   management  believes  that  such  expansion  will  improve  operating
efficiency adding to revenues, net income and net margins in the coming years.

Liquidity and Capital Resources

     At March 31, 1997,  the Company had cash  balances  totaling  $94,000 and a
working  capital  balance of $2.8  million.  This  compares to a cash balance of
$244,000 and working capital of $0.6 million at March 31, 1996.


                                       14
<PAGE>
     Cash provided by operations  decreased from the prior year primarily due to
increases  in  accounts  receivable  and  inventories.  The  Company's  accounts
receivable  increased to $5.1  million,  or  approximately  12.5% of fiscal 1997
revenues,  at March 31, 1997 as compared to approximately $3.0 million, or 11.1%
of fiscal 1996 revenues,  at March 31, 1996. The increase in accounts receivable
during fiscal 1997 was  attributable  to increased sales levels and the granting
of more favorable payment terms to selected customers. Days sales outstanding in
receivables  increased to 45 days at March 31,  1997,  from 40 days at March 31,
1996. The increase in inventory was also  attributable  to the increase in sales
which has required the Company to maintain  higher  inventory  levels to support
growing sales.

     The Company used $4.2 million,  $2.1 million and $1.3 million for investing
activities in fiscal 1997, 1996 and 1995,  respectively.  The investment of cash
in each of those periods related  primarily to  acquisitions of property,  plant
and equipment to increase the Company's  production capacity in order to support
growing sales.

     Financing  activities  provided  $1.3 million in fiscal 1997 as compared to
using $5.4 million in fiscal 1996.  Cash generated from financing  activities in
fiscal 1997  consisted  primarily of proceeds  from the issuance of common stock
and increases in bank  borrowings.  In fiscal 1996,  the Company's  cash used in
financing activities included the payment of a one time dividend of $5 million.

     The Company's primary  liquidity needs are to fund accounts  receivable and
inventories as well as to fund the Company's planned expansion.  The Company has
historically funded its operations through a combination of internally generated
cash and  short-term  borrowings  under  bank  lines of  credit.  The  Company's
expansion  plans  have  been  funded  by bank  loan  facilities  and  internally
generated  cash.  During  fiscal  1997,  the Company  raised $1 million,  before
payment of offering expenses, from the sale of 800,000 shares of common stock to
fund certain costs  associated  with  construction  of the Beijing  facility and
working capital requirements. The Company is presently evaluating other possible
efforts to raise additional capital but has no commitments in that regard.

     At March 31, 1997, the Company had no material  capital  commitments  other
than those necessary to support its existing operations and to carry out planned
expansion of its Beijing operations.  The total cost of establishment of the new
manufacturing  facilities  in Beijing is  expected  to be $2.8  million and will
consist  primarily of the cost of new machinery,  relocation  costs and training
costs.  Approximately  $1.2  million of such costs had been paid as of March 31,
1997. Such costs are expected to be financed through internally  generated cash.
The Company is not responsible for any costs associated with the construction of
such facilities.

     The Company has no other material  commitments to expend capital  resources
outside of ordinary  operating  expenses.  However,  the Company  intends to use
available  funds as needed to expand  its  jewelry  distribution  operations  in
Europe and the Middle East.

     At March 31, 1997,  the Company's  capital  resources  consisted of various
bank credit facilities and certain capital leases, in addition to funds on hand.
The Company's  bank credit  facilities  consist of a combination  of term loans,
lines of credit,  letters of credit, bank guarantees,  overdraft,  revolving and
similar  credit  facilities  generally  utilized  in the jewelry  industry.  The
Company's bank credit facilities are used to fund purchases of raw materials and
inventory and to finance accounts receivable and overdrafts. Such facilities are
consistent  with credit  facilities  generally  available  to  operators  in the
jewelry  industry in terms of  interest  rates and fees,  collateral,  repayment
terms,  and renewal.  The Company's  total  available bank credit  facilities at
March 31,  1997 were  approximately  $5.5  million of which  approximately  $4.2
million had been used at such date.  Management  believes  that such bank credit
facilities are adequate to meet the Company's bank credit needs for at least the
next 12 months and that such  facilities  can be readily  renewed or replaced as
they come due.

     At March 31,  1997,  the  Company  also had a number of capital  leases and
operating  leases  pursuant to which the Company  holds various  facilities  and
equipment.  At March 31, 1997, the Company's capital lease  obligations  totaled
$489,000  of which  $229,000  was  attributable  to current  lease  obligations.
Obligations under operating leases require minimum annual rental payments by the
Company of approximately $281,000 in fiscal 1998.


                                       15
<PAGE>
     The  Company  believes  that  the  available  trade  credit,   bank  credit
facilities,  funds  on  hand  and  funds  generated  from  operations,  will  be
sufficient to satisfy the Company's anticipated working capital requirements for
at least the next 12 months.

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 the  Company's  unaudited net sales for the
periods indicated (dollar amounts are in thousands):

<TABLE>
<CAPTION>

                                                   Fiscal Year Ended March 31,
                            -----------------------------------------------------------------------
                                     1995                     1996                     1997
                            --------------------       ------------------      --------------------
                             Amount         %          Amount         %        Amount            %
                             ------       -----        ------       -----      -------        -----
<S>                          <C>          <C>          <C>          <C>        <C>            <C>
1st Quarter (4/1-6/30)       $5,097        21.8        $5,961        22.2      $ 7,788         19.0
2nd Quarter (7/1-9/30)        5,868        25.1         6,608        24.6        9,980         24.4
3rd Quarter (10/31-12/31)     6,804        29.1         7,684        28.6       12,639         30.8
4th Quarter (1/1-3/31)        5,611        24.0         6,615        24.6       10,551         25.8
                             ------       -----        ------       -----      -------        -----
    Total                   $23,380       100.0       $26,868       100.0     $ 40,958        100.0
                            =======       =====       =======       =====     ========        =====
</TABLE>

Inflation

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

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The  consolidated  financial  statements of the Company,  together with the
independent  auditors' report thereon of Arthur Andersen & Co., appears on pages
F-1 through F-18 of this report. See Index to Financial Statements on page 23 of
this report.

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

     Following  the  acquisition  of the  Hang  Fung  Group by the  Company,  on
December 20, 1996, the Company's  Board of Directors  selected Arthur Andersen &
Co. to serve as its new independent accountants and dismissed Albright,  Persing
&  Associates,  Ltd.,  Certified  Public  Accountants,  of  Reno,  Nevada  which
previously served as the independent accountants for the Company.

     Albright,  Persing & Associates' reports on the financial statements of the
Company for the fiscal years ended December 31, 1994 and 1995 contain no adverse
opinion or  disclaimer  of opinion  and were not  qualified  or  modified  as to
uncertainty  (other than  uncertainty as to the company's  continuing as a going
concern),  audit scope, or accounting principles.  In connection with its audits
for fiscal  years 1994 and 1995 and through  December  20,  1996,  there were no
disagreements  with  Albright,  Persing & Associates on any matter of accounting
principles or practices,  financial statement  disclosure,  or auditing scope or
procedure,  which disagreements if not resolved to the satisfaction of Albright,
Persing &  Associates  would have caused them to make  reference  thereto in its
reports on the financial statements for such years.

     Arthur Andersen & Co. served as the principal  accounting firm for the Hang
Fung Group with respect to the financial statements of such companies for fiscal
years ended March 31, 1994, 1995 and 1996.


                                       16
<PAGE>
                                    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........... 42  Chairman, Chief Executive Officer and President
Chan Yam Fai, Jane..... 34  Vice President, Chief Financial Officer and Director
Ng Yee Mei............. 35  Vice President and Director
Cheng Wa On............ 44  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 1997.

     All of the filing  requirements  were satisfied on a timely basis in fiscal
1997,  except that Lam Sai Wing, Chan Yam Fai Jane, Ng Yee Mei, Cheng Wa On, Lam
Mo Wan,  Chan Wai Sum and Good Day  Holdings,  Ltd.  failed  to file on a timely
basis their initial  report of their  holdings on Form 3. Reports on Form 3 have
since been  filed by each of such  persons.  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.


                                       17
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION

Executive Compensation Table

     The following table sets forth  information as to the compensation  paid or
accrued to each officer and director receiving compensation of at least $100,000
and the Chief Executive Officer for the three years ended March 31, 1997:
<TABLE>
<CAPTION>

                                                       Annual Compensation
                                          ------------------------------------------
                                                                      Other Annual      All Other
         Name and Principal Position      Year    Salary    Bonus   Compensation (2)  Compensation
         ---------------------------      ----   --------   -----   ----------------  ------------
<S>                                       <C>    <C>        <C>          <C>             <C>
Lam Sai Wing............................  1997   $145,000   $ -0-        $   -0-         $ -0-
 Chief Executive Officer, Chairman of     1996     55,000     -0-         15,000           -0-
 the Board and President (1)              1995     45,000     -0-         15,000           -0-
</TABLE>
------------------------
(1)  Mr. Lam assumed the  positions  indicated,  including the position of Chief
     Executive  Officer,  following  the  Exchange  in  December  of  1996.  The
     compensation  indicated  represents  amounts  paid by the Hang  Fung  Group
     during  each of the  years  indicated.  Mr.  Claude  Smith  served as Chief
     Executive  Officer of the Company during each of the years indicated and up
     until the  Exchange  in  December of 1996 at which time Mr. Lam assumed the
     position  of  Chief   Executive   Officer.
(2)  Mr.  Lam's other  annual  compensation  consists of a housing  allowance of
     $15,000.

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 has employment  agreements  with Lam Sai Wing and Chan Yam Fai,
Jane.  Each of these  agreements  expires  December  31,  2003.  The  employment
agreements,  as amended,  provide  for a base  salary and bonus of  HK$1,122,000
(US$145,000)  annually  for Mr.  Lam and  HK$150,000  (US$19,000)  for Ms.  Chan
including a housing  allowance  and  participation  in all other  benefit  plans
adopted by the Company.

Pension Plan

     The Company's  subsidiaries  in Hong Kong have adopted a voluntary  defined
contribution  pension plan (the "Plan") for its employees in Hong Kong. The Plan
generally  covers  all  employees  of  the  Company's   operating   subsidiaries
(excluding  contract  workers  in the PRC) who have  completed  three  months of
service with the Company.  Employees  electing to participate in the Plan defer,
in the form of a contribution  to the Plan, an amount equal to five percent (5%)
of their monthly salary and the Company makes a matching  contribution on behalf
of each participating employee.

     Participating   employees   are  always   fully   vested  with  respect  to
contributions  made by them to the  Plan  and  earnings  or  increases  thereon.
Employees  become vested in  contributions  made by the Company ratably over ten
years.


                                       18
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Common Stock

     The  following  table  is  furnished  as of  August  1,  1997  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.

<TABLE>
<CAPTION>

Name and Address of                                  Number of Shares
Beneficial Owner (1)                                 Beneficially Owned           Percent
--------------------                                 ------------------           -------
<S>                                                      <C>                        <C>

Good Day Holdings, Ltd (2)...........................     6,600,000  (2)            51.6%
 Unit 302-303A, 3rd Floor, Fu Hang Industrial Bldg.
 No. 1 Hok Yuen Street East, Kowloon, Hong Kong
Lam Mo Wan...........................................     1,800,000                 14.1%
 Unit 302-303A, 3rd Floor, Fu Hang Industrial Bldg.
 No. 1 Hok Yuen Street East, Kowloon, Hong Kong
Chan Wai Sum.........................................     1,800,000                 14.1%
 Unit 302-303A, 3rd Floor, Fu Hang Industrial Bldg.
 No. 1 Hok Yuen Street East, Kowloon, Hong Kong
Lam Sai Wing (2).....................................     6,600,000  (2)            51.6%
Carhill Limited......................................       800,000                  6.3%
 c/o Suite 4703, Central Plaza
 18 Harbour Road, Wanchai, Hong Kong
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)            53.9%
</TABLE>
------------------------
(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.

Preferred Stock

     Series A Preferred  Stock. The following table is furnished as of August 1,
1997 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.

<TABLE>
<CAPTION>

Name and Address of                                  Number of Shares
Beneficial Owner (1)                                 Beneficially Owned             Percent
--------------------                                 ------------------             -------
<S>                                                         <C>                      <C>
Good Day Holdings Ltd................................       100,000  (2)             100.0%
 Unit 302-303A, 3rd Floor, Fu Hang Industrial Bldg.
 No. 1 Hok Yuen Street East, Kowloon, Hong Kong
Lam Sai Wing.........................................       100,000  (2)             100.0%
</TABLE>


                                       19
<PAGE>
------------------------
(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.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The Company's  predecessor and subsidiary,  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 years ended March 31, 1996 and 1997,  the Hang Fung Group
reported sales of $83,000 and $0, respectively, to Hang Fung Jewellery Co., Inc.
("HFJCI").  Prior to October 1, 1996,  HFJCI was  beneficially  owned by Lam Sai
Wing and was  engaged in  marketing  of  products  of the Hang Fung Group in the
United  States.  Effective  October 1,  1996,  Mr.  Lam  disposed  of all of his
holdings in HFJCI to an unrelated party.

     During the fiscal years ended March 31, 1996 and 1997,  the Hang Fung Group
paid rental payments totaling $199,000 and $174,000,  respectively,  to Chan Yam
Fai, Jane in  connection  with the lease of the  Company's  principal  executive
offices in Hong Kong.

     The Hang Fung Group has from time to time  advanced  funds to Lam Sai Wing.
Receivables  from Mr. Lam totaled  $1,056,000  at March 31, 1996 and $475,000 at
March 31,  1997.  Such loans are  unsecured,  non-interest  bearing  and without
pre-determined repayment terms.

     Lam Sai Wing and Chan Yam Fai, Jane have personally guaranteed the existing
banking  facilities of the Hang Fung Group and have pledged  certain real estate
as collateral to secure such banking facilities.

     With the exception of the  non-interest  bearing loans to Lam Sai Wing, 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.


                                       20
<PAGE>
                                     PART IV

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

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

          (1)  Consolidated   Financial  Statements:   See  Index  to  Financial
               Statements on page 23 of this report for financial statements and
               supplementary data filed as part of this report.

          (2)  Financial Statement Schedules

               None

          (3)  Exhibits

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

               2.1     Acquisition Agreement between  S.W.  Lam,  Inc.  and  the
                       shareholders of Hang  Fung  Jewellery Company Limited and
                       Kai Hang Jewellery Company Limited (1)
               3.1     Articles of Incorporation (1)
               3.2     Bylaws (1)
               4.1     Certificate of Designation  for Series A Preferred
                       Stock (1)
               10.1++  Employment Agreement  with Lam Sai Wing dated  January 1,
                       1994 (1)
               10.2++  Employment Agreement with Chan Yam Fai, Jane dated
                       January 1, 1994 (1)
               10.3    Sales Agency Agreement between Hang Fung Jewellery Co.,
                       Ltd. and China Jewellery Import & Export Co. (1)
               10.4    Agreement for Jewellery  Assembling   between  Hang  Fung
                       Jewellery Co., Ltd. and China Jewellery  Import & Export
                       Co. (1)
               10.5    Sales Cooperation Agreement between Hang Fung Jewellery
                       Co., Ltd. and China Jewellery Import & Export Co. (1)
               10.6    Confirmation Agreement between Hang Fung Jewellery Co.,
                       Ltd. and China Jewellery Import & Export Co. (1)
               10.7    Lease  Agreement  between  Chan Yam Fai,  Jane and Hang
                       Fung Jewellery Co., Ltd. re: executive offices (1)
               10.8++* Supplementary  Employment  Contract with Lam Sai Wing and
                       Lam Chan Yam Fai
               16.1    Letter from  Albright,  Persing & Associates  re:  change
                       of accountants (1)
               21.1    Subsidiaries (1)
               27.1*   Financial Data Schedules
               ------------------------
               ++   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)

     (b)  Reports on Form 8-K

          No reports on Form 8-K were  filed during  the quarter ended March 31,
          1997.


                                       21
<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:  September 30, 1997


     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.

<TABLE>
<CAPTION>

    Signature                            Title                            Date
    ---------                            -----                            ----
<S>                         <C>                                     <C>

/s/ Lam Sai Wing
-------------------------   President, Chief Executive Officer      September 30, 1997
Lam Sai Wing                (Principal Executive Officer) and
                            Chairman of the Board

/s/ Chan Yam Fai
-------------------------   Vice President, Chief Financial          September 30, 1997
Chan Yam Fai, Jane          Officer  (Principal Accounting
                            and Financial Officer) and Director

/s/ Ng Yee Mei
-------------------------   Vice President and Director              September 30, 1997
Ng Yee Mei

/s/ Cheng Wa On
-------------------------   Director                                 September 30, 1997
Cheng Wa On
</TABLE>


                                       22
<PAGE>
                                 S.W. LAM, INC.

Index to Consolidated Financial Statements


                                                                         Page

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

Consolidated Statements of Operations for the Years ended
 March 31, 1995, 1996 and 1997..........................................  F-2

Consolidated Balance Sheets as of March 31, 1996 and 1997...............  F-3

Consolidated Statements of Cash Flows for the Years ended
 March 31, 1995, 1996 and 1997..........................................  F-4

Consolidated Statements of Changes in Shareholders' Equity for
 the Years ended March 31, 1995, 1996 and 1997..........................  F-5

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


                                       23
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



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


We have audited the accompanying  consolidated balance sheets of S. W. Lam, Inc.
(a company incorporated in the State of Nevada,  United States of America;  "the
Company") and Subsidiaries  ("the Group") as of March 31, 1996 and 1997, and the
related  consolidated  statements  of  operations,  cash  flows and  changes  in
shareholders'  equity for the years ended March 31, 1995,  1996 and 1997.  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, 1996 and 1997, and the results of their  operations
and their cash  flows for the years  ended  March 31,  1995,  1996 and 1997,  in
conformity with generally accepted accounting principles in the United States of
America.





ARTHUR ANDERSEN & CO.
Certified Public Accountants
Hong Kong



Hong Kong,
August 5, 1997.


                                      F-1
<PAGE>
                                 S. W. LAM, INC.


                      CONSOLIDATED STATEMENTS OF OPERATIONS

                FOR THE YEARS ENDED MARCH 31, 1995, 1996 AND 1997

                      (Expressed in United States dollars)


<TABLE>
<CAPTION>

                                                    1 9 9 5               1 9 9 6              1 9 9 7
                                              --------------------  --------------------  -------------------
                                                     $'000                 $'000                $'000
<S>                                           <C>                   <C>                    <C>
Revenues
    Net sales                                            18,478                19,348                32,748
    Subcontracting fees                                   4,902                 7,520                 8,210
                                              --------------------  --------------------  -------------------

         Total revenues                                  23,380                26,868                40,958

Cost of sales and services                              (16,376)              (18,822)              (29,987)
                                              --------------------  --------------------  -------------------

         Gross profit                                     7,004                 8,046                10,971

Selling, general and administrative
    expenses                                             (2,669)               (2,734)               (3,627)
                                              --------------------  --------------------  -------------------

         Operating income                                 4,335                 5,312                 7,344

Express relating to the reverse acquisition
                                                              -                     -                  (350)

Interest expenses                                          (346)                 (403)                 (389)

Interest income                                              17                    11                     -

Other income (expenses), net                                 55                    63                    (2)
                                              --------------------  --------------------  -------------------

         Income before income taxes                       4,061                 4,983                 6,603

Provision for income taxes                               (1,472)               (1,650)               (2,128)
                                              --------------------  --------------------  -------------------

         Net income                                       2,589                 3,333                 4,475
                                              ====================  ====================  ===================

Earnings per common share                     $            0.22     $            0.28     $            0.37
                                              ====================  ====================  ===================

Weighted average number of common share
                                                     11,736,575            11,899,521            12,197,260
                                              ====================  ====================  ===================
</TABLE>


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


                                      F-2
<PAGE>
                                 S. W. LAM, INC.

                           CONSOLIDATED BALANCE SHEETS
                          AS OF MARCH 31, 1996 AND 1997

                      (Expressed in United States dollars)

<TABLE>
<CAPTION>

                                                                 1 9 9 6                1 9 9 7
                                                            ------------------     ------------------
                                                                  $'000                  $'000
<S>                                                         <C>                    <C>
ASSETS

Current assets:
    Cash                                                                  244                     94
    Accounts receivable, net                                            2,989                  5,106
    Inventories                                                         8,069                  8,509
    Prepayments and other current assets                                   14                    142
    Due from a director                                                 1,056                    475
                                                            ------------------     ------------------

         Total current assets                                          12,372                 14,326

Property, plant and equipment and capital leases, net                   3,304                  7,083
                                                            ------------------     ------------------

         Total assets                                                  15,676                 21,409
                                                            ==================     ==================

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
    Short-term bank borrowings                                          1,616                  2,275
    Long-term bank loans, current portion                                 381                    197
    Capital lease obligations, current portion                             50                    229
    Accounts payable                                                    1,353                  1,619
    Deposits from customers                                             4,016                  1,125
    Accrued liabilities                                                   329                    267
    Income taxes payable                                                4,014                  5,846
                                                            ------------------     ------------------

         Total current liabilities                                     11,759                 11,558

Long-term bank loans, non-current portion                                 851                  1,290
Capital lease obligations, non-current portion                             28                    260
Deferred taxation                                                           -                    284
                                                            ------------------     ------------------

         Total liabilities                                             12,638                 13,392
                                                            ------------------     ------------------

Shareholders' equity:
    Common stock, par value $0.001 each;  authorized
       - 25,000,000 shares; issued and  outstanding -
       12,000,000  shares at March 31, 1996 and
       12,800,000 shares at March 31, 1997                                 12                     13
    Preferred stock, par value $0.001 each; authorized -
       25,000,000 shares; issued and outstanding -
       Series A Preferred Stock - 100,000 shares                            -                      -
    Additional paid-in capital                                            323                    846
    Retained earnings                                                   2,533                  7,008
    Cumulative translation adjustments                                    170                    150
                                                            ------------------     ------------------

         Total shareholders' equity                                     3,038                  8,017
                                                            ------------------     ------------------

         Total liabilities and shareholders' equity                    15,676                 21,409
                                                            ==================     ==================
</TABLE>


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


                                      F-3
<PAGE>
                                 S. W. LAM, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                FOR THE YEARS ENDED MARCH 31, 1995, 1996 AND 1997

                      (Expressed in United States dollars)
<TABLE>
<CAPTION>
                                                    1 9 9 5               1 9 9 6              1 9 9 7
                                              --------------------  --------------------  -------------------
                                                     $'000                 $'000                $'000
<S>                                              <C>                     <C>                   <C>
Cash flows from operating activities:
Net income                                                2,589                 3,333                 4,475
Adjustments to reconcile net income to net
    cash provided by operating activities -
    Depreciation of property, plant and
       equipment                                            373                   678                 1,031
    Provision for bad and doubtful debts                    202                   114                     -
    (Write back of) Provision for deferred
       income taxes                                          (5)                  (13)                  284
(Increase) Decrease in operating assets -
    Accounts receivable, net                             (1,773)                2,455                (2,117)
    Inventories                                             490                   179                  (440)
    Prepayments and other current assets                     (4)                    -                  (128)
    Due from a director                                  (1,440)                  431                   581
(Decrease) Increase in operating
    liabilities -
    Accounts payable                                         (6)                1,166                   266
    Deposits from customers                                (904)               (2,974)               (2,891)
    Accrued liabilities                                      50                   157                   (62)
    Income taxes payable                                  1,515                 1,671                 1,832
                                              --------------------  --------------------  -------------------
    Net cash provided by operating
       activities                                         1,087                 7,197                 2,831
                                              --------------------  --------------------  -------------------
Cash flows from investing activities:
Additions to property, plant and equipment
                                                         (1,297)               (2,090)               (4,243)
                                              --------------------  -------------------  --------------------

    Net cash used in investing activities                (1,297)               (2,090)               (4,243)
                                              --------------------  --------------------  -------------------
Cash flows from financing activities:
Net proceeds from issuance of common stock
                                                            279                    45                   524
Payment of dividends                                          -                (5,000)                    -
Net (decrease) increase in short-term bank
    borrowings                                              (57)                 (409)                  659
Repayment of capital element of capital
    lease obligations                                       (24)                  (27)                 (138)
Additions of long-term bank loans                           129                 1,257                   772
Repayment of long-term bank loans                          (418)               (1,279)                 (517)
                                              --------------------  --------------------  -------------------
    Net cash (used in) provided by
       financing activities                                 (91)               (5,413)                1,300
                                              --------------------  --------------------  -------------------
Effect of exchange rate changes on cash                      84                   150                   (38)
                                              --------------------  --------------------  -------------------

    Net decrease in cash                                   (217)                 (156)                 (150)

Cash, as of beginning of year                               617                   400                   244
                                              --------------------  --------------------  -------------------
Cash, as of end of year                                     400                   244                    94
                                              ====================  ====================  ===================
</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, 1995, 1996 AND 1997

                      (Expressed in United States dollars)


<TABLE>
<CAPTION>

                                                      Series A
                          Common stock             Preferred stock                               Cumulative
                     ------------------------  ------------------------
                      Number of                Number of                Additional   Retained    translation
                       shares     Par value      shares     Par value   paid-in      earnings    adjustments
                                                                         capital
                     ------------ -----------  ----------- ------------ -----------  --------    -----------
                        `000        $'000         `000        $'000       $'000        $'000       $'000
<S>                      <C>              <C>         <C>         <C>         <C>      <C>            <C>
Balance as of
   March 31, 1994        10,500           11          100           -            -       1,611          (31)

   Common stock           1,275            1            -           -          278           -            -
     issued
   Net income                 -            -            -           -            -       2,589            -
   Translation
     adjustments              -            -            -           -            -           -           72
                     ------------ -----------  ----------- ------------ ----------- ------------ -----------

Balance as of
   March 31, 1995        11,775           12          100           -          278       4,200           41

   Common stock             225            -            -           -           45           -            -
     issued
   Net income                 -            -            -           -            -       3,333            -
   Dividends                  -            -            -           -            -      (5,000)           -
   Translation
     adjustments              -            -            -           -            -           -          129
                     ------------ -----------  ----------- ------------ ----------- ------------ -----------

Balance as of
   March 31, 1996        12,000           12          100           -          323       2,533          170

   Common stock             800            1            -           -          999           -            -
     issued
   Common stock
     issuance
     expenditures             -            -            -           -         (476)          -            -
   Net income                 -            -            -           -            -       4,475            -
   Translation
     adjustments              -            -            -           -            -           -          (20)
                     ------------ -----------  ----------- ------------ ----------- ------------ -----------

Balance as of
   March 31, 1997        12,800           13          100           -          846       7,008          150
                     ============ ===========  =========== ============ =========== ============ ===========

</TABLE>


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


                                      F-5
<PAGE>
                                 S. W. LAM, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

      (Amounts expressed in United States dollars unless otherwise stated)


ORGANIZATION AND OPERATIONS

S.  W.  Lam,  Inc.  ("the  Company"),  formerly  known  as New  Wine  Inc.,  was
incorporated  on April 12,  1994 in the  State of  Tennessee,  United  States of
America.  On November  15,  1996,  the Company  effected a change of domicile by
reincorporating  in the State of Nevada,  United States of America,  and changed
its name from New Wine,  Inc. to S. W. Lam, Inc. In addition,  on the same date,
the  Company  effected a change in par value of each  share of its common  stock
from $0.01 per share to $0.001 per share.

On December 31,  1996,  the Company  acquired  100%  interest in Quality  Prince
Limited ("QPL"; a company incorporated in the British Virgin Islands) by issuing
10,500,000  shares of its common stock of par value  $0.001  each,  representing
87.5% of its  enlarged  issued  share  capital,  and 100,000  shares of Series A
Preferred  Stock of par value $0.001 each, to the previous owners of QPL. QPL is
an  investment  holding  company  which had acquired on December 19, 1996,  100%
interest in the following companies:

<TABLE>
<CAPTION>

                                                   Place of
               Name of company                   incorporation               Principal activities
---------------------------------------       -------------------   --------------------------------------
<S>                                              <C>                   <C>
Hang Fung Jewellery Company Limited              Hong Kong             Production and selling of jewellery
    ("HFJCL")(Note a)                                                      products

Kai Hang Jewellery Company Limited               Hong Kong             Selling of jewellery products
    ("KHJCL")(Note a)

Soycue Limited ("SL")(Note b)                    British Virgin        Production and selling of jewellery
                                                     Islands               products

Macadam Profits Limited ("MPL")                  British Virgin        Sourcing, marketing and selling of
    (Note b)                                         Islands               jewellery products

Priestgill Limited ("PL")(Note b)                British Virgin        Marketing and selling of jewellery
                                                     Islands               products
</TABLE>
------------------------
Note -

a.   HFJCL took over the businesses previously undertaken by Hang Fung Jewellery
     Company ("HFJC")  effective  September 1995, and the businesses  previously
     undertaken by Hang Fung  Manufacturing  Company ("HFMC") effective November
     1994. Prior to December 19, 1996, HFJCL and KHJCL were jointly owned by Mr.
     Lam  Sai  Wing  and  Ms.   Chan  Yam  Fai.   HFJC  was  an   unincorporated
     sole-proprietorship  entity  owned  by  Mr.  Lam  Sai  Wing.  HFMC  was  an
     unincorporated sole-proprietorship entity owned by Ms. Chan Yam Fai.

b.   Prior to December 19, 1996, SL, MPL and PL were solely owned by Mr. Lam Sai
     Wing.


                                      F-6
<PAGE>
1.   ORGANIZATION AND OPERATIONS (Cont'd)

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

The Group's  production  and selling  activities in the PRC are mainly  operated
through  arrangements  with China  National  Pearl,  Diamond,  Gem and Jewellery
Import and Export Corporation ("CNPIEC"), a PRC state-owned enterprise, which is
one of the few entities authorized to trade gold and silver products in the PRC.
During the year ended March 31, 1997, approximately 20% of the Group's sales and
approximately 50% of the Group's  subcontracting fees resulted from its business
conducted in the PRC under these arrangements.  The key transactions with CNPIEC
were as follows:

a.   Under a  subcontracting  agreement  dated  November 18, 1994 and subsequent
     supplemental  agreement entered into between SL and CNPIEC, SL has operated
     a plant in  Beijing,  the PRC ("the  Beijing  Plant") to produce  jewellery
     products for sales to customers outside the PRC.

b.   The Beijing Plant also provides subcontracting services to PRC customers at
     the  instruction  and on  behalf of  CNPIEC,  and  shares a portion  of the
     subcontracting  fees received by CNPIEC. The initial term of the agreements
     is  ten  years  expiring  on  November  17,  2004,  and is  renewable  upon
     expiration.  During the years ended  March 31,  1995,  1996 and 1997,  SL's
     share of these  subcontracting  fees amounted to approximately  $3,566,000,
     $3,965,000 and $4,133,000, respectively.

c.   Under an agency agreement and a co-operative  selling  agreement both dated
     November 18, 1994 and a  subsequent  supplemental  agreement  for these two
     agreements  entered into between SL and CNPIEC,  SL has appointed CNPIEC as
     its agent for sales of its gold and silver  products in the PRC. In return,
     SL pays to CNPIEC an agency fee  determined  on a fixed  percentage  of the
     sales proceeds collected by CNPIEC. The term of the agreements is ten years
     expiring on November 17, 2004.  During the years ended March 31, 1995, 1996
     and 1997, the SL paid to CNPIEC agency fees approximately $196,000, $88,000
     and $36,000, respectively.

d.   Other transactions with CNPIEC were as follows:

<TABLE>
<CAPTION>

                                                        1 9 9 5             1 9 9 6             1 9 9 7
                                                   ------------------   -----------------   -----------------
                                                         $'000               $'000               $'000
<S>                                                          <C>                  <C>                    <C>

         Purchases of gold and silver from
             CNPIEC                                           2,961                2,461                   -

         Management fees paid to CNPIEC                         115                   84                  54
                                                   ==================   =================   =================
</TABLE>

e.   Pursuant  to an  agreement  between  SL and  CNPIEC,  CNPIEC  has agreed to
     undertake  and  pay  for  all  of  SL's  PRC  tax  liabilities,   including
     value-added   tax,  if  any,   relating  to  SL's   operations   under  the
     above-mentioned activities.


                                      F-7
<PAGE>
1.   ORGANIZATION AND OPERATIONS (Cont'd)

Under an agency  agreement  and a  co-operative  selling  agreement  both  dated
December  1,  1994,  SL has  appointed  Yiu Ping Gold and  Silver  Manufacturing
Factory ("YPGSMF"),  a PRC state-owned enterprise which is licensed to sell gold
and silver  products  in the PRC,  as its agent for sales of its gold and silver
products in the PRC. In return,  SL pays to YPGSMF an agency fee determined on a
fixed percentage of the sales effected by YPGSMF.  The term of the agreements is
five years expiring on November 30, 1999. During the years ended March 31, 1995,
1996 and 1997,  the Group paid to YPGSMF agency fees of  approximately  $35,000,
$48,000 and Nil, respectively.

Under an agency agreement and a co-operative  selling agreement both dated April
30, 1996, SL has appointed Tai Yuan Jewellery  Crafts Factory  ("TYJCF"),  a PRC
state-owned  enterprise  which is also licensed to sell gold and silver products
in the PRC,  as its agent for sales of its gold and silver  products in the PRC.
In  return,  SL pays to TYJCF  an  agency  fee,  which is  subject  to  revision
annually.  The term of the  agreements is ten years  expiring on April 29, 2006.
During the year ended March 31,  1997,  the Group paid to TYJCF an agency fee of
$60,000.  TYJCF  has also  agreed to  undertake  and pay for all of SL's PRC tax
liabilities,  including  value-added  tax, if any,  relating to SL's  operations
under the above-mentioned activities.

In addition, SL has entered into a subcontracting agreement with Shenzhen Crafts
Hang Fung Jewellery Factory ("SCHFJF"),  another PRC state-owned enterprise, for
the  production  of SL's gold and silver  products  in  Shenzhen,  the PRC,  for
shipments out of the PRC.  During the years ended March 31, 1995, 1996 and 1997,
subcontracting fees paid to SCHFJF amounted to approximately $240,000,  $240,000
and $127,000, respectively.

2.   SUBSIDIARIES

Details of the Company's subsidiaries as of March 31, 1997 were as follows:
<TABLE>
<CAPTION>

                                Place of                               Percentage
                             incorporation       Issued and fully       of equity
          Name               and operations     paid share capital    interest held    Principal activities
-------------------------   -----------------   -------------------   --------------   ----------------------
<S>                          <C>                <C>                   <C>              <C>
Quality Prince Limited       British Virgin     $70 shares of $1          100%         Investment holding
                                Islands           each

Hang Fung Jewellery            Hong Kong        2 Class A                   -          Production and
   Company Limited                                (non-voting)                            selling of
                                                  and                     100%            jewellery products
                                                2 Class B               (Note a)
                                                  (voting) shares
                                                  of HK$1 each

Kai Hang Jewellery             Hong Kong        10,000 Class A              -          Selling of jewellery
   Company Limited                                (non-voting) and                        products
                                                2 Class B                 100%
                                                  (voting) shares       (Note a)
                                                  of HK$1 each

Soycue Limited               British Virgin     1 share of $1 each        100%         Production and
                                Islands                                                   selling of
                                                                                          jewellery products

Macadam Profits Limited      British Virgin     1 share of $1 each        100%         Sourcing, marketing
                                Islands                                                   and selling of
                                                                                          jewellery products

Priestgill Limited           British Virgin     1 share of $1 each        100%         Marketing and
                                Islands                                                   selling of
                                                                                          jewellery products
</TABLE>


                                      F-8
<PAGE>
2.   SUBSIDIARIES (Cont'd)

Note -

a.   According to the Articles of Association of HFJCL and KHJCL, only the Class
     B (voting) shares have voting rights and  preferential  rights to dividends
     and in the  distribution  of  assets.  QPL held all of the Class B (voting)
     shares of HFJCL and KHJCL.

3.   BASIS OF PRESENTATION

The consolidated financial statements of the Company as presented herein include
the financial statements of the Company and its subsidiaries. The acquisition of
QPL by the Company on December 31, 1996 was treated as a recapitalization of QPL
with QPL as the acquirer  (reverse  acquisition).  On this basis, the historical
consolidated  financial statements of the Company prior to December 31, 1996 are
those of QPL and the historical shareholders' equity of QPL as of March 31, 1995
and 1996 has been  retroactively  restated to reflect the  equivalent  number of
shares of common stock of the Company issued for this acquisition.

The  acquisitions  of HFJCL,  KHJCL,  SL, MPL and PL by QPL on December 19, 1996
have been accounted for as a  reorganization  of entities under common  control,
similar to a pooling of interests as the shareholders and management  control of
HFJCL, KHJCL, SL, MPL, PL and QPL are the same before and after the acquisition.

4.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The consolidated  financial statements are prepared in accordance with generally
accepted  accounting  principles  in the United  States of America.  Significant
accounting policies are summarized below:

a.   Basis of consolidation

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

b.   Revenues

     Revenues  comprise  (i)  the  net  invoiced  value  of  goods  supplied  to
     customers, which are recognized upon delivery of goods, passage of title to
     customers   and  the   expiration   of  any  right  of  return,   and  (ii)
     subcontracting  fees, which are recognized when the subcontracting  service
     is rendered.

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


                                      F-9
<PAGE>
4.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)

c.   Income taxes

     Income taxes are provided  under the  provisions  of Statement of Financial
     Accounting  Standards No. 109, which  requires  recognition of deferred tax
     assets and liabilities for 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.

d.   Inventories

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

e.   Property, plant and equipment and capital leases

     Property,  plant and equipment and capital leases are stated at cost. Gains
     or losses on disposals  are reflected in current  operations.  Depreciation
     for financial reporting purposes is provided using the straight-line method
     over the  asset's  estimated  useful  life after  taking  into  account the
     estimated  residual  value.  The  estimated  useful  lives are as follows :
     leasehold land - 50 years, building - 20 years, machinery and equipment - 5
     to 7 years,  motor vehicles - 5 years,  and furniture,  fixtures and office
     equipment - 5 years.

f.   Foreign currency translation

     The translation of the financial  statements of group companies into United
     States  dollars is  performed  for balance  sheet  accounts  using  closing
     exchange  rates in effect at the  balance  sheet date and for  revenue  and
     expense  accounts  using an average  exchange  rate during  each  reporting
     period.  The gains or losses  resulting  from  translation  are included in
     shareholders'  equity  separately  as cumulative  translation  adjustments.
     Aggregate gain (loss) from foreign  currency  transactions  included in the
     results of operations were  approximately  $3,000,  $1,000 and $(2,000) for
     the years ended March 31, 1995, 1996 and 1997, respectively.

g.   Financial instruments

     Financial instruments include cash, accounts receivable,  accounts payable,
     short-term and long-term bank borrowings, and capital lease obligations for
     which their carrying amounts approximate fair values.

h.   Earnings per common share

     Earnings  per common  share is computed  by dividing  the net income by the
     weighted  average number of shares of common stock  outstanding  during the
     year.


                                      F-10
<PAGE>
4.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)

i.   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.

5.   PROVISION FOR INCOME TAXES

The Company and its  subsidiaries are subject to income taxes on an entity basis
on income arising in or derived from the tax jurisdiction in which they operate.
The  companies  operating in Hong Kong are subject to Hong Kong profits tax at a
rate of 16.5%, and the companies  operating in the PRC are subject to PRC income
taxes at a rate of 33%.

The components of provision for income taxes are:

<TABLE>
<CAPTION>

                                       1 9 9 5                1 9 9 6               1 9 9 7
                                  -------------------   --------------------   -------------------
                                        $'000                  $'000                 $'000
<S>                                          <C>                   <C>                     <C>
Current tax
    -  Hong Kong profits tax                     39                    21                     24
    -  PRC income taxes                       1,438                 1,642                  1,820

Deferred tax                                     (5)                  (13)                   284
                                  -------------------   --------------------   -------------------

                                              1,472                 1,650                  2,128
                                  ===================   ====================   ===================
</TABLE>

The reconciliation of the United States federal income tax rate to the effective
income  tax rate  based on the  income  before  income  taxes as  stated  in the
consolidated statements of operations is as follows:
<TABLE>
<CAPTION>

                                                  1 9 9 5                1 9 9 6                1 9 9 7
                                             ------------------     ------------------     ------------------
<S>                                                     <C>                   <C>                     <C>
U.S. federal income tax rate                            35.0%                  35.0%                  35.0%

Weighted average effect of different
    tax rates in the foreign
    jurisdictions                                       (2.7%)                 (2.7%)                 (4.0%)

Permanent differences arising from
    non-deductible items                                 3.9%                   0.8%                   1.2%
                                             ------------------     ------------------     ------------------

Effective income tax rate                               36.2%                  33.1%                  32.2%
                                             ==================     ==================     ==================
</TABLE>


                                      F-11
<PAGE>
6.   ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>

Accounts receivable comprise:
                                                   1 9 9 6                1 9 9 7
                                              ------------------     ------------------
                                                    $'000                  $'000
<S>                                                     <C>                    <C>
Trade receivables                                         3,441                  5,558
Less: Allowance for doubtful accounts                      (452)                  (452)
                                              ------------------     ------------------

Accounts receivable, net                                  2,989                  5,106
                                              ==================     ==================


7.   INVENTORIES

Inventories comprise:
                                                   1 9 9 6                1 9 9 7
                                              ------------------     ------------------
                                                    $'000                  $'000

Raw materials                                             2,784                  3,907
Finished goods                                            3,317                  4,107
Consigned finished goods                                  1,968                    495
                                              ------------------     ------------------

                                                          8,069                  8,509
                                              ==================     ==================
</TABLE>

8.   PROPERTY, PLANT AND EQUIPMENT AND CAPITAL LEASES

Property, plant and equipment and capital leases comprise:

<TABLE>
<CAPTION>

                                                      1 9 9 6                1 9 9 7
                                                 ------------------     ------------------
                                                       $'000                  $'000
<S>                                                        <C>                    <C>
Property, plant and equipment:
Leasehold land and building                                    255                    255
Machinery and equipment                                      3,586                  6,688
Motor vehicles                                                  88                     89
Furniture, fixtures and office equipment                       312                  1,087

Capital leases:
Machinery and equipment                                        151                  1,022
                                                 ------------------     ------------------

Cost                                                         4,392                  9,141

Less: Accumulated depreciation
Property, plant and equipment                               (1,058)                (1,823)
Capital leases                                                 (30)                  (235)
                                                 ------------------     ------------------

Property, plant and equipment and capital
 leases, net                                                 3,304                  7,083
                                                 ==================     ==================
</TABLE>

As of March 31,  1997,  leasehold  land and  building  with a net book  value of
approximately  $221,000 and  machinery  and  equipment  with a net book value of
approximately  $328,000 were mortgaged to secure certain of the Group's  banking
facilities.


                                      F-12
<PAGE>
9.  SHORT-TERM BANK BORROWINGS

Short-term bank borrowings comprise:

                                     1 9 9 6                1 9 9 7
                                ------------------     ------------------
                                      $'000                  $'000

Bank overdraft                                518                    441
Import trust receipt loans                  1,098                  1,834
                                ------------------     ------------------

                                            1,616                  2,275
                                ==================     ==================

Short-term  bank  borrowings  are  secured  by  mortgages  over the real  estate
property  (leasehold  land and  building)  and pledges of certain  machinery and
equipment of the Group,  mortgages over certain real estate  properties owned by
Mr. Lam Sai Wing and Ms. Chan Yam Fai, and personal  guarantees given by Mr. Lam
Sai Wing and Ms. Chan Yam Fai.  Interest on these  borrowings is charged at Hong
Kong prime  lending rate plus 0.75% to 3.75%,  which was 9.5% to 12.5% per annum
as of March 31, 1997.

Supplemental information with respect to short-term bank borrowings is:

                                            1 9 9 6                1 9 9 7
                                       ------------------     ------------------
                                             $'000                  $'000

Maximum amount outstanding                         2,025                  3,317
Average amount outstanding                         1,443                  1,735
Weighted average interest
 rate per annum during the year
                                                    10.5%                  10.5%
Weighted average interest
 rate per annum at the end of year
                                                    10.3%                  10.8%
                                         ==================   ==================

10.  LONG-TERM BANK LOANS

Long-term  bank loans are secured by  mortgages  over the real  estate  property
(leasehold land and building) and pledges of certain  machinery and equipment of
the Group,  mortgages over certain real estate  properties  owned by Mr. Lam Sai
Wing and Ms. Chan Yam Fai, and personal guarantees given by Mr. Lam Sai Wing and
Ms. Chan Yam Fai.  They bear interest at Hong Kong prime lending rate plus 2% to
3.25%, which was 10.75% to 12% per annum as of March 31, 1997.

Aggregate maturities of long-term bank loans are as follows:
<TABLE>
<CAPTION>

                                                     1 9 9 6                1 9 9 7
                                                ------------------     ------------------
                                                      $'000                  $'000
<S>                                                        <C>                    <C>
Payable during the following periods:
Within one year                                               381                    197
Over one year but not exceeding two years                      88                    195
Over two years but not exceeding three years                   98                    137
Over three years but not exceeding four years                 108                    155
Over four years but not exceeding five years                  121                    133
Over five years                                               436                    670
                                                ------------------     ------------------

Total bank loans                                            1,232                  1,487

Less: Current maturities                                     (381)                  (197)
                                                ------------------     ------------------

Long-term bank loans                                          851                  1,290
                                                ==================     ==================
</TABLE>


                                      F-13
<PAGE>
11.  CAPITAL LEASE OBLIGATIONS

Future minimum lease payments under the capital leases together with the present
value of the minimum lease payments are as follows:

<TABLE>
<CAPTION>

                                                        1 9 9 6                1 9 9 7
                                                   ------------------     ------------------
                                                         $'000                  $'000
<S>                                                             <C>                   <C>
Payable during the following periods:
    Within one year                                               59                    281
    Over one year but not exceeding two years                     29                    193
    Over two years but not exceeding three years                   -                     95
                                                   ------------------     ------------------

Total minimum lease payments                                      88                    569
Less: Amount representing future interest                        (10)                   (80)
                                                   ------------------     ------------------

Present value of minimum lease payments                           78                    489
Less: Current portion                                            (50)                  (229)
                                                   ------------------     ------------------

Non-current portion                                               28                    260
                                                   ==================     ==================
</TABLE>

12.  GENERAL BANKING FACILITIES

As of March 31, 1997,  the Group's had credit  facilities  with several banks of
approximately $5,550,000. Unused credit facilities as of March 31, 1997 amounted
to  approximately  $1,309,000.  These facilities are collaterized by the Group's
leasehold land and building with a net book value of approximately $221,000, the
Group's machinery and equipment with a net book value of approximately $328,000,
personnal  guarantees  given  by Mr.  Lam Sai Wing  and Ms.  Chan  Yam Fai,  and
mortgages over certain real estate  properties owned by Mr. Lam Sai Wing and Ms.
Chan Yam Fai.


13.  SEGMENTAL INFORMATION

Analysis of the Group's operations by geographical areas is as follows:
<TABLE>
<CAPTION>

                                                  1 9 9 5                1 9 9 6                1 9 9 7
                                             ------------------     ------------------     ------------------
                                                   $'000                  $'000                  $'000
<S>                                                    <C>                   <C>                    <C>
Net sales to customers in
    -  Hong Kong                                         6,321                  6,502                 11,540
    -  PRC                                               5,143                  6,129                  8,043
    -  Middle East (export sales)                        2,059                  3,288                  5,744
    -  South East Asia (export sales)
                                                         2,149                  1,280                  4,610
    -  Europe (export sales)                             2,806                  2,149                  1,506
    -  United States of America
         (export sales)                                      -                      -                  1,305
                                             ------------------     ------------------     ------------------

                                                        18,478                 19,348                 32,748
                                             ==================     ==================     ==================
Subcontracting income
    -  Hong Kong                                         1,336                  3,555                  4,077
    -  PRC                                               3,566                  3,965                  4,133
                                             ------------------     ------------------     ------------------

                                                         4,902                  7,520                  8,210
                                             ==================     ==================     ==================
</TABLE>


                                      F-14
<PAGE>
14.  SUPPLEMENTAL DISCLOSURE TO CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                  1 9 9 5                1 9 9 6                1 9 9 7
                                             ------------------     ------------------     ------------------
                                                   $'000                  $'000                  $'000
<S>                                                      <C>                     <C>                     <C>
Cash paid for interest expenses                            347                    392                    389
Cash received from interest income
                                                            17                     11                      -
                                             ==================     ==================     ==================
</TABLE>

During the years ended March 31, 1995, 1996 and 1997,  capital lease obligations
of  approximately  Nil,  $103,000 and $567,000,  respectively,  were incurred to
finance the Group's additions of new machinery and equipment.

15.  PENSION SCHEME AND LONG SERVICE PAYMENTS

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

The Group has arranged a voluntary defined  contribution  pension scheme for its
employees in Hong Kong. Nine out of a total of  approximately  eighty  employees
have joined the scheme and the aggregate amounts of the Group's  contribution to
the scheme for the years ended March 31, 1995, 1996 and 1997 were  approximately
$7,000, $2,000 and $10,000,  respectively.  In addition,  certain of the Group's
employees in Hong Kong have  completed  the required  number of years of service
under  the Hong  Kong  Employment  Ordinance  to be  eligible  for long  service
payments on  termination of their  employment.  The Group is only liable to make
such payments when the termination meets the required circumstances specified in
the Ordinance.  If the termination of all these employees met the  circumstances
required by the  Ordinance,  the Company's  liability as of March 31, 1997 would
amount  to  approximately  $42,000,  which  has  not  been  provided  for in the
financial statements.

16.  LEASE COMMITMENTS

The Group leases various staff quarters,  factory  premises and warehouses under
non-cancellable  operating  leases which expire at various  dates  through March
1999.  Rental  expenses for the years ended March 31,  1995,  1996 and 1997 were
approximately  $213,000,  $257,000 and $285,000,  respectively.  Future  minimum
rental payments as of March 31, 1997, under  agreements  classified as operating
leases with non-cancellable terms in excess of one year, are as follows:
<TABLE>
<CAPTION>

                                                       1 9 9 6                1 9 9 7
                                                  ------------------     ------------------
                                                        $'000                  $'000
<S>                                                             <C>                   <C>
Payable during the following periods:
    Within one year                                               9                    556
    Over one year but not exceeding two years                     -                    347
                                                  ------------------     ------------------

                                                                  9                    903
                                                  ==================     ==================
</TABLE>


                                      F-15
<PAGE>
17.  OPERATING RISKS

a.   Dependence on strategic relationship

     Gold and silver products are restricted  commodities in the PRC and special
     authorization is required to trade gold and silver products in the PRC. The
     PRC  government  has  only  granted  a  few  licences  to  PRC  state-owned
     enterprises  to trade  gold and silver  products  in the PRC.  The  Group's
     present operations in the PRC are conducted through various agreements with
     PRC  state-owned  enterprises as described in Note 1. Any changes in any of
     these strategic  relationships  could have a material adverse effect on the
     revenue  and  profitability  of the Group and could  potentially  limit the
     Group's ability to continue to conduct business in the PRC.

b.   Concentration of credit risk and major customers

     The Group's sales and  subcontracting  services are made to customers on an
     open account  basis and  generally no  collateral  is required.  Details of
     individual  customers  accounting  for more  than 5% of the  Group's  total
     revenues are as follows:

<TABLE>
<CAPTION>

                                                                  Percentage of total revenues
                                                    ---------------------------------------------------------
                                                        1 9 9 5             1 9 9 6             1 9 9 7
                                                    -----------------   -----------------   -----------------
<S>                                                           <C>                 <C>              <C>
         CNPIEC                                               18.0%               14.5%               0.9%
         Chow Tai Fook Jewellery Co., Ltd.
                                                               2.9%                6.0%              12.3%
         World Commercial Sales Co. Ltd.                       0.1%                0.2%               6.4%
                                                    =================   =================   =================
</TABLE>

     Concentration  of accounts  receivable  as of March 31, 1996 and 1997 is as
follows:

                                         Percentage of accounts receivable
                                      -----------------------------------------
                                           1 9 9 6                1 9 9 7
                                      ------------------     ------------------

 Five largest accounts receivable             32.3%                  36.5%
                                      ==================     ==================

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

c.   Concentration of suppliers

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

                                                                    Percentage of purchases
                                                    ---------------------------------------------------------
                                                        1 9 9 5             1 9 9 6             1 9 9 7
                                                    -----------------   -----------------   -----------------
<S>                                                          <C>                 <C>                  <C>
         CNPIEC                                               16.0%               11.6%                -
         Heraeus Ltd.                                         27.4%               28.6%               43.6%
         Johnson Matthey H.K. Ltd.                             0%                  3.6%               16.4%
         Degussa China Ltd.                                    0%                  0.7%                9.9%
         AGR Hong Kong                                         0%                  0.7%                6.5%
         Cheong Hing Refinery Works Ltd.                       4.8%                5.6%                5.3%
                                                    =================   =================   =================
</TABLE>


                                      F-16
<PAGE>
17.  OPERATING RISKS (Cont'd)

d.   Country risk

     The Group's operations are conducted in Hong Kong and the PRC. As a result,
     the 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 was transferred from the United
     Kingdom to the PRC, and Hong Kong became a Special Administrative Region of
     the PRC ("SAR"). As provided in the Sino-British Joint Declaration relating
     to Hong Kong and the  Basic  Law of the Hong Kong SAR of the PRC,  the Hong
     Kong SAR has full  economic  autonomy  and its own  legislative,  legal and
     judicial systems for fifty years.  The Group's  management does not believe
     that the transfer of sovereignty over Hong Kong will have an adverse impact
     on the  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 Group's operations in the PRC are subject to special considerations and
     significant  risks not typically  associated  with  companies  operating in
     North American and Western  European.  These include risks associated with,
     among others,  the political,  economic and legal  environments and foreign
     currency exchange. The Group's results may be adversely affected by changes
     in the  political  and  social  conditions  in the PRC,  and by  changes in
     governmental  policies with respect to laws and  regulations,  inflationary
     measures,  currency conversion and remittance abroad, and rates and methods
     of taxation,  among other  things.  In  addition,  a portion of the Group's
     revenue is  denominated  in  Renminbi  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.

18.  RELATED PARTY TRANSACTIONS

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

<TABLE>
<CAPTION>

                                                        1 9 9 5             1 9 9 6             1 9 9 7
                                                   ------------------   -----------------   -----------------
                                                         $'000               $'000               $'000
<S>                                                            <C>                  <C>                 <C>
         Sales to a related company
             -  Hang Fung Jewellery Co., Inc.
                ("HFJCI")                                       112                   83                   -

         Rental paid to Ms. Chan Yam Fai                        174                  199                 174

         Salaries paid to
             -  Mr. Lam Sai Wing                                 45                   55                 145
             -  Ms. Chan Yam Fai                                 45                   55                  19
                                                   ==================   =================   =================
</TABLE>


                                      F-17
<PAGE>
18.  RELATED PARTY TRANSACTIONS (Cont'd)

a.   The Group entered into the  following  transactions  with related  parties:
     (Cont'd)

     Prior to October 1, 1996, HFJCI was beneficially  owned by Mr. Lam Sai Wing
     and was principally engaged in the provision of marketing service for HFJCL
     in the United States of America.  Effective  from October 1, 1996,  Mr. Lam
     Sai Wing disposed all of his shareholdings in HFJCI to an unrelated party.

b.   The  amounts  due from Mr.  Lam Sai Wing of  approximately  $1,056,000  and
     $475,000  as of March 31,  1996 and  1997,  respectively,  were  unsecured,
     non-interest bearing and without pre-determined repayment terms.

c.   The Group's  banking  facilities  were secured by, among others,  mortgages
     over certain real estate  properties owned by Mr. Lam Sai Wing and Ms. Chan
     Yam Fai and personal  guarantees given by Mr. Lam Sai Wing and Ms. Chan Yam
     Fai.

19.  OTHER SUPPLEMENTAL INFORMATION
<TABLE>
<CAPTION>

                                                        1 9 9 5             1 9 9 6             1 9 9 7
                                                    -----------------   -----------------   -----------------
                                                         $'000               $'000               $'000
<S>                                                            <C>                 <C>                 <C>
Depreciation of fixed assets
    -  owned assets                                             362                 663                 826
    -  assets held under capital leases                          11                  15                 205

Provision for bad and doubtful debts                            202                 114                   -
                                                    =================   =================   =================
</TABLE>


                                      F-18