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, 1999

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

        For the transition period from ______________ to _______________.

                           Commission File No. 0-22049

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

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

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

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

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

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

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

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

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports);  and (2) has been subject to such
filing requirements for the past ninety (90) days. Yes  X   No
                                                       ---    ---
     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

     As of July 1, 1999,  12,800,000  shares of common  stock of the  Registrant
were outstanding.  As of such date, the aggregate market value of the voting and
non-voting common equity held by non-affiliates, based on the closing price, was
approximately $3,450,000.

                       DOCUMENTS INCORPORATED BY REFERENCE

         None.

<PAGE>

                                TABLE OF CONTENTS

                                                                         Page
                                                                        -------
PART I

         ITEM 1.  BUSINESS.....................................................1
         ITEM 2.  PROPERTIES..................................................13
         ITEM 3.  LEGAL PROCEEDINGS...........................................14
         ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.........14

PART II

         ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY
                  AND RELATED STOCKHOLDER MATTERS.............................14
         ITEM 6.  SELECTED FINANCIAL DATA.....................................15
         ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS...............16
         ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
                  ABOUT MARKET RISK...........................................23
         ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................23
         ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
                  ON ACCOUNTING AND FINANCIAL DISCLOSURE......................23

PART III

         ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS,
                  AND CONTROL PERSONS OF THE REGISTRANT.......................24
         ITEM 11. EXECUTIVE COMPENSATION......................................25
         ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
                  OWNERS AND MANAGEMENT.......................................28
         ITEM 13. CERTAIN RELATIONSHIPS AND RELATED  TRANSACTIONS.............29

PART IV

         ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
                  REPORTS ON FORM 8-K.........................................30

                  SIGNATURES..................................................31
<PAGE>

                                     PART I

     This Form 10-K contains  forward-looking  statements  within the meaning of
Section 27A of the  Securities  Act of 1933 and  Section  21E of the  Securities
Exchange Act of 1934. The Company's actual results could differ  materially from
those set forth in the  forward-looking  statements.  Certain factors that might
cause such a difference are discussed in the section entitled  "Factors that May
Affect Future Results" beginning on page 20 of this Form 10-K.

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

     The Company's  functional  currency is Hong Kong Dollars  ("HK$").  For the
convenience of readers,  unless otherwise indicated,  all financial  information
contained herein is presented in United States Dollars  ("US$").  Translation of
amounts from HK$ into US$ has been made at the noon buying rate in New York City
for cable transfers in foreign  currencies as certified for customs  purposes by
the Federal Reserve Bank of New York on March 31, 1999 of US$1.00 = HK$7.75.  No
representation  is made  that the HK$  amounts  could  have  been,  or could be,
converted into US$ at that rate or at any other rate.

ITEM 1.  BUSINESS

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

History and Development of the Company

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

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



                                       1
<PAGE>

     In December of 1996, Quality Prince completed a "reverse  acquisition" with
S.W. Lam, Inc.  pursuant to which the companies  comprising the Hang Fung Group,
representing  all  of  the  jewelry   manufacturing  and  marketing   operations
controlled  by Mr. Lam and Ms. Chan,  became  wholly owned  subsidiaries  of the
Company.  S.W. Lam, Inc. was originally  incorporated  in 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
shareholders of Quality Prince,  New Wine  reincorporated in the state of Nevada
and changed its name to S.W.  Lam, Inc. in October of 1996. In December of 1996,
New Wine entered  into an  agreement  with the  shareholders  of Quality  Prince
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,
continued the  operations of the Hang Fung Group.  In December of 1997,  Quality
Prince  incorporated  Hang Fung Gold  Technology  Limited  ("Hang Fung Gold") in
Bermuda. Hang Fung Gold remained inactive until February 1999.

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

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

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

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

                                       2
<PAGE>


Company Structure

     The  following  chart sets forth the  organization  of the  Company and its
principal subsidiaries as of March 31, 1999:


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

                                      100%

                             Quality Prince Limited

                  (incorporated in the British Virgin Islands)

                                     53.145%

                        Hang Fung Gold Technology Limited

                            (incorporated in Bermuda)

                                      100%

                             Macadam Profits Limited

                  (incorporated in the British Virgin Islands)


                                                  (Investment holding)

              100%                                         100%

 Hang Fung Jewellery Company Limited          Kai Hang Jewellery Company Limited

   (incorporated in Hong Kong)                    (incorporated in Hong Kong)

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

             100%

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


              (Manufacturing of
              jewelry products)



                                       3
<PAGE>

Overview

     The  Company  is  principally  engaged  in  the  design,   manufacture  and
distribution  of a broad range of gold  products,  other precious metal products
and jewelry products.  The Company also receives a contract processing fee based
on the  utilization  of  equipment  and  technology  provided  by the Company to
entities in the PRC under processing  agreements for processing activities other
than for the benefit of the Company.

     Manufacturing  operations are carried on in Hong Kong and the PRC. In order
to comply with the PRC regulations relating to the purchasing, manufacturing and
distribution  of gold in the PRC, the manufacture of the Company's gold products
in the PRC is conducted at production  facilities  made available to the Company
under  processing  agreements  entered  into with PRC  parties  who  possess the
relevant permits to carry on those activities.

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

Products

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

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

Gold Products

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

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

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

Other Precious Metal Products

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

Jewelry Products

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


                                       4
<PAGE>

Others

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

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

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

     For the two years ended March 31, 1999, sales by major product category and
as a percentage of sales (excluding subcontracting fees) were as follows:

                                              1998                 1999
                                      -------------------  -------------------
                                      Amount                Amount
                                      $'000      Percent    $'000     Percent
                                      ------     -------   -------    -------
Fine gold products................... 40,457       69.8     49,927     58.8
Other precious metal products........  8,593       14.8     21,625     25.4
Jewelry products.....................  7,613       13.1     13,272     15.6
Others...............................  1,331        2.3        181      0.2
                                     --------    ------    -------   ------
                                      57,994      100.0     85,005    100.0
                                     ========    ======    =======   ======
Product Design and Development

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

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

Purchasing

     The primary raw material in the  manufacture  and assembly of the Company's
products is gold  bullion.  For the year ended March 31, 1999,  the cost of gold
bullion accounted for approximately 80% of the Company's total purchases.

                                       5
<PAGE>

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

     For the year ended March 31,  1999,  purchases  of gold from the  Company's
five largest  suppliers  accounted for  approximately 77% of the Company's total
purchases.  The Company sources gold bullion  regularly from its seven suppliers
and has not experienced  any difficulty in obtaining the raw materials  required
in the past.  The  Company  has been  dealing  with its major  suppliers  for an
average  period  of  approximately  ten  years  and  maintains  a good  business
relationship with each of them.

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

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

Manufacturing and Assembly

Production Facilities

     At March 31, 1999, the Company  operated five production  facilities  which
are located in Hunghom in Hong Kong,  and in Beijing,  Shanxi,  Shenzhen and Sha
Tau Kok in the PRC. The Beijing,  Shanxi and  Shenzhen  facilities  are operated
under processing  agreements with PRC entities holding  requisite  permits.  The
production  facility in Sha Tau Kok (the "Sha Tau Kok Facility") is owned by the
Company and possesses requisite permits.

     The  following  table  sets  out  the  annual  production  capacity  of the
Company's  production  facilities  for each of the three  years  ended March 31,
1999.

                                               Year ended March 31,
                               -------------------------------------------------
                                1997                1998                  1999
                                (kg)                (kg)                  (kg)
         Hong Kong
             - Hunghom          9,000              12,000               12,000

         PRC
             - Beijing          8,000               8,000                8,000
             - Shenzhen         9,000              10,000               10,000
             - Shanxi           2,000               5,000                5,000
             - Sha Tau Kok          -                   -                8,800
                              --------            --------             --------
                               28,000              35,000               43,800

                                       6
<PAGE>

--   Production Facilities in Hong Kong

     Hunghom Facility

     The  Hunghom  Facility  was  established  in 1988  and is  equipped  with 8
production  lines which are used  primarily for the  production  of molds,  gold
memento cards and medals and the  electroforming of fine gold and karat gold, as
well as the production of computer-scanned gold statuettes. The Hunghom Facility
is a  vertically  integrated  facility  capable of  handling  all aspects of the
production  process,  from  product  design to  mold-making  and from casting to
polishing as well as marketing to distribution.

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

--   Production Facilities in the PRC

     Beijing Facility

     The Beijing Facility was established in Shun Yi Sian, Beijing,  the PRC, to
engage in the manufacture  and assembly of gold,  silver and karat gold jewelry.
The facility is operated  under a processing  agreement  dated  Novemer 18, 1994
between  the  Company's  subsidiary,  Hang Fung  Jewellery,  and China  National
Jewellery Import and Export Corporation ("China Jewellery").

     Pursuant to the agreement, China Jewellery is responsible for the provision
of premises,  water and electricity,  labor and other supporting  facilities and
the handling of customs and transportation  procedures in relation to import and
export of machinery,  materials and products. Hang Fung Jewellery is responsible
for the provision of machinery,  equipment,  tools and technical and  management
expertise  for the  manufacture  and  assembly  of gold,  silver  and karat gold
jewelry.  All such machinery and equipment  belong to Hang Fung Jewellery.  Hang
Fung Jewellery is also required to provide raw materials and packaging materials
for  processing  of gold,  silver and karat gold  jewelry.  All such  materials,
semi-finished  and  finished  products  belong  to Hang  Fung  Jewellery.  China
Jewellery  has  agreed to  undertake  and pay for all of the  Company's  PRC tax
liabilities relating to operations at the Beijing Facility.

     Hang Fung Jewellery is required to pay a processing fee to China  Jewellery
which is  calculated  on a per gram basis and varies  depending on the nature of
materials  assembled.  The agreement relating to the Beijing Facility expires in
November 2004.

     Shanxi Facility

     The Shanxi Facility was established in Tai Yuan  Municipality,  Shanxi, the
PRC,  under a  processing  agreement  dated  April 30,  1996  between  Hang Fung
Jewellery and Tai Yuan  Jewellery and Craft  Factory ("Tai Yuan  Jewellery")  to
engage in the manufacture and assembly of gold and silver jewelry.

     Pursuant  to the  agreement,  Tai Yuan  Jewellery  is  responsible  for the
provision  of  premises,  water and  electricity,  labor  and  other  supporting
facilities and the handling of customs and transportation procedures in relation
to the  import  and  export of  machinery,  materials  and  products.  Hang Fung
Jewellery is responsible  for the provision of equipment,  tools,  and technical
and  management  expertise  to the  facility  for  jewelry  assembly.  All  such
machinery and equipment  belong to Hang Fung  Jewellery.  Hang Fung Jewellery is
also  required  to  provide  raw  materials  and  packaging  materials  for  the
processing  of  gold,  silver  and  karat  gold  jewelry.  All  such  materials,
semi-finished  and finished  products  belong to Hang Fung  Jewellery.  Tai Yuan
Jewellery  has  agreed to  undertake  and pay for all of the  Company's  PRC tax
liabilities relating to operations at the Shanxi Facility.


                                       7
<PAGE>

     Shenzhen Facility

     The Shenzhen  Facility was  established in Shenzhen,  the PRC, to engage in
the  manufacture  and  assembly of gold and silver  jewelry  under a  processing
agreement  dated April 4, 1988 between Hang Fung Jewellery  Company and Shenzhen
Handicrafts Import and Export Company ("Shenzhen  Craft"), as representative for
Shenzhen  Craft  Hang  Fung  Processing  Plant  ("Shenzhen  Processing  Plant").
Pursuant to three agreements,  the respective rights and obligations of Shenzhen
Craft and Hang  Fung  Jewellery  Company  under the  processing  agreement  were
assumed by Shenzhen Jia Yi Jewellery Co., Ltd.  ("Shenzhen  Jewellery") and Hang
Fung Jewellery respectively.

     Under the current terms of the processing agreement, Hang Fung Jewellery is
responsible  for  (1)  rental  payable  for  use  of  the  facility,  water  and
electricity  charges at the  facility,  (2) provision of and  transportation  of
machinery,  equipment and materials for the manufacture and assembly of jewelry,
and (3) a processing fee which is calculated on a per worker per month basis and
is subject to an annual increase of five percent.  Shenzhen  Processing Plant is
responsible  for (1) the  provision of premises  and labor,  (2) the handling of
customs procedures in relation to import and export of machinery,  equipment and
materials, and (3) manufacture and assembly of jewelry.

     The processing agreement, as revised, expires in December 1999.

     Sha Tau Kok Facility

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

     The Sha Tau Kok Facility was  developed in two phases.  Development  of the
first phase was completed,  and commercial production  commenced,  in July 1998.
The first phase houses 20 production  lines primarily for the production of fine
and karat gold products and other precious metal products.

     Development  of the second  phase is  scheduled  to be completed in October
1999, and commercial production is expected to commence in December 1999.

Production Process

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

--   Chain Jewelry

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

--   Ornaments

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

                                       8
<PAGE>

     Design and Mold Making

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

     Waxing

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

     Electroforming

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

     Extraction of Wax Models

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

     Filing and Tumbling

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

     Stone Setting

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

     Polishing

     Jewelry items are again polished automatically by polishing machines.

     Final Design and Assembly

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

Manufacturing Technology and Development

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

                                       9
<PAGE>

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

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

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

Contract Processing

     In addition to manufacturing  products for the Company, the agreements with
respect to  manufacturing  operations  at the  Beijing  Facility  and the Shanxi
Facility  provide that the PRC entity,  China  Jewellery and Tai Yuan Jewellery,
respectively,  may perform  jewelry  manufacturing  and assembly  operations for
other  parties  using those  facilities  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 fee from
China Jewellery and Tai Yuan Jewellery with respect to all jewelry  manufactured
for  third  parties  at those  facilities  with the  amount  of such  fees to be
determined on a case-by-case basis ("Subcontracting fees").  Subcontracting fees
totaled $2.2 million, or 2.5% of revenues, during the year ended March 31, 1999.

Quality Control

     The  Company's  quality  control  team  consists  of 12 persons  (excluding
quality  control  workers who work at the facilities made available to Hang Fung
Jewellery  in the PRC under  processing  agreements)  and is committed to ensure
that the products meet the Company's quality standards.

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

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


                                       10
<PAGE>

Inventory Policy and Control

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

Sales and Marketing

     The Company's  marketing and sales  activities are carried out by a team of
approximately 30 staff members.  The Company's sales staff carries out sales and
marketing  activities under the guidance of senior management which oversees the
sales  staff and  overall  marketing  strategy.  The  Company's  sales  staff is
responsible for  establishing and maintaining  relations with independent  sales
representatives  and customers as well as marketing  the  Company's  products to
potential  customers.  The marketing and sales executives regularly attend trade
fairs,  seminars  and  exhibitions  in Hong Kong and  overseas  in order to keep
abreast of new product  developments  and market  trends,  to  maintain  regular
contact  with  existing  customers  and to  meet  potential  customers.  Through
participation  in  exhibitions,  the  Company is able to promote  its  corporate
image,  increase public awareness of its products and strengthen its competitive
position in the gold products market.

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

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

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

                                       11
<PAGE>

     The principal  markets to which the Company's  products are distributed are
the PRC,  South East Asia,  Hong Kong,  the United  States,  the Middle East and
Europe.  Sales by region  (excluding  Subcontracting  fees) for the three  years
ended March 31, 1999 have been as follows:

                              1997                1998                 1999
                       ----------------    ----------------    -----------------
                       Amount              Amount              Amount
                       $,000    Percent    $,000    Percent     $,000    Percent
                       ------   -------    ------   -------    -------   -------
Southeast Asia........  4,610    12.5      12,232     21.1      16,562     19.5
United States.........  1,305     3.5      10,211     17.6      13,920     16.4
PRC...................  8,043    21.8      10,000     17.2      15,827     18.6
Middle East...........  5,744    15.6       9,317     16.1      13,947     16.4
Europe................  1,506     4.1       5,886     10.2      17,661     20.8
Hong Kong............. 15,617    42.5      10,348     17.8       7,088      8.3
                       ------   ------     ------    ------     ------    ------
   Total.............. 36,825   100.0      57,994    100.0      85,005    100.0
                       ======   ======     ======    ======     ======    ======

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

Customers

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

     At March 31, 1999, the Company had approximately 100 regular customers. The
Company  estimates  that,  through  customers and their  extensive  distribution
networks,  the products  manufactured  by the Company are sold in  approximately
1,600 retail outlets worldwide.

     For the year ended March 31,  1999,  the  Company  five  largest  customers
accounted for approximately 18% of sales. During fiscal 1999, the Company had no
customers  which  accounted  for more  than 5% of the  Company's  revenues.  The
Company has no long term contracts  with any  customers.  The Company's top five
customers have each had a business  relationship  with the Company for over five
years.

Competition

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

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


                                       12
<PAGE>

Staff

     As of March 31,  1999,  the  Company  had  approximately  1,000  employees,
including 8 executive  officers,  22 other management  personnel,  25 persons in
administration,  865 persons in  manufacturing  and production and 80 persons in
sales and marketing. Of the Company's employees, approximately 150 staff members
are located in Hong Kong with the remaining  employees being located in the PRC.
None of the Company's employees is governed by collective  bargaining agreements
and the Company  considers its relations with its employees to be  satisfactory.
In addition,  approximately 1,000 workers, who are not employees of the Company,
provide  services to the Company at the Beijing Facility and the Shanxi Facility
in the PRC.

Certain Foreign Operation Considerations

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

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

     The Company's  operations in the PRC are subject to special  considerations
and significant risks not typically associated with companies operating in North
America and Western Europe.  These include risks  associated  with, among other,
the political,  economic and legal  environments and foreign currency  exchange.
The Company's results may be adversely  affected by changes in the political and
social  conditions  in the PRC,  and by changes in  governmental  policies  with
respect to laws and  regulation  on the import and export of gold,  inflationary
measures,  currency  conversion and remittance  abroad, and rates and methods of
taxation,  among  other  things.  Additionally,  due to  licensing  requirements
relating to the  manufacture  and  marketing  of gold  products in the PRC,  the
Company's ability to continue its current operations in the PRC is substantially
dependent  upon the  Company's  ability  to  maintain  satisfactory  contractual
arrangements with PRC entities  possessing the requisite  licenses such as China
Jewellery, Tai Yuan Jewellery and Shenzhen Jewellery.  Further, a portion of the
Company's  revenue is  denominated  in Renminbi  ("Rmb") which must be converted
into other currencies before remittance  outside the PRC. Both the conversion of
Renminbi into foreign currencies and the remittance of foreign currencies abroad
require approvals of the PRC government.

ITEM 2. PROPERTIES

     The Company's  executive  offices are located at Unit 25-32,  Second Floor,
Focal Industrial  Centre, 21 Man Lok Street,  Hunghom,  Hong Kong. This facility
consists of approximately 31,500 square feet of office space, and is leased from
an unaffiliated third party for approximately HK$3,362,000 (US$434,000) per year
pursuant to four leases which range in  expiration  from  November 1999 to March
2001. This office space also houses certain  marketing,  product design and high
quality gold production operations.

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

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

                                       13
<PAGE>

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, 1999.

                                     PART II

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

Market Information

     While the Company's  Common Stock is listed on the OTC Electronic  Bulletin
Board under the symbol  "CHRM",  there is no  established  trading market in the
Company's  Common Stock and trading  therein is sporadic.  The last reported bid
price of the Company's Common Stock, as of July 1, 1999, was $1.375.

Holders

     At July 1,  1999,  there  were  approximately  130  record  holders  of the
Company's Common Stock.

Dividends

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

Sales of Unregistered Securities

          None


                                       14
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA

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

<TABLE>

                                                              Year Ended March 31,
                                          ---------------------------------------------------------------
                                          1995         1996          1997           1998            1999
                                          ----         ----          ----           ----            ----
<S>                                   <C>          <C>            <C>            <C>             <C>
                                               (amounts stated in US$,000, except per share data)
Income Statement Data (1):
Net sales...........................  $ 18,478      $ 22,903      $ 36,825       $ 57,994        $ 85,005
Subcontracting fees.................     4,902         3,965         4,133          4,308           2,195
                                       -------       -------       -------        -------         -------
  Total revenues....................    23,380        26,868        40,958         62,302          87,200
Gross profit........................     7,004         8,046        10,971         15,143          22,117
Operating income....................     4,335         4,402         6,190          8,207          11,341
Other income (expense), net.........    ( 274)        ( 329)        ( 741)          (636)         (1,570)
Income before taxes.................     4,061         4,073         5,449          7,571           9,771
Minority interests..................        --            --            --             --         (2,013)
Net income..........................  $  2,589      $  3,393      $  4,475       $  6,285        $  5,856
                                       =======       =======       =======        =======         =======
Net income per share (2)............  $   0.25      $   0.32      $   0.40       $   0.49        $   0.46
Weighted average shares                =======       =======       =======        =======         =======
 outstanding (2)....................10,500,000    10,500,000    11,075,000     12,800,000      12,800,000
                                    ==========    ==========    ==========     ==========      ==========
Balance Sheet Data (1):
Working capital.....................  $  3,011      $    613      $  2,768       $(1,170)        $ 17,705
Total assets........................    17,517        15,676        21,409         45,667          73,698
Long-term debt, less
 current portion....................       299           879         1,834          4,405           3,363
Stockholders' equity (3)............     4,531         3,038         8,017         14,278          20,134
</TABLE>

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

(1)  The Company's functional currency is Hong Kong Dollars ("HK$"). Translation
     of amounts from HK$ into US$ is for the convenience of readers and has been
     made at the noon  buying  rate in New  York  City for  cable  transfers  in
     foreign currencies as certified for customs purposes by the Federal Reserve
     Bank of New York on March 31, 1999 of US$1.00 = HK$7.75.  No representation
     is made that the HK$ amounts could have been, or could be,  converted  into
     US$ at that rate or at any other rate.
(2)  Net income per share is computed  assuming (i) the 10,500,000 shares issued
     pursuant to the Exchange were outstanding for all periods  presented,  (ii)
     the 1,275,000  shares issued in  connection  with initial  formation of New
     Wine were issued  December 31, 1996 and (iii) the 225,000  shares issued by
     New Wine pursuant to a Rule 504 offering were issued December 31, 1996.
(3)  Stockholders'  equity at March 31, 1996  reflects the payment of a dividend
     in the amount of $5,000,000 by the Hang Fung Group prior to the acquisition
     of the Hang Fung Group by the Company.


                                       15
<PAGE>


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

     This Form 10-K contains  forward-looking  statements  within the meaning of
Section 27A of the  Securities  Act of 1933 and  Section  21E of the  Securities
Exchange Act of 1934. The Company's actual results could differ  materially from
those set forth in the  forward-looking  statements.  Certain factors that might
cause such a difference are discussed in the section entitled  "Factors that May
Affect Future Results" beginning on page 20.

General

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

     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.

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

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

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

                                       16
<PAGE>

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

     Hang Fung  Group's  operations  consist  of  designing,  manufacturing  and
distributing  a full  line  of  gold  and  silver  jewelry  products  and  other
ornamental  products  on a wholesale  basis to  customers  in Hong Kong,  China,
Europe,  the Middle East,  Southeast Asia, and the United States.  Revenues from
such operations are generated  through the  manufacturing and wholesaling of the
Company's  jewelry  products,  subcontract  jewelry  manufacturing  for selected
customers  and through fees  payable to the Company by its business  partners in
the PRC ("Subcontracting fees").

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

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

Results of Operations

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

                                                      Year Ended March 31,
                                                 ------------------------------
                                                 1997        1998          1999
                                                 ----        ----          ----
Net sales.....................................   89.9%       93.1%         97.5%
Subcontracting fees...........................   10.1         6.9           2.5
                                                ------      ------        ------
  Total revenues..............................  100.0       100.0         100.0
Cost of sales.................................   73.2        75.7          74.6
                                                ------      ------        ------
Gross profit..................................   26.8        24.3          25.4
Operating expenses............................   11.7        11.1          12.4
                                                ------      ------        ------
Income from operations........................   15.1        13.2          13.0
Other income (expense)........................   (1.8)       (1.0)         (1.8)
                                                ------      ------        ------
Income before income taxes....................   13.3        12.2          11.2
Income taxes..................................   (2.4)       (2.1)         (2.2)
Minority interest.............................    0.0         0.0          (2.3)
                                                ------      ------        ------
Net income....................................   10.9        10.1           6.7
                                                ======      ======        ======

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

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

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

                                       17
<PAGE>

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

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

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

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

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

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

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


                                       18
<PAGE>

Year Ended March 31, 1998 Compared to Year Ended March 31, 1997

     Revenues and Gross Profit.  Operating  revenues increased by 52.1% to $62.3
million for the year ended  March 31, 1998 as compared to the $40.9  million for
fiscal 1997.  Sales of Company  products were up 57.3% to $57.9  million  during
fiscal 1998 as compared to $36.8 million during fiscal 1997. Subcontracting fees
increased by 4.2% to $4.3 million  during  fiscal 1998 from $4.1 million  during
fiscal 1997.

     The  increase in sales  during  fiscal 1998 was  attributable  to increased
product  volumes   resulting  from  an  increase  in  production   capacity  and
investments in marketing efforts across  geographical  regions,  particularly in
the United States and the Middle East. The increase in  Subcontracting  fees was
attributable  to  increased  marketing,  new  technology  and an increase in the
number of supply contracts.

     Geographically, sales in Hong Kong decreased and sales in the PRC increased
marginally  due to  increased  marketing  efforts  which were offset by economic
weakness. The Company experienced a shift in sales in Hong Kong and the PRC as a
result of the economic  turmoil  originating in the Asian region.  Sales in Hong
Kong  declined  approximately  33.7% to $10.3  million in fiscal 1998 from $15.6
million  in  fiscal  1997.  Sales in the PRC were up during  fiscal  1998 due to
stable  economic  conditions  relative to the region,  increasing  approximately
24.3% to $10 million in fiscal 1998 from $8.0 million in fiscal  1997.  Sales in
Southeast  Asia (not  including  Hong Kong and the PRC) during  fiscal 1998 were
also up due to increases in orders by existing  customers,  increasing 165.3% to
$12.2 million in fiscal 1998 from $4.6 million in fiscal 1997.

     Outside of Asia (in the United  States,  Europe and the Middle  East),  the
Company  experienced a 197.1% increase in sales with these sales  accounting for
43.8% of total  sales in  fiscal  1998 as  compared  to 23.2% of total  sales in
fiscal  1997.  The  increase  in sales  outside of Asia was driven by  increased
marketing  efforts and strong product demand which  accompanied  strong economic
conditions in those regions.  Sales in Europe increased  approximately 290.8% to
$5.9  million  in fiscal  1998 from $1.5  million in fiscal  1997.  Sales in the
Middle East were up during fiscal 1998,  increasing  approximately 62.2% to $9.3
million  from $5.7  million in fiscal 1997.  Sales in the United  States,  which
began in the fourth quarter of fiscal 1997,  increased  approximately  682.5% to
$10.2 million during fiscal 1998 from $1.3 million in fiscal 1997.

     Gross  profits  increased by 38% to $15.1 million in fiscal 1998 from $11.0
million   during  fiscal  1997.   The  increase  in  gross  profits  was  mainly
attributable  to increased  sales,  and expansion  into the United States market
which were  partially  offset by a reduction  in gross  margins.  Gross  margins
decreased  to 24.3% in  fiscal  1998 from  26.8% in  fiscal  1997 as a result of
implementation  of  a  marketing  strategy  offering  lower  prices  to  enhance
competitiveness and increase sales volume.

     Operating  Expenses.  Operating expenses totaled $6.9 million during fiscal
1998,  an increase of 45.1% from $4.8  million in fiscal  1997.  The increase in
operating  expenses  during the period was primarily  attributable  to increased
marketing  expenses  associated  with the expanded  selling  efforts,  increased
corporate  overhead and  depreciation  expense on  investment  in machinery  and
equipment to support the increase in sales volumes.

     Other Income(Expense),  Net. Other income(expense),  net during fiscal 1997
and 1998  consisted of  miscellaneous  income on disposal of  production  scrap,
recovery of expenses  paid on behalf of customers,  expenses on exchange  losses
and bank charges,  and interest income and interest expense.  A one time expense
attributable  to the reverse  acquisition  was also included in fiscal 1997. Net
other expenses decreased  approximately 14.2% to $0.6 million during fiscal 1998
from $0.7 million during fiscal 1997. The decrease was primarily attributable to
an increase in  interest  income of $0.1  million and the one time nature of the
$0.35 million  expenses  attributable to the reverse  acquisition  during fiscal
1997 which was partially offset by $0.32 million  increase in interest  expenses
due to increased borrowing levels.

     Income Taxes. Income taxes increased by 32% from approximately $1.0 million
in fiscal 1997 to $1.3  million in fiscal  1998.  The  increase in income  taxes
during the period was primarily attributable to the increase in taxable earnings
of the Company.


                                       19
<PAGE>

Factors that May Affect Future Results

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

The Company's future operating  results are particularly  dependent upon several
specific factors, in addition to the general factors noted above,  including (1)
substantial  dependence upon manufacturing  and, to a certain extent,  marketing
arrangements  in the PRC,  (2) ability to secure  adequate  financing to support
planned  increases in  production  and  marketing  of products,  (3) the ongoing
impact of the Asian financial  crisis,  and (4) the impact of the Company's sale
of an interest in Hang Fung Gold.

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

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

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

     Countries in the Asia Pacific region have recently  experienced  weaknesses
in their currency,  banking and equity markets. These weaknesses could adversely
affect,  among  other  things,  consumer  demand for luxury  goods in the region
(perhaps  including  the  Company's  products  which  may be  considered  luxury
consumer  goods),  and the U.S. dollar value of the Company's  foreign  currency
denominated  sales  (e.g.,  to the  extent  sales are  denominated  in Hong Kong
dollars). In addition, the Company's interest income and expense is sensitive to
fluctuations  in the general  level of Hong Kong  interest  rates.  However,  as
described  below,  the Company  believes that overall,  it is well positioned to
minimize such risks.

     The  Company  produces,  markets  and sells a broad  range of  jewelry  and
ornamental  products for different  market segments,  has already  increased its
marketing  efforts in North  America,  Europe and the Middle East, and has taken
steps to stabilize both demand for and supply of its products.  See "Business --
Sales and Marketing."

                                       20
<PAGE>

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

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

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

Year 2000 Issue

     The Year 2000  Issue is the  result of  potential  problems  with  computer
systems or any equipment  with computer  chips that use dates where the date has
been stored as just two digits (e.g. 98 for 1998). On January 1, 2000, any clock
or date recording  mechanism  including date sensitive  software which uses only
two digits to represent the year, may recognize a date using 00 as the year 1900
rather  than  the  year  2000.   This  could  result  in  a  system  failure  or
miscalculations causing disruption of operations,  including among other things,
a temporary  inability  to process  transactions,  send  invoices,  or engage in
similar activities.

     The  Company is using both  internal  and  external  resources  to identify
significant  applications  that  will  require  modification,  and to make  such
modifications,  to ensure Year 2000 Compliance. The total cost to the Company of
these Year 2000 Compliance  activities has not been and is not anticipated to be
material to its  financial  position or results of operations in any given year.
The Company has completed the modifications of all significant  applications and
its systems are 2000 compliant.

     The  Company  has  planned to  communicate  with  others  with whom it does
significant  business to determine their Year 2000 Compliance  readiness and the
extent to which the Company is  vulnerable  to any third party Year 2000 issues.
However,  there can be no guarantee that the systems of other companies on which
the  Company's  systems  rely will be  timely  converted,  or that a failure  to
convert  by another  company,  or a  conversion  that is  incompatible  with the
Company's system, would not have a material adverse effect on the Company.

Liquidity and Capital Resources

     At March 31, 1999, the Company had cash balances totaling $16.7 million and
working  capital  of $17.7  million.  This  compares  to a cash  balance of $2.1
million and a working  capital  deficit of $1.2 million at March 31,  1998.  The
increase in cash and improvement in working capital were primarily  attributable
to (1) the net  income  for the year and (2) the  receipt of funds from the Hong
Kong Offering.

     Cash  provided by operations  increased to $5.9 million  during fiscal 1999
from  $1.9  million  during  fiscal  1998.  The  increase  in cash  provided  by
operations was primarily due to (1) an increase in taxes payable ($1.9 million),
(2) an increase  in  depreciation  expense  ($2.1  million),  (3) an increase in
non-cash  expenses,  including  minority  interest,  associated  with the  Group
Reorganization and Hong Kong Offering ($2.0 million); which was partially offset
by changes in other operating  assets and  liabilities.  The Company's  accounts
receivable  increased to $15.7 million,  or  approximately  18.0% of fiscal 1999
revenues,  as compared to $10.2 million,  or approximately  16.4% of fiscal 1998
revenues.   The  increase  in  accounts   receivable   during  fiscal  1999  was
attributable  to  increased  sales  levels,  particularly  in growing  non-Asian
markets and the granting of more favorable payment terms to selected  customers.
Days sales outstanding in receivables increased to 54 days for fiscal 1999, from
45 days for fiscal 1998.  Inventories  increased  to $16.9  million at March 31,
1999 from $13.1 million at March 31, 1998. The increase in year end  inventories
was required to support growing sales.

                                       21
<PAGE>

     The Company used $9.0 million, $15.7 million and $4.8 million for investing
activities in fiscal 1999, 1998 and 1997,  respectively.  The investment of cash
in each of those  periods  related  primarily to  acquisitions  of machinery and
equipment  to increase  the  Company's  production  capacity in order to support
growing sales.

     Financing  activities  provided $17.6 million in fiscal 1999 as compared to
$15.9 million in fiscal 1998. Cash generated from financing activities in fiscal
1999 consisted primarily of the proceeds from the Hong Kong Offering pursuant to
which the Company's subsidiary,  Hang Fung Gold, sold common equity in an amount
equal to 25% of the  post-offering  shares  outstanding for net proceeds of $7.6
million.  Cash  generated  from  financing  activities in fiscal 1998  consisted
primarily of the proceeds of a $10 million loan from Phenomenal to the Company's
wholly owned  subsidiary  Quality  Prince.  The Note evidencing the loan accrued
interest  at  three  percent  (3%)  per  month,   compounded  monthly,  and  was
convertible into 2914 shares,  or such other number of shares as will constitute
not less than 29.14%,  of Quality Prince.  As additional  consideration  for the
loan,  the Company  issued  Warrants to Phenomenal  which entitled the holder to
purchase  5,263,158  shares of the Company's common stock at a purchase price of
$2.19,  exercisable  for a period  commencing  upon the date of the grant of the
Warrants  and ending on the  earlier of (1) May 31, 1998 or (2) the closing of a
consolidation  or  merger  of the  Company  (other  than  with its  wholly-owned
subsidiary), or the transfer of all or substantially all of the Company's assets
to, another  corporation (unless the owners of the capital stock of the Company,
prior to such  transaction,  continue to own a majority of the capital  stock of
the surviving corporation). The Warrants were only exercisable in the event that
the Note was not converted pursuant to its terms.

     On June 4, 1998, the Company (and its subsidiaries) and Phenomenal executed
a Deed  Amendment to modify the terms of the Note and the Warrants.  Pursuant to
the Deed Amendment,  Phenomenal agreed to waive all interest accrued on the Note
and to convert the Note into 5,263,788  Preferred Stock of the Company's  wholly
owned  subsidiary,  Hang  Fung  Jewellery.  The  Deed  Amendment  evidenced  the
Company's  intent to form a new holding company for the shares of the companies,
excluding  Quality Prince,  comprising the Hang Fung Group.  The Preferred Stock
were subject to mandatory  redemption and a minimum  $10,000,000 from redemption
was subject to mandatory  subscription  into shares of common  equity of the new
holding company  representing 29.14% of such equity if, and only if, the Company
listed the shares of the holding  company on The Stock  Exchange of Hong Kong on
or before  March  20,  1999.  The  listing  of the  holding  company,  the Group
Restructuring  and the Hong Kong  Offering  were  completed in March 1999.  As a
result of the Group  Restructuring,  the Note was converted into a 29.14% equity
interest in Hang Fung Gold and the  Warrants  expired.  Following  the Hong Kong
Offering, the shares held by Phenomenal represented a 21.855% equity interest in
Hang Fung Gold.

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

     At March  31,  1999,  the  Company  had no  material  capital  commitments.
However,  the  Company  intends to use  available  funds as needed to expand its
production  capacity and jewelry  distribution  operations in Europe, the Middle
East and the United States.

     At March 31, 1999,  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, 1999 were  approximately  $23.8 million of which  approximately  $20.2
million had been used at such date.

                                       22
<PAGE>

     At March 31,  1999,  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, 1999, the Company's capital lease  obligations  totaled
$2.2  million  of  which  $1.2  million  was   attributable   to  current  lease
obligations.  Obligations  under operating  leases require minimum annual rental
payments by the Company of approximately $381,000 in fiscal 2000.

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

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:

                                          Fiscal Year Ended March 31,
                               -------------------------------------------------
                                 1997               1998                  1999
                               ---------         ----------            ---------
                          (US$,000)           (US$,000)            (US$,000)
                           Amount      %      Amount     %        Amount     %
1st Quarter (4/1-6/30)   $  7,788    19.0    $13,926    22.4    $ 16,482    18.9
2nd Quarter (7/1-9/30)      9,980    24.4     15,458    24.8      16,177    18.6
3rd Quarter (10/1-12/31)   12,639    30.8     17,706    28.4      28,331    32.5
4th Quarter (1/1-3/31)     10,551    25.8     15,212    24.4      26,210    30.0
                          -------  ------    -------  ------     -------  ------
    Total                $ 40,958   100.0   $ 62,302   100.0    $ 87,200   100.0
                          =======  ======    =======  ======     =======  ======
Inflation

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Not applicable.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The  consolidated  financial  statements of the Company,  together with the
independent   auditors'  report  thereon  of  Arthur  Andersen  &  Co.  ("Arthur
Andersen"),  Certified Public Accountants,  appears on pages F-1 through F-25 of
this report. See Index to Financial Statements on page 32 of this report.

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

     Not applicable


                                       23
<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.......... 44   Chairman, Chief Executive Officer and President
Chan Yam Fai, Jane.... 36   Vice President, Chief Financial Officer and Director
Ng Yee Mei............ 37   Vice President and Director
Cheng Wa On........... 36   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 1999.

     All of the filing  requirements  were satisfied on a timely basis in fiscal
1999.  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.

                                       24
<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
per year and the Chief  Executive  Officer  for the three  years ended March 31,
1999:
<TABLE>

                                                            Annual Compensation
                                  -------------------------------------------------
                                                                    Other Annual           All Other
Name and Principal Position        Year     Salary      Bonus     Compensation (1)      Compensation
---------------------------       ------   --------    -------   ------------------    --------------
<S>                               <C>      <C>         <C>       <C>                    <C>

Lam Sai Wing.....................  1999   $202,694    $400,000       $  39,237           $    0
  Chief Executive Officer,.......  1998    194,000           0               0                0
  Chairman and President.........  1997    145,000           0               0                0
</TABLE>
-------------------

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

Director's Compensation

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

Employment Agreements

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

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

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

                                       25
<PAGE>

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

Provident Plan

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

Share Option Scheme

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

Compensation Report

     The Company does not  presently  maintain a  Compensation  Committee of its
Board of  Directors.  The Board of  Directors,  acting under the guidance of the
Company's Chairman and Chief Executive Officer,  Mr. Lam, has historically fixed
the compensation of executive officers.  The salary of Mr. Lam, Ms. Chan and Ms.
Ng Yee Mei was fixed pursuant to the terms of Employment Agreements between Hang
Fung Gold and those officers entered in 1998.

     In fixing the  compensation  of Mr. Lam and other executive  officers,  the
Board of Directors  considered  the following  factors,  among others:  (1) from
fiscal 1995 through fiscal 1999, the Company and its predecessor,  the Hang Fung
Group,  was  consistently  profitable -- with revenues  increasing  272% and net
income  increasing  126%,  (2) the  importance of  attracting  and retaining the
highly  skilled  executive  officers  in  the  management  team  that  has  been
responsible  for  such  financial  performance,  (3)  the  efforts,  skills  and
responsibilities of, and contributions made by, each such executive officer, and
(4) the competitiveness of the Company's compensation packages.

     With respect to the Chairman and Chief  Executive  Officer,  the  Directors
acknowledged  that he has  brought to the  Company  not only his  expertise  and
personal relationships in the jewelry industry,  but also his vision,  foresight
and efforts to bring about the  Company's  financial  performance  over the past
several years,  and to steer the Company toward the more profitable  segments of
the  business.  The  Directors  also took into  account  the need to retain such
highly qualified officers by providing competitive compensation packages.


                                       26
<PAGE>
Performance Graph

     The  following  graph  summarizes   cumulative  total  shareholder   return
(assuming reinvestment of dividends) on the Common Stock of the Company compared
to the  returns  of the S&P  Smallcap  600 Index and of a peer  group (the "Peer
Group")  consisting  of DG Jewellery  CDA Ltd.  ("DGJ") and IWI Holding  Limited
("IWI").  The Company's Common Stock was first registered under Section 12(g) of
the  Securities  Exchange  Act of 1934,  as  amended,  on March  24,  1997.  The
measurement  period  hereto  commenced  on March 31, 1997 and ended on March 31,
1999,  the Company's  1999 fiscal year end date. The graph assumes that $100 was
invested on March 31, 1997.

     As there is no broad equity  market index for the OTC Bulletin  Board where
the  Company's  Common  Stock is traded and there is no  published  industry  or
line-of-business index for the jewelry business in which the Company is engaged,
the Company has selected DGJ and IWI as peer issuers for comparison. DGJ and IWI
are engaged  primarily  in the design,  assembly,  merchandising  and  wholesale
distribution  of jewelry  and whose  shares  are traded in the  over-the-counter
market in the United States.

     The  comparisons  in this graph are required by the Securities and Exchange
Commission  and are not  intended to forecast or be  indicative  of future stock
price performance or the financial performance of the Company.  Shareholders are
encouraged to review the Financial Statements of the Company mentioned in Item 8
above.

                                [OBJECT OMITTED]


                            March 31, 1997     March 31, 1998     March 31, 1999

S.W. Lam, Inc.                    100             21.62               55.60
S&P SmallCap 600 Index            100            136.90              111.30
Peer Group                        100             16.52               22.89


                                       27
<PAGE>

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Common Stock


     The  following  table  is  furnished  as of  March  31,  1999  to  indicate
beneficial  ownership  of  shares  of the  Company's  Common  Stock  by (1) each
shareholder of the Company who is known by the Company to be a beneficial  owner
of more than 5% of the  Company's  Common  Stock,  (2) each  director  and named
officer of the Company,  individually, and (3) all officers and directors of the
Company as a group.  The information set out in the following table was supplied
by such persons.

Name and Address of                                Number of Shares
Beneficial Owner (1)                              Beneficially Owned    Percent
--------------------                              ------------------   ---------
Good Day Holdings, Ltd (2)(3).....................     6,600,000  (2)    51.6%
Lam Mo Wan (3)....................................     1,800,000         14.1%
Chan Wai Sum (3)..................................     1,800,000         14.1%
Lam Sai Wing (2)..................................     6,600,000  (2)    51.6%
Carhill Limited (4)...............................       800,000          6.3%
Chan Yam Fai, Jane................................       300,000          2.3%
Ng Yee Mei........................................           -0-            -
Cheng Wa On.......................................           -0-            -
All officers and directors as a group (4 persons).     6,900,000  (2)    53.9%

---------------------
(1)  Unless  otherwise  noted,  each person or group  identified  possesses sole
     voting and  investment  power with respect to the shares shown opposite the
     name of such person or group.
(2)  Good Day Holdings Ltd. is  controlled  100% by Lam Sai Wing, an officer and
     director  of the  Company.  Accordingly,  Mr.  Lam may be  deemed to be the
     beneficial owner of the shares held by Good Day Holdings.
(3)  Address is Unit 302-303A,  3rd Floor,  Fu Hang  Industrial  Bldg. No. 1 Hok
     Yuen Street East, Kowloon, Hong Kong.
(4)  Address is c/o Suite 4703,  Central Plaza, 18 Harbour Road,  Wanchai,  Hong
     Kong.

Preferred Stock

     Series A Preferred  Stock. The following table is furnished as of March 31,
1999 to indicate beneficial  ownership of the Company's Series A Preferred Stock
by  each  shareholder  of the  Company  who is  known  by  the  Company  to be a
beneficial owner of more than 5% of the Company's Series A Preferred Stock.

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

---------------------
(1)  Unless  otherwise  noted,  each person or group  identified  possesses sole
     voting and  investment  power with respect to the shares shown opposite the
     name of such person or group.
(2)  Good Day Holdings Ltd. is  controlled  100% by Lam Sai Wing, an officer and
     director  of the  Company.  Accordingly,  Mr.  Lam may be  deemed to be the
     beneficial owner of the shares held by Good Day Holdings, Ltd.
(3)  Address is Unit 302-303A,  3rd Floor, Fu Hang Industrial  Bldg.,  No. 1 Hok
     Yuen Street East, Kowloon, Hong Kong


                                       28
<PAGE>

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  year ended  March 31,  1998,  the Hang Fung Group paid
rental  payments of $174,000  to Ms.  Chan in  connection  with the lease of the
Company's former principal executive offices in Hong Kong.

     During  the  fiscal  year ended  March 31,  1999,  the Hang Fung Group paid
rental  payments  of  $20,916  to Mr.  Lam in  connection  with  the  lease of a
residential premises for Mr. Lam's residence.

     The Company has from time to time both advanced to and borrowed  funds from
Mr. Lam. At March 31, 1998, the Company owed Mr. Lam $1.0 million.  At March 31,
1999,  the Company owed Mr. Lam $0.4 million.  All of such loans are  unsecured,
non-interest bearing and without pre-determined repayment terms.

     Mr. Lam and Ms. Chan personally  guaranteed the existing banking facilities
of the Hang Fung Group, pledged certain real estate as collateral to secure such
banking  facilities and guaranteed the repayment of the $10 million of Preferred
Stock issued by Hang Fung Jewellery and held by Phenomenal pursuant to the terms
of a Put Option.

     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.



                                       29
<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 32 of this report for financial  statements and  supplementary
          data filed as part of this report.

     (2)  Financial Statement Schedules

          None

     (3)  Exhibits

<TABLE>

   Exhibit
   Number                                    Description of Exhibit
  ---------                                 ------------------------
  <S>           <C>


      2.1       Acquisition Agreement between S.W. Lam, Inc. and the shareholders of Hang
                Fung Jewellery Company Limited and Kai Hang Jewellery Company Limited (1)
      3.1       Articles of Incorporation (1)
      3.2       Bylaws (1)
      4.1       Certificate of Designation for Series A Preferred Stock (1)
     10.1++     Employment Agreement with Lam Sai Wing dated January 1, 1994 (1)
     10.2++     Employment Agreement with Chan Yam Fai, Jane dated January 1, 1994 (1)
     10.3       Sales Agency Agreement between Hang Fung Jewellery Co., Ltd. and China
                Jewellery Import & Export Co. (1)
     10.4       Agreement for Jewellery Assembling between Hang Fung Jewellery Co., Ltd.
                and China Jewellery Import & Export Co. (1)
     10.5       Sales Cooperation Agreement between Hang Fung Jewellery Co., Ltd. and
                China Jewellery Import & Export Co. (1)
     10.6       Confirmation Agreement between Hang Fung Jewellery Co., Ltd. and
                China Jewellery Import & Export Co. (1)
     10.7       Lease Agreement between Chan Yam Fai, Jane and Hang Fung Jewellery Co., Ltd.
                re: executive offices (1)
     10.8++     Supplementary Employment Contract with Lam Sai Wing and Lam Chan Yam Fai (2)
     10.9       Warrant Agreement with Phenomenal Limited (3)
     10.10      Convertible Note with Phenomenal Limited (3)
     10.11      Deed Amendment (3)
     10.12++*   Employment Agreement between Hang Fung Gold and Lam Sai Wing dated February 27, 1999
     10.13++*   Employment Agreement between Hang Fung Gold and Chan Yam Fai, Jane dated February 27, 1999
     10.14++*   Employment Agreement between Hang Fung Gold and Ng Yee Mei dated February 27, 1999
     27.1*      Financial Data Schedule
</TABLE>

++    Compensatory plan or management agreement.
*     Filed herewith
(1)   Incorporated by reference to the respective exhibits filed with
      Registrant's Registration Statement on Form 10 (Commission File
      No. 0-22049)
(2)   Incorporated by reference to the respective exhibits filed with the
      Registrant's Annual Report on Form 10-K for the year ended
      March 31, 1997
(3)   Incorporated by reference to the respective exhibits filed with the
      Registrant's Quarterly Report on Form 10-Q for the period ended
      June 30, 1997

(b)   Reports on Form 8-K

      No reports on Form 8-K were filed during the quarter ended March 31, 1999.

                                       30
<PAGE>


                                   SIGNATURES

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

                                     S.W. LAM, INC.


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

Dated:   August 12, 1999
               ----

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

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

/s/ Lam Sai Wing
------------------------    President, Chief Executive Officer   August 12, 1999
Lam Sai Wing                (Principal Executive Officer) and
                            Chairman of the Board

/s/ Chan Yam Fai, Jane
------------------------    Vice President, Chief Financial      August 12, 1999
Chan Yam Fai, Jane          Officer (Principal Accounting
                            and Financial Officer) and Director
/s/ Ng Yee Mei
------------------------    Vice President and Director          August 12, 1999
Ng Yee Mei

/s/ Cheng Wa On
------------------------    Director                             August 12, 1999
Cheng Wa On


                                       31
<PAGE>

                                 S.W. LAM, INC.

                   Index to Consolidated Financial Statements

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

Consolidated Balance Sheets as of March 31, 1998 and 1999...............    F-2

Consolidated Statements of Operations for the Years ended March 31, 1997,
   1998 and 1999.........................................................   F-3

Consolidated Statements of Cash Flows for the Years ended March 31, 1997,
   1998 and 1999.........................................................   F-4

Consolidated Statements of Changes in Shareholders' Equity for the Years
   ended March 31, 1997, 1998 and 1999...................................   F-5

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


                                       32
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



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


We have audited the accompanying  consolidated balance sheets of S. W. Lam, Inc.
(incorporated in the State of Nevada,  United States of America;  "the Company")
and  Subsidiaries  ("the Group") as of March 31, 1998 and 1999,  and the related
consolidated  statements of operations,  cash flows and changes in shareholders'
equity  for the years  ended  March 31,  1997,  1998 and 1999.  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, 1998 and 1999, and the results of their  operations
and their cash  flows for the years  ended  March 31,  1997,  1998 and 1999,  in
conformity with generally accepted accounting principles in the United States of
America.



/s/ Arthur Anderson & Co.

ARTHUR ANDERSEN & CO.
Certified Public Accountants
Hong Kong



Hong Kong,
August 12, 1999.


                                      F-1
<PAGE>

                                 S. W. LAM, INC.
                                ------------------

                           CONSOLIDATED BALANCE SHEETS
                          AS OF MARCH 31, 1998 AND 1999
                         -------------------------------

<TABLE>

                                           Note        1 9 9 8              1 9 9 9
                                         --------   ------------    ----------------------
<S>                                      <C>        <C>             <C>           <C>

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

Current assets:
Cash and bank deposits                               16,217          129,444       16,702
Accounts receivable, net                     5       79,421          121,328       15,655
Deposits and prepayments                     6        3,064            4,644          599
Inventories, net                             7      101,345          131,513       16,970
                                                   -----------    ------------  -------------

Total current assets                                 200,047         386,929       49,926

Property, machinery and equipment and
capital leases, net                          8       153,866         184,227       23,772
                                                   ------------   ------------  -------------

Total assets                                         353,913         571,156       73,698
                                                   ============   ============  =============

LIABILITIES AND SHAREHOLDERS'
         EQUITY

Current liabilities:
Short-term bank borrowings                   9       43,540          128,066       16,525
Long-term bank loans, current portion       10        2,273            2,812          363
Capital lease obligations, current          11        8,560            9,487        1,224
portion
Accounts payable                                     22,321           26,639        3,437
Accrued liabilities                         12        2,907            6,671          861
Convertible note                            13       77,500                -            -
Due to a director                           19        8,010            3,101          400
Dividend payable to a redeemable
preferred shareholder of a subsidiary                     -           14,328        1,849
Taxation payable                            14       44,005           58,605        7,562
                                                   ------------   ------------  -------------

Total current liabilities                            209,116         249,709       32,221

Long-term bank loans, non-current           10         9,217           8,390        1,083
portion
Capital lease obligations, non-current      11        14,979           7,727          997
portion
Deferred taxation                           14         9,945           9,945        1,283
                                                   ------------   ------------  -------------

Total liabilities                                    243,257         275,771       35,584
                                                   ------------   ------------  -------------

Minority interests                                         -         139,344       17,980
                                                   ------------   ------------  --------------

Shareholders' equity:
Common stock, par value US$0.001
(equivalent of approximately HK$0.008)
each:
-        authorized - 25,000,000
shares;
-        outstanding and fully paid -
12,800,000 shares                                        101             101          13
Preferred stock, par value US$0.001
(equivalent of approximately HK$0.008)
each:
-        authorized - 25,000,000
shares;
-        outstanding and fully paid -
Series A preferred stock - 100,000                        -                -           -
shares
Additional paid-in capital                            3,960            3,960         511
Retained earnings                                   106,595          151,980      19,610
                                                   ------------   ------------  -------------

Total shareholders' equity                         110,656           156,041      20,134
                                                   ------------   ------------  -------------

Total liabilities and shareholders'
equity                                             353,913           571,156      73,698
                                                   ============   ============  =============

</TABLE>

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


Translation of amounts from Hong Kong dollars ("HK$") into United States dollars
("US$") is for the  convenience  of readers and has been made at the noon buying
rate in New York City for cable transfers in foreign currencies as certified for
customs  purposes by the Federal  Reserve  Bank of New York on March 31, 1999 of
US$1.00 = HK$7.75.  No representation is made that the Hong Kong dollars amounts
could have been, or could be,  converted into United States dollars at that rate
or at any other rate.

                                      F-2
<PAGE>

                                 S. W. LAM, INC.
                                ------------------

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                FOR THE YEARS ENDED MARCH 31, 1997, 1998 AND 1999
                --------------------------------------------------
<TABLE>


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

Revenues
Net sales                          20.a     285,144      449,236        658,790       85,005
Contract processing fees                     31,996       33,360         17,012        2,195
                                           ----------  -------------  ------------  ------------

Total revenues                              317,140      482,596        675,802       87,200

Cost of sales and services                 (232,249)    (365,249)      (504,391)     (65,083)
                                           ----------  -------------  ------------  ------------

Gross profit                                 84,891       117,347       171,411       22,117

Selling, general and
administrative expenses                     (27,232)      (53,540)      (83,508)      (10,776)
Interest expense                             (3,007)       (5,513)      (11,588)       (1,495)
Interest income                                   1         1,065         3,234           417
Other income (expenses), net                    (15)         (480)       (1,716)         (221)
Loss on reduction in equity
interest in a subsidiary            15            -            -         (2,100)         (271)
Expenses related to reverse
acquisition                                  (2,711)           -              -             -
                                           ----------  -------------  ------------  ------------

Income before income taxes
                                             51,927       58,879         75,733         9,771

Provision for income taxes          14      (16,475)      (9,963)       (14,747)       (1,902)
                                           ----------  -------------  ------------  ------------

Income before minority interests
                                             35,452       48,916         60,986         7,869

Minority interests                                -            -        (15,601)       (2,013)
                                           ----------  -------------  ------------  ------------

Net income and comprehensive
income
                                             35,452       48,916         45,385          5,856
                                           ==========  =============  ============  ============

Earnings per common stock                   HK$  3.20   HK$    3.82    HK$    3.55   US$   0.46
                                           ==========  =============  ============  ============

Weighted average number of
common stocks                              11,075,000    12,800,000     12,800,000    12,800,000
                                           ==========  ============= ==============  ===========

</TABLE>

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


Translation of amounts from Hong Kong dollars ("HK$") into United States dollars
("US$") is for the  convenience  of readers and has been made at the noon buying
rate in New York City for cable transfers in foreign currencies as certified for
customs  purposes by the Federal  Reserve  Bank of New York on March 31, 1999 of
US$1.00 = HK$7.75.  No representation is made that the Hong Kong dollars amounts
could have been, or could be,  converted into United States dollars at that rate
or at any other rate.

                                      F-3
<PAGE>

                                 S. W. LAM, INC.
                                -----------------

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                FOR THE YEARS ENDED MARCH 31, 1997, 1998 AND 1999
               ---------------------------------------------------
<TABLE>

                                             1 9 9 7        1 9 9 8                1 9 9 9
                                           ------------  ------------     ------------------------
<S>                                        <C>           <C>               <C>           <C>    <C>    <C>
                                             HK$'000        HK$'000        HK$'000        US$'000
Cash flows from operating activities:
Net income                                    35,452         48,916        45,385          5,856
Adjustments to reconcile net income to
net cash provided by operating
activities -
Depreciation of property, machinery
and equipment                                 8,035          23,147        39,109          5,046
Effect on exchange difference                     -               -          (200)           (25)
Loss on reduction in equity interest
in a subsidiary                                   -               -         2,100            271
Minority interests                                -               -        15,601          2,013

(Increase) Decrease in operating
assets -
Accounts receivable, net                    (16,407)        (39,851)      (41,907)        (5,407)
Deposits and prepayments                       (992)         (1,961)       (1,580)          (203)
Inventories, net                             (3,410)        (35,402)      (30,168)        (3,893)
Due from a director                           4,503           3,681             -              -
Increase (Decrease) in operating
liabilities -
Accounts payable                             2,062            9,773         4,318            557
Deposits from customers                    (23,361)          (9,107)            -              -
Accrued liabilities                          8,285              977         3,764            485
Due to a director                                -            8,014        (4,909)          (634)
Taxation payable                             5,433           (1,442)       14,600          1,884
Deferred taxation                            2,201            7,742             -              -
                                        --------------  --------------  ------------  --------------

Net cash provided by operating              21,801           14,487        46,113          5,950
activities
                                        --------------  --------------  ------------  --------------

Cash flows from investing activities:
Additions to property, machinery and
equipment                                 (37,315)         (122,109)      (69,470)        (8,965)
                                        --------------  --------------  ------------  --------------

Cash flows from financing activities:
Net proceeds from issuance of common        4,061                 -             -              -
stock
Net proceeds from issuance of                   -            77,500             -              -
convertible note
Cash proceeds received from minority            -                 -        58,671          7,570
interests
Increase (Decrease) in bank overdrafts       (597)             (434)        1,538            198
Increase in short-term bank loan                -                 -         2,000            258
Increase in trust receipts bank loans       5,704            26,342        80,988         10,450
New long-term bank loans                    5,983             2,155         2,000            258
Repayment of long-term bank loans          (4,007)           (2,193)       (2,288)          (295)
New capital lease obligations               6,750            29,644         2,234            288
Repayment of capital element of
capital lease obligations                  (3,565)           (9,881)       (8,559)        (1,104)
                                        --------------  -------------- -------------  ---------------

Net cash provided by financing             14,329           123,133       136,584         17,623
activities
                                        --------------  -------------- -------------  ---------------

Net (decrease) increase in cash and
bank deposits                              (1,185)           15,511       113,227         14,608

Cash and bank deposits, as of               1,891               706        16,217          2,094
beginning of year
                                       --------------   -------------  -------------  ---------------

Cash and bank deposits, as of end of         706            16,217        129,444         16,702
year
                                       ==============   =============  =============  ===============

</TABLE>

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


Translation of amounts from Hong Kong dollars ("HK$") into United States dollars
("US$") is for the  convenience  of readers and has been made at the noon buying
rate in New York City for cable transfers in foreign currencies as certified for
customs  purposes by the Federal  Reserve  Bank of New York on March 31, 1999 of
US$1.00 = HK$7.75.  No representation is made that the Hong Kong dollars amounts
could have been, or could be,  converted into United States dollars at that rate
or at any other rate.

                                      F-4
<PAGE>

                                 S. W. LAM, INC.
                                -----------------

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                FOR THE YEARS ENDED MARCH 31, 1997, 1998 AND 1999
          -------------------------------------------------------------

<TABLE>

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


Balance as of
March 31, 1996          10,500             85            100            -              -            22,227

Effect of the
exchange                 1,500              8              -            -            (93)                -
reorganization

Issuance of common
stock                      800              8              -            -          7,742                 -

Common stock
issuance
expenditure                  -              -              -            -         (3,689)                -

Net income                   -              -              -            -              -            35,452
                      -----------   ------------   ------------  -------------  ------------    -----------

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

Net income                   -              -              -            -              -            48,916
                      -----------   ------------   ------------  -------------  ------------     -----------

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

Net income                  -               -              -            -              -            45,385
                      -----------   ------------   ------------  -------------  ------------     -----------

Balance as of
March 31, 1999         12,800             101            100            -          3,960           151,980
                      ===========   ============   ============  =============  ============     ===========

</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)




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

S. W.  Lam,  Inc.  ("the  Company"),  formerly  known  as New  Wine,  Inc.,  was
incorporated  on April 12,  1994 in the  State of  Tennessee,  United  States of
America.  On October  10,  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.. On the same date, the Company
effected a change in par value of each share of its  common  stock from  US$0.01
per share to US$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  US$0.001  each, and 100,000
shares of its  Series A  preferred  stock of par  value  US$0.001  each,  to the
previous  shareholders  of QPL. QPL is an investment  holding  company which had
acquired on December 19, 1996, 100% interest in the following companies:

<TABLE>
                                                      Place of
               Name of company                     incorporation               Principal activities
----------------------------------------------   -------------------   --------------------------------------
<S>                                             <C>                    <C>

Hang Fung Jewellery Company Limited ("HFJCL")    Hong Kong             Production and selling of jewellery
                                                                       products

Kai Hang Jewellery Company Limited ("KHJCL")     Hong Kong             Property holding

Macadam Profits Limited ("MPL")                  British Virgin        Investment holding
                                                 Islands

Priestgill Limited ("PL")                        British Virgin        Inactive
                                                 Islands

Soycue Limited ("SL")                            British Virgin        Inactive
                                                 Islands

</TABLE>

Notes -

a.   HFJCL took over the businesses previously undertaken by Hang Fung Jewellery
     Company  ("HFJC")  effective  September 1995.  HFJCL took over the business
     previously undertaken by SL effective April 1996.

b.   Prior to December 19, 1996,  HFJCL and KHJCL were jointly  owned by Mr. Lam
     Sai Wing and Ms. Chan Yam Fai,  Jane.  SL, MPL and PL were solely  owned by
     Mr. Lam Sai Wing.  HFJC was an  unincorporated  sole-proprietorship  entity
     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  activities  in the PRC are mainly  operated  through a
series of contract processing agreements with China National Pearl, Diamond, Gem
and  Jewellery  Import and Export  Corporation  ("CNPIEC"),  Tai Yuan  Jewellery
Crafts  Factory  ("TYJCF") and Shenzhen Jia Yi Jewellery  Co.,  Ltd.  ("SJYJC"),
which are among the few  entities  authorized  to engage in the  production  and
trading  of gold and  silver  products  in the PRC.  The key  transactions  with
CNPIEC, TYJCF and SJYJC were as follows:

     a.  Under a contract  processing  agreement  dated  November  18,  1994 and
subsequent  supplemental  agreement entered into between HFJCL and CNPIEC, HFJCL
has  operated  a plant in  Beijing,  the PRC ("the  Beijing  Plant")  to produce
jewellery products. The Beijing Plant also provides contract processing services
to PRC  customers  at the  instruction  and on behalf of  CNPIEC,  and  shares a
portion of the contract  processing fees received by CNPIEC. The initial term of
the agreements is ten years expiring on November 17, 2004, and is renewable upon
expiration.

     b. On April 30, 1996,  HFJCL entered into a contract  processing  agreement
with TYJCF,  pursuant to which HFJCL operates a plant in Tai Yuan Province,  the
PRC, ("the Tai Yuan Plant") to produce  jewellery  products.  The Tai Yuan Plant
also provides contract  processing  services to PRC customers at the instruction
and on behalf of TYJCF. The agreement expires on April 29, 2006.

     c.  Pursuant to the aforesaid  agreements,  CNPIEC and TYJCF have agreed to
undertake and pay for all of HFJCL's PRC tax liabilities,  including value-added
tax and other related charges,  if any, relating to HFJCL's operations under the
above-mentioned activities.

     d. HFJCL also entered into a contract  processing  agreement with SJYJC for
the production of gold and silver  products in Shenzhen,  the PRC. The agreement
with SJYJC expires on December 31, 1999.

     e. On July 22, 1999, HFJCL entered into an agreement with Shenzhen Jin Shen
Jewellery  Company  Limited  ("SJSJCL").  Pursuant to the  agreement,  SJSJCL is
responsible to handle all the customs and transportation  procedures in relation
to import and export of machinery, materials and products of HFJCL.

     f. Other transactions with the above-named parties include:

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

          Management fees paid to
          -        CNPIEC                419          217      1,084        140
                                      =======      =======    =======    =======

                                      F-7
<PAGE>

1.   ORGANIZATION AND OPERATIONS (Cont'd)
     ---------------------------

On  December  4,  1997,  Hang  Fung  Gold  Technology   Limited   ("HFGTL")  was
incorporated  and became a wholly owned  subsidiary of the Company.  On February
27, 1999,  HFGTL became the holding company of the  subsidiaries of the Company,
except  for  QPL,  pursuant  to a group  reorganization  scheme  which  included
exchanges of shares.  Since HFGTL and the subsidiaries of the Company were owned
by the same shareholders immediately before and after the reorganization, it has
been accounted as a reorganization of entities under common control similar to a
pooling of interest.

On March 16, 1999,  HFGTL was listed on The Stock Exchange of Hong Kong Limited.
Under the relevant US rules,  public  announcements by HFGTL in Hong Kong, which
may include information on the HFGTL's earnings and other financial information,
may give rise to an obligation  on the part of the Company to make  simultaneous
announcements in the US.



2.   BASIS OF PRESENTATION
     ---------------------
The  acquisition  of QPL by the  Company on  December  31, 1996 was treated as a
reverse  acquisition  since  QPL is the  continuing  entity  as a result  of the
exchange  reorganization.  On this basis,  the historical  financial  statements
prior to December 31, 1996 represent the  consolidated  financial  statements of
QPL and its subsidiaries.  The historical  shareholders'  equity accounts of the
Company  represented  10,500,000 shares of common stock of par value of US$0.001
each (equivalent to approximately  HK$0.008 each) and 100,000 shares of Series A
preferred stock of par value US$0.001 each (equivalent to approximately HK$0.008
each)  which  were  issued in  connection  with the  acquisition.  The  original
1,500,000  shares of common  stock of par value  US$0.001  each  (equivalent  to
approximately  HK$0.008 each) outstanding  prior to the exchange  reorganization
have been  reflected  as an  addition  in the  historical  shareholders'  equity
accounts of the Company on December 31, 1996.

The  acquisitions  of HFJCL,  KHJCL,  MPL, PL and SL 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, MPL, PL, SL and QPL are the same before and after the acquisition.

On December 4, 1997, HFGTL was incorporated and became a wholly owned subsidiary
of the Company.  On February 27, 1999,  HFGTL became the holding  company of the
subsidiaries of the Company,  except for QPL, pursuant to a group reorganization
scheme.  The  reorganization  has been accounted as a reorganization of entities
under common control similar to a pooling of interest.

                                      F-8
<PAGE>

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

Details of the  Company's  subsidiaries  (which  together  with the  Company are
collectively referred to as "the Group") as of March 31, 1999 were as follows:
<TABLE>

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

Quality Prince Limited                      British Virgin            100%        Investment holding
                                                Islands

Hang Fung Gold Technology Limited               Bermuda              53.145%      Investment
                                                                                  holding

Hang Fung Jewellery Company Limited            Hong Kong             53.145%      Production and
                                                                                  selling of
                                                                                  jewellery
                                                                                  products;
                                                                                  provision of
                                                                                  contract process
                                                                                  services

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

Kai Hang Jewellery Company Limited             Hong Kong             53.145%      Property holding


Macadam Profits Limited                     British Virgin           53.145%      Investment holding
                                                Islands

Soycue Limited                              British Virgin           53.145%      Inactive
                                                Islands
</TABLE>

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

On September 29, 1998,  Quality Prince Limited  transferred to Mr. Lam Chi Ming,
an independent third party not connected with the directors, chief executives or
substantial  shareholders of the Company or any of its  subsidiaries,  or any of
their  respective  associates  its interest in one share of US$1  (equivalent to
approximately  HK$8)  in  Priestgill  Limited  at a cash  consideration  of US$1
(equivalent to approximately HK$8).


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

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

                                      F-9
<PAGE>

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

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

c.   Property, machinery and equipment and capital leases
     ----------------------------------------------------
Property, machinery and equipment and capital leases are recorded at cost. Gains
or losses on disposals are  reflected in current  operations.  Depreciation  for
financial reporting purposes is provided using the straight-line method over the
estimated  useful  lives of the assets as  follows:  leasehold  land - 50 years,
building - 20 years, machinery and equipment - 5 to 10 years, motor vehicles - 5
years,  and  furniture,   fixtures  and  office  equipment  -  5  years.   Major
expenditures for betterments and renewals are  capitalized.  All ordinary repair
and maintenance costs are expensed as incurred.

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

d.   Sales
     -----
Sales comprise (i) the invoiced value of merchandise supplied to customers,  net
of sales  returns and  allowances,  which are  recognized  when  merchandise  is
shipped and title is passed to  customers,  and (ii) contract  processing  fees,
which are recognized when the contract processing 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.

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

                                      F-10
<PAGE>


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

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

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

g.   Comprehensive income
     --------------------
The Company has adopted  Statement  of  Financial  Accounting  Standard No. 130,
which establishes guidance for the reporting and display of comprehensive income
and its components. The purpose of reporting comprehensive income is to report a
measure of all changes in equity that resulted from recognized  transactions and
other economic events of the period other than transactions  with  shareholders.
Adoption of the standard had no impact on the Company's  consolidated  financial
position,  results of operations  or cash flows,  although the  presentation  of
certain  items has changed.  The Company  does not have any other  comprehensive
income.

h.   Foreign currency translation
     ----------------------------
The  Company  considers  Hong  Kong  dollars  as its  functional  currency  as a
substantial  portion of the Group's  business  activities  is based in Hong Kong
dollars.

The  gains or  losses,  if any,  resulting  from  translation  are  included  in
shareholders' equity separately as cumulative translation adjustments. Aggregate
gains  (losses) from foreign  currency  transactions  included in the results of
operations for the years ended March 31, 1997, 1998 and 1999 were  approximately
HK$192,000, HK$(12,000) and HK$149,000, respectively.


                                      F-11
<PAGE>


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

i.   Earnings per common stock
     -------------------------
Basic  earnings per common  stock is computed in  accordance  with  Statement of
Financial  Accounting  Standards No. 128 by dividing net income for each year by
the weighted  average  number of shares of common stock  outstanding  during the
years,  as if the  Company  had  acquired  the  100%  interest  in QPL as of the
beginning of years as a  recapitalization  of QPL with QPL as the acquirer;  and
with HFGTL as the holding  company of the  subsidiaries  as of the  beginning of
years (see Note 2). The weighted  average number of shares used to compute basic
earnings per common stock was 11,075,000 12,800,000 and 12,800,000 for the years
ended March 31, 1997, 1998 and 1999, respectively.

No diluted  earnings per common  stock is computed as the exercise  price of the
warrant was higher  than the average  market  price of common  stock  during the
year.

j.   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.

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



5.   ACCOUNTS RECEIVABLE
     --------------------
Accounts receivable comprised:

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

Trade receivables                           82,947         127,354       16,433
Less: Allowance for bad and doubtful
accounts                                    (3,526)         (6,026)       (778)
                                         ------------     -----------  ---------

Accounts receivable, net                    79,421         121,328       15,655
                                         ============     ===========  =========

                                      F-12
<PAGE>


6.   DEPOSITS AND PREPAYMENTS
     ------------------------
Deposits and prepayments comprised:

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

Rental and utility deposits             620              513                66
Prepayments                           1,079              219                28
Temporary payment                         -            3,709               479
Others                                1,365              203                26
                                   -------------     -----------     -----------

                                      3,064            4,644              599
                                   =============     ===========     ===========



7.   INVENTORIES
     -----------
Inventories comprised:

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

Raw materials                             33,875          58,734          7,579
Finished goods                            67,470          74,779          9,649
                                       ------------     -----------     --------

                                         101,345         133,513         17,228

Less: Allowance for obsolete and
slow-moving inventories                        -          (2,000)          (258)
                                       ------------     -----------     --------

Inventories, net                         101,345         131,513         16,970
                                       ============     ===========     ========

As of March 31, 1998 and 1999,  inventories of approximately  HK$40,554,000  and
HK$121,542,000, respectively, were held under trust receipts bank loans.

                                      F-13
<PAGE>


8.   PROPERTY, MACHINERY AND EQUIPMENT AND CAPITAL LEASES

Property, machinery and equipment and capital leases comprised:

                                             1 9 9 8              1 9 9 9
                                           ------------   ----------------------
                                             HK$'000       HK$'000     US$'000
Property, machinery and equipment:
Leasehold land and building                  1,973          1,973         255
Machinery and equipment                    133,596        186,081      24,010
Motor vehicles                                 920            920         119
Furniture, fixtures and office equipment
                                            23,170         39,540       5,102

Capital leases:
Machinery and equipment                     37,563         38,178       4,926
                                           ------------ -----------  -----------

Cost                                       197,222        266,692      34,412

Less: Accumulated depreciation
Property, machinery and equipment
                                           (34,027)       (65,501)     (8,451)
Capital leases                              (9,329)       (16,964)     (2,189)
                                           ------------ -----------  -----------

Property, machinery and equipment and
capital leases, net
                                           153,866        184,227      23,772
                                           ============ ===========  ===========

As of March 31, 1998 and 1999,  all of the Group's  leasehold  land and building
was situated in Hong Kong and were held under a long-term lease.

As of March 31, 1998 and 1999, leasehold land and building with a net book value
of approximately HK$1,973,000 and HK$1,973,000, respectively, were mortgaged and
machinery and equipment with a net book value of approximately  HK$1,923,000 and
HK$1,395,000, respectively, were pledged as collateral of certain of the Group's
banking facilities.



9.   SHORT-TERM BANK BORROWINGS
     --------------------------
Short-term bank borrowings comprised :

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

Bank overdraft                       2,986             4,524             584
Short-term bank loan                     -             2,000             258
Trust receipts bank loans           40,554           121,542          15,683
                                  ------------     ------------       ----------

                                    43,540           128,066          16,525
                                  ============     ============       ==========

                                      F-14
<PAGE>


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

Short-term  bank  borrowings  were  denominated  in Hong Kong dollars,  and bore
interest at the Hong Kong prime  lending rate to prime  lending rate plus 3.50%,
which  ranged  from 9.25% to 12.25% per annum as of March 31,  1998 and 8.75% to
12.25%  per  annum  as  of  March  31,  1999.  Short-term  bank  borrowings  are
collaterized  by  mortgages  over the Group's  leasehold  land and  building and
pledges  of  certain  of the  Group's  machinery  and  equipment  (see  Note 8),
mortgages over leasehold land and buildings  owned by Mr. Lam Sai Wing, Ms. Chan
Yam Fai,  Jane and Ms.  Ng Yee  Mei,  directors  of the  Company,  and  personal
guarantees provided by Mr. Lam Sai Wing and Ms. Chan Yam Fai, Jane.

Supplemental  information  with respect to short-term  bank  borrowings  for the
years ended March 31, 1998 and 1999 is as follows:

<TABLE>

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


Year ended March 31,
         1998

Bank overdrafts                       4,007                3,216               9.73%               11.87%
                               ==================   =================   =================   =================

Short-term bank loan                      -                    -                  -                   -
                               ==================   =================   =================   =================

Trust receipts bank loans            41,959               32,504              10.87%              10.08%
                               ==================   =================   =================   =================

Year ended March 31,
         1999

Bank overdrafts                      9,800                8,713               10.93%              11.73%
                               ==================   =================   =================   =================

Short-term bank loan                 2,000                  667                8.75%               8.81%
                               ==================   =================   =================   =================

Trust receipts bank loans          123,500               80,914                9.33%               10.12%
                               ==================   =================   =================   =================

</TABLE>

10.  LONG-TERM BANK LOANS

Long-term bank loans were denominated in Hong Kong dollars, and bore interest at
the Hong Kong prime lending rate plus 0.25% to 3.50%, which ranged from 10.5% to
11.75% per annum as of March 31,  1998 and 9% to 11.5% per annum as of March 31,
1999.  Long-term  bank loans are  collaterized  by  mortgages  over the  Group's
leasehold land and building and pledges of certain of the Group's  machinery and
equipment  (see Note 8),  mortgages  over certain  leasehold  land and buildings
owned by Mr. Lam Sai Wing, Ms. Chan Yam Fai, Jane and Ms. Ng Yee Mei,  directors
of the Company and personal guarantees provided by Mr. Lam Sai Wing and Ms. Chan
Yam Fai, Jane.

                                      F-15

<PAGE>

10.  LONG-TERM BANK LOANS (Cont'd)
     --------------------
Aggregate maturities of long-term bank loans are as follows:

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

Payable during the following periods:
-        Within one year                  2,273        2,812           363
-        Over one year but not
exceeding two years                       1,952        2,137           276
-        Over two years but not
exceeding three years                     898          1,043           135
-        Over three years but not
exceeding four years                      1,022        1,153           149
-        Over four years but not
exceeding five years                      1,146        1,274           164
-        Over five years                  4,199        2,783           359
                                     -------------  -------------  ------------

Total bank loans                          11,490       11,202          1,446

Less: Current portion                     (2,273)      (2,812)         (363)
                                     -------------  -------------  ------------

Non-current portion                       9,217        8,390           1,083
                                     =============  =============  ============



11.  CAPITAL LEASE OBLIGATIONS
     -------------------------
Future  minimum  lease  payments  under the capital  leases,  together  with the
present value of the minimum lease payments, were:

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

Payable during the following periods:
-        Within one year                  10,716           10,780        1,391
-        Over one year but not
exceeding two years                        9,941            7,477         965
-        Over two years but not
exceeding three years                      6,432            693           89
                                       ------------     -----------   ----------

Total minimum lease payments              27,089           18,950        2,445
Less: Amount representing future
interest                                  (3,550)          (1,736)       (224)
                                       ------------     -----------   ----------

Present value of minimum lease payments
                                          23,539           17,214        2,221
Less: Current portion                     (8,560)          (9,487)       (1,224)
                                       ------------     -----------   ----------

Non-current portion                       14,979           7,727         997
                                       ============     ===========   ==========

                                      F-16
<PAGE>


12.  ACCRUED LIABILITIES
     -------------------
Accrued liabilities comprised:

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

Accruals for operating expenses:
-        Audit fee                         660               680             88
-        Workers' wages and bonus        2,092             2,716            350
-        Management bonus                    -             3,100            400
-        Rental expenses                   155               150             19
-        Others                              -                25              4
                                       -----------      ----------- ------------

                                         2,907             6,671            861
                                       ===========      =========== ============




13.  CONVERTIBLE NOTE
     ----------------
On May 20, 1997, the Company and its wholly owned subsidiary,  QPL, entered into
an agreement with Phenomenal  Limited,  an independent third party,  under which
QPL issued a  convertible  note ("the  Note") of  US$10,000,000  (equivalent  to
approximately  HK$77,500,000) to Phenomenal Limited at face value. The Note bore
interest at 3% per month,  and was  repayable in a lump sum payment on March 20,
1998.  As  one  of  the  conditions  for  the  lending,  the  Company  issued  a
non-detachable  warrant ("the  Warrant") to Phenomenal  Limited to subscribe for
5,263,158  shares of common stock of the Company at an exercise price of US$2.19
(equivalent  to  approximately  HK$16.97)  per  share.  The Note was  secured by
personal  guarantees provided by Mr. Lam Sai Wing and Ms. Chan Yam Fai, Jane and
the 53.9% equity  interest in the Company owned by Mr. Lam Sai Wing and Ms. Chan
Yam Fai, Jane. In accordance with the term of the agreement, the Warrant expired
on May 31, 1998.

On June 4, 1998,  Phenomenal  Limited  agreed to extend the maturity date of the
Note from March 20, 1998 to June 4, 1998, and waive its  entitlement to interest
accrued under the Note during the period from May 20, 1997 (date of issue of the
Note) to June 4,  1998.  Also,  the  Group  and  Phenomenal  Limited  agreed  to
restructure and capitalize the Note into redeemable  preferred  stocks of HFJCL,
another wholly owned subsidiary of the Company.  As a result,  on June 30, 1998,
HFJCL  issued  5,263,788  shares  of  redeemable   preferred  stock  of  US$0.01
(equivalent  to   approximately   HK$0.08)  each  ("the  Preferred   Stock")  at
approximately  US$1.90  (equivalent  to  approximately  HK$14.73)  per  share to
Phenomenal  Limited in  replacement  of the Note.  Under the revised  agreement,
Phenomenal Limited is required to convert its interest in the Preferred Stock to
common stocks of Hang Fung Gold Technology Limited, a subsidiary of the Company,
upon satisfaction of certain conditions.  Alternatively,  Phenomenal Limited has
an option to require HFJCL to redeem the Preferred Stock at a redemption  amount
as determined in accordance with a pre-determined  formula,  or requires Mr. Lam
Sai Wing and Ms. Chan Yam Fai,  Jane,  directors  of the Company to purchase the
Preferred  Stock held by Phenomenal  Limited in case HFJCL defaults in redeeming
the Preferred Stock.

On  February  27,  1999,  the  Preferred  Stock were  redeemed  by HFJCL and the
redeemed amount of US$10,000,000 (equivalent to approximately HK$77,500,000) was
applied by Phenomenal  Limited  towards the  subscription  of 582,800  shares of
common  stock of Hang Fung Gold  Technology  Limited,  according  to the revised
agreement.  Redeemable  Preferred Stock dividend of  HK$14,328,000 is payable to
Phenomenal Limited.

                                      F-17
<PAGE>


14.  PROVISION FOR INCOME TAXES

The provision for income taxes consisted of the following:

<TABLE>

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

Current tax
-        Hong Kong profits tax         5,388            2,212         13,000         1,677
-        PRC business tax and
enterprise income tax                  8,893            6,477          4,253          548

Less: overprovision of PRC
business tax and enterprise income
tax in prior years
                                          -            (6,477)        (2,506)        (323)

Deferred tax                          2,194             7,751              -            -
                                    ------------   -------------    -----------   ----------

                                     16,475            9,963          14,747         1,902
                                    ============   =============    ===========   ==========
</TABLE>

The Company and its  subsidiaries are subject to income taxes on an entity basis
on income arising in or derived from the tax jurisdiction in which they operate.
Subsidiaries  with  business  operations  in Hong Kong are  subject to Hong Kong
profits  tax at a rate of 16.5% and 16% for the year  ended  March 31,  1998 and
1999,  respectively.  The British Virgin Islands  subsidiaries  are incorporated
under the  International  Business  Companies Act of the British  Virgin Islands
and, accordingly, are exempted from payment of the British Virgin Islands income
taxes.  The Bermuda  subsidiary is incorporated  under the Companies Act 1981 of
Bermuda (as amended) as an exempted company and,  accordingly,  is exempted from
payment of Bermuda income taxes until 2016.

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

                                        1 9 9 7      1 9 9 8      1 9 9 9
                                      -----------   ----------   ------------

Hong Kong statutory income tax rate      16.5%        16.5%        16.0%

General provision on tax charged in
foreign jurisdiction                     15.2%         0.4%         3.5%
                                      -----------   ----------   ------------

Effective income tax rate                31.7%        16.9%        19.5%
                                      ===========   ==========   ============

Components  of  deferred  tax  balances  as of  March  31,  1998 and 1999 are as
follows:

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

Tax effect of accumulated difference
between taxation allowance and
depreciation expenses
                                            9,945          9,945          1,283
                                       ============    ============ ============

                                      F-18
<PAGE>


14.  PROVISION FOR INCOME TAXES (Cont'd)
     --------------------------
The retained earnings of the foreign subsidiaries would be subject to additional
taxation if distributed. In the opinion of the Directors these retained earnings
are, at the present time,  required to finance the  continuing  operation of the
subsidiaries  and,  accordingly,  no provision for additional  taxation has been
made.

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

16.  COMMITMENTS
     -----------
a.   Capital commitments
     -------------------
As of March 31, 1998 and 1999, the Group had capital commitments for acquisition
of  machinery  and  equipment   amounting  to   approximately   HK$602,000   and
HK$1,535,000, respectively.

b.   Operating lease commitments
     ---------------------------
The Group has various  operating lease  agreements for staff  quarters,  factory
premises,  warehouses and motor vehicles under non-cancellable  operating leases
which  extend to February  2003.  Rental  expenses for the years ended March 31,
1997,  1998  and  1999  were   approximately   HK$2,207,000,   HK$4,745,000  and
HK$4,523,000,  respectively.  As of March  31,  1998  and  1999,  future  rental
payments under agreements  classified as operating  leases with  non-cancellable
terms are as follows:

                                      F-19
<PAGE>

16.  COMMITMENTS (Cont'd)
     -----------
b.   Operating lease commitments (Cont'd)
     ---------------------------
<TABLE>

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

          Payable during the following periods:
          -        Within one year                     2,720         2,951              381
           -       Over one year but not exceeding
          two years                                       54         2,229              288
           -       Over two years but not exceeding
          three years                                     54           504               65
           -       Over three years but not
          exceeding four years                            54           495               64
           -       Over four years but not exceeding
          five years                                      31           448               57
           -       More than five years                    -         1,163              150
                                                    ------------  ------------     ------------

                                                       2,913         7,790            1,005
                                                    ============  ============     ============

</TABLE>

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

The  employees  of the Group's  operation in Hong Kong after  completing  twelve
month's service may join the Group's defined  contribution  pension fund managed
by an  independent  trustee.  Both the  Group  and the  employees  make  monthly
contributions  to  the  scheme  of 5% of  the  employees'  basic  salaries.  The
employees  are  entitled to receive  their  entire  contribution  together  with
accrued  interest  thereon at any time upon  leaving the Group,  and 100% of the
Group's  employer  contribution and the accrued interest thereon upon retirement
or leaving the Group after completing ten years of service or at a reduced scale
of  between  30% to 90% after  completing  three to nine years of  service.  Any
forfeited  contributions  made by the Group and the accrued interest thereon are
used to reduce future  employer's  contributions.  The  aggregate  amount of the
Group's employer  contributions  (net of forfeited  contributions) for the years
ended March 31, 1997, 1998 and 1999 was approximately HK$76,000,  HK$145,000 and
HK$93,000, respectively.

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

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

Amount provided for in the financial
statements                                145              184            24
Amount not provided for in the
financial statements                      159              231            30
                                     -------------     ------------  -----------

                                          304              415            54
                                     =============     ============  ===========

                                      F-20
<PAGE>

18.  BANKING FACILITIES

As of March 31, 1998 and 1999,  the Group had  aggregate  banking  facilities of
approximately HK$96,471,000 and HK$184,807,000, respectively, from several banks
for bank overdrafts, loans and trade financing. Unused facilities as of the same
date amounted to approximately  HK$19,964,000 and  HK$27,926,000,  respectively.
These facilities were secured by:

i.   pledge of machinery  and equipment  with a net book value of  approximately
     HK$1,923,000 and HK$1,395,000 as of March 31, 1998 and 1999, respectively;

ii.  mortgage over the Group's leasehold land and building with a net book value
     of  approximately  HK$1,973,000  and  HK$1,973,000 as of March 31, 1998 and
     1999, respectively;

iii. the Group's stocks held under trust receipts bank loans;

iv.  pledges of the Group's bank deposits of HK$10,000,000  and HK$60,150,000 as
     of March 31, 1998 and 1999, respectively;

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

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

vii. corporate guarantee provided by the Company.



19.  RELATED PARTY TRANSACTIONS
     --------------------------
a.   The Group entered into the following transactions with related parties:

<TABLE>

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

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

          Rental paid to Mr. Lam Sai Wing
                                                     -            -          162           21
                                             ===========   ===========   ===========  ==========

</TABLE>

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

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

          Due to a director
          -        Mr. Lam Sai Wing        (8,010)        (3,101)         (400)
                                        ==============   ==========    =========

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

                                      F-21
<PAGE>


19.  RELATED PARTY TRANSACTIONS (Cont'd)
     --------------------------
c.   The Group's  banking  facilities  were secured by, among others,  mortgages
     over leasehold  land and buildings  owned by Mr. Lam Sai Wing, Ms. Chan Yam
     Fai,  Jane and Ms. Ng Yee Mei and personal  guarantees  provided by Mr. Lam
     Sai Wing and Ms. Chan Yam Fai, Jane.

20.  SEGMENT INFORMATION
     -------------------
a.   Revenue

<TABLE>

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


          Sales of jewellery products to
          customers in
          -        Hong Kong                  120,989           80,058         54,929           7,088
          -        PRC                         62,252           77,527        122,659          15,827
          -        Middle East (export
          sales)                               44,461           72,161        108,086          13,947
          -        South East Asia
          (export sales)                       35,684           94,739        128,352          16,562
          -        Europe (export sales)       11,657           45,614        136,880          17,661
          -        United States of
          America (export sales)
                                               10,101           79,137        107,884          13,920
                                            ------------    -------------  -------------    ------------

                                              285,144          449,236        658,790          85,005
                                            ============    =============  =============    ============

          Contract processing fees
          -        PRC                         31,996           33,360        17,012           2,195
                                            ============    =============  =============    ============

</TABLE>

b.   Operating profit *

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

          Hong Kong operation    18,667       27,103        69,943       9,024

          The PRC operation      38,992       36,704        17,960       2,317
                               ----------   ----------    ----------   ---------

          Total                  57,659       63,807        87,903      11,341
                               ==========   ==========    ==========   =========

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


                                      F-22
<PAGE>


20.  SEGMENT INFORMATION (Cont'd)
     -------------------
c.   Identifiable assets
     -------------------
                                     1 9 9 8                 1 9 9 9
                                   ------------    -------------------------
                                     HK$'000        HK$'000          US$'000

          Hong Kong operation        272,783        417,179          53,830
          The PRC operation           81,130        153,977          19,868
                                   ------------    ----------    -----------

          Total                      353,913        571,156          73,698
                                   ============    ==========    ===========

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

                                           1 9 9 7       1 9 9 8       1 9 9 9
                                         ------------   -----------   ----------

          Chow Tai Fook Jewellery Co.,
          Ltd.                              12.3%          5.9%         2.0%
          World Commercial Sales Co.
          Ltd.                               6.4%          2.3%         0.9%
          Sam Ming Tong Jewellery Co.,
          Ltd.                               3.0%          5.5%         4.9%
                                        ==============  ===========   ==========



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

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

The  Group's  operations  in the PRC are subject to special  considerations  and
significant  risks not typically  associated with companies in North America and
Western  Europe.   These  include  risks  associated  with,  among  others,  the
political,  economic and legal environments and foreign currency  exchange.  The
Group's results may be adversely affected by changes in the political and social
conditions in the PRC, and by changes in  governmental  policies with respect to
laws  and  regulations,  anti-inflationary  measures,  currency  conversion  and
remittance abroad, and rates and methods of taxation, among other things.

                                      F-23
<PAGE>

21.  OPERATING RISKS (Cont'd)
     ---------------
b.   Dependence on strategic relationship
     ------------------------------------
Gold and silver  products  are  restricted  commodities  in the PRC and  special
authorization is required for production and trading of gold and silver products
in  the  PRC.  The  PRC  government  has  only  granted  a few  licences  to PRC
enterprises  to  produce  and trade  gold and silver  products  in the PRC.  The
Group's present  operations in the PRC are conducted  through  various  contract
processing  agreements  with those PRC  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.

c.   Concentration of credit risk
     ----------------------------
Concentration  of  accounts  receivable  as of  March  31,  1998  and 1999 is as
follows:

                                               1 9 9 8      1 9 9 9
                                              ---------    ----------

          Five largest accounts receivable      30.1%        18.5%
                                              =========    ==========

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

d.   Dependence on a limited number of suppliers
     -------------------------------------------
The  Group   purchases  raw  materials  from  a  limited  number  of  suppliers.
Concentration on the Group's  suppliers for the years ended March 31, 1997, 1998
and 1999 is as follows:

                                               1 9 9 7     1 9 9 8       1 9 9 9
                                              ----------  -----------  ---------
       Purchases from five largest suppliers
                                                81.7%       66.2%          77.0%
                                              ==========  ===========  =========


22.  SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
     -------------------------------------------------
a.   Cash paid for interest and income taxes are as follows:

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

          Interest paid      3,007         5,513           11,588         1,495
                         ===========  ============      ==========     =========

          Income taxes           -         3,664              147            19
                         ===========  ============      ==========     =========

b.   Cash received for interest income are as follows:

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

          Interest received            1          1,065      3,234         417
                                  ===========  =========== ========== ==========

                                      F-24
<PAGE>


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

     i.   During the years ended March 31, 1997,  1998 and 1999,  capital  lease
          obligations   of   approximately   HK$6,750,000,   HK$29,644,000   and
          HK$2,234,000,  respectively,  were  incurred  to finance  the  Group's
          additions of new machinery and equipment.

     ii.  As described  in Note 13, on May 20, 1997,  the Company and its wholly
          owned  subsidiary,  QPL,  entered  into an agreement  with  Phenomenal
          Limited,  an  independent  third  party,  under  which  QPL  issued  a
          convertible note ("the Note") of  US$10,000,000 to Phenomenal  Limited
          at face value.  On June 4, 1998,  the Company and  Phenomenal  Limited
          agreed  to  restructure   and  capitalize  the  Note  into  redeemable
          preferred  stocks of HFJCL, a wholly owned  subsidiary of the Company.
          As a result,  on June 30,  1998,  HFJCL issued to  Phenomenal  Limited
          5,263,788  shares of redeemable  preferred stocks of US$0.01 each at a
          consideration  of  US$10,000,000,  by using the cash  proceeds  of the
          convertible  note.  On  February  27,  1999,  pursuant  to  the  group
          reorganization  for the  listing  on The Stock  Exchange  of Hong Kong
          Limited of HFGTL,  the  redeemable  preferred  stocks were redeemed at
          US$10,000,000 and Phenomenal  Limited used the redemption  proceeds to
          subscribe for 582,800 common stock of HFGTL.



23.  OTHER SUPPLEMENTAL INFORMATION
     ------------------------------
<TABLE>

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

Depreciation of property, machinery
and equipment
-        owned assets                         6,451             15,634         31,474           4,061
-        assets held under capital            1,584              7,513          7,635             985
leases

Allowance for doubtful accounts                  -                  -           2,500             323

Allowance for obsolete and slow-moving
inventories                                      -                  -           2,000             258

Interest expenses for
-        bank overdrafts and loans           2,727              4,475           9,585           1,237
-        capital lease obligations             280              1,038           2,003             258

Operating lease rentals for
-        premises                            2,207              4,745           4,443             573
-        machinery & equipment                   -                  -              80              10

Repairs and maintenance expenses               357                667             721              93

Rental income                                  105                 55             101              13

Net foreign exchange gain (loss)               192                (12)            149              19

Interest income from bank deposits               1              1,065           3,234             417
                                           =============    =============    ============    ==============

</TABLE>

                                      F-25