SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

(Mark One)

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

                   For the Fiscal Year Ended December 31, 1996

[ ]  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. 0-6456

                       INFRASTRUCTURE INTERNATIONAL, INC.
                 (Name of small business issuer in its charter)

           Nevada                                        87-0287034
--------------------------------          --------------------------------------
(State or other jurisdiction of          (I.R.S. Employer Identification Number)
 incorporation or organization)

                       One World Trade Center, Suite 7865
                            New York, New York 10048
               ---------------------------------------------------
               (Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, Include Area Code:  (212) 938-0574

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)

     Check  whether  the issuer (1) filed all  reports  required  to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past twelve (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 No X

     Check  if  disclosure  of  delinquent  filers  in  response  to Item 405 of
Regulation S-B is not contained in this form, 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-KSB or any  amendment to
this Form 10-KSB. [ ]

     The issuer's revenues for its most recent fiscal year were $706,433.

     As of April 15, 1997,  9,680,000  shares of common stock of the  Registrant
were  outstanding.  As of such date, no trading  market existed in the Company's
common  stock.   The  aggregate  market  value  of  the  common  stock  held  by
non-affiliates, based on the book value per share, was approximately $400,000.

                       DOCUMENTS INCORPORATED BY REFERENCE

     None

     Transitional Small Business Disclosure Format: Yes   No  X
                                                             ----

<PAGE>


                                TABLE OF CONTENTS

                                                                          Page
                                                                         ------

PART I

       ITEM 1.  DESCRIPTION OF BUSINESS..................................   1
       ITEM 2.  DESCRIPTION OF PROPERTIES................................   5
       ITEM 3.  LEGAL PROCEEDINGS........................................   5
       ITEM 4.  SUBMISSION OF MATTERS TO A VOTE
                OF SECURITY HOLDERS......................................   5

PART II

       ITEM 5.  MARKET FOR COMMON EQUITY AND
                RELATED STOCKHOLDER MATTERS..............................   5
       ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS.....................   6
       ITEM 7.  FINANCIAL STATEMENTS.....................................   9
       ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
                ON ACCOUNTING AND FINANCIAL DISCLOSURE...................   9

PART III

       ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
                AND CONTROL PERSONS; COMPLIANCE WITH
                SECTION 16(a) OF THE EXCHANGE ACT.........................   9
       ITEM 10. EXECUTIVE COMPENSATION....................................  11
       ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
                OWNERS AND MANAGEMENT.....................................  11
       ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............  12
       ITEM 13. EXHIBITS AND REPORTS OF FORM 8-K..........................  13

                SIGNATURES................................................  14

                FINANCIAL STATEMENTS...................................... F-1


<PAGE>

                                     PART I

     This Form 10-KSB 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  "Certain Factors
Affecting Future Operating Results" beginning on page 4 of this Form 10-KSB.

ITEM 1. DESCRIPTION OF BUSINESS

General and Development of Business

     Infrastructure  International,  Inc. (the "Company"), a Nevada corporation,
through its  subsidiaries  and a sino-foreign  joint venture,  is engaged in the
development  and operation of a 72 kilometer  four-lane toll road (the "Jin Long
Highway")  in  Huizhou,  Guangdong  Province,  the  People's  Republic  of China
("PRC").

     On December 1, 1996, the Company  consummated an exchange (the  "Exchange")
with the shareholders of Guang Hui Highway Project Company Limited ("Guang Hui")
pursuant  to which  the  Company  acquired  100% of the  stock  of Guang  Hui in
exchange  for  8,430,000  shares  of  common  stock,  representing  87.1% of the
outstanding  common stock, and 100,000 shares of preferred  stock,  representing
100% of the outstanding Series B Preferred Stock, of the Company.

     Guang  Hui,  a British  Virgin  Island  company  formed  on March 5,  1996,
operating  through  an  80%-owned  subsidiary  in the  PRC,  is  engaged  in the
development  and operation of the Jin Long Highway.  An 18 kilometer  section of
the Jin Long Highway began operation in March of 1996 and a 17 kilometer section
is  scheduled  to open by the  end of  1997.  Development  of the  remaining  37
kilometers of the Jin Long Highway has commenced and is expected to be completed
during  1997.  The  development  and  operation of the Jin Long Highway is being
undertaken by a sino-foreign joint venture, Guanghui Highway Development Company
Limited (the "Highway Joint Venture"), which is 80% owned by the Company and 20%
owned by Huizhou Highway Property  Development  Company ("HHPD"),  a state-owned
company  incorporated in the PRC. Guang Hui is generally  entitled to 80% of the
profits  derived  from the  operation  of the Jin Long  Highway  for a period of
thirty years,  subject to certain guaranteed minimum returns to Guang Hui during
the  first  seven  years  of  operations  and  subject  to  certain   additional
allocations to HHPD during years eight through seventeen of operations.

     The assets of the Highway Joint  Venture and Guang Hui consist  principally
of the land use rights  relating  to, and the  portions  presently  completed or
under  construction  of, the Jin Long  Highway  in the PRC.  The land use rights
relating  to the Jin Long  Highway  expire in  August of 2026 at which  time the
Company's interest in the Jin Long Highway will terminate.

Company Strategy

     Management's  strategy  for the  Company is to develop  and operate the Jin
Long Highway and to capitalize on the anticipated earnings and cash flows of the
Jin Long Highway to acquire  interests in other  infrastructure  projects in the
PRC. The Company believes that the combination of existing profitable operations
of the  operational  portion of the Jin Long Highway  combined with  contractual
guarantees of minimum  profit levels to the Company during the first seven years
of operations  and ongoing  interests in the  operations of the Jin Long Highway
for an additional  twenty-three years will allow the Company to realize superior
returns  on  equity  and  assets  and  strong  cash  flows  over the life of the
Company's investment.

     Management  believes that the Company's  participation in the Highway Joint
Venture and the  development  and  operation  of the Jin Long  Highway will also
facilitate the Company's  participation in future infrastructure projects by (i)
establishing   essential   governmental  and  industry  contacts  necessary  for
participation in such ventures in the PRC, (ii) establishing  credibility in the
operation  of  infrastructure  projects in the PRC, and (iii)  establishing  the
Company's  ability to attract necessary  financing for such projects.  While the
Company  has not  identified  additional  infrastructure  projects  in  which it
intends to invest,  management believes there are substantial  opportunities for
further infrastructure investment in transportation,  communications,  power and
other essential services.


                                       1
<PAGE>

Jin Long Highway

     Overview. The Jin Long Highway is a proposed four-lane toll road located in
Guangdong  Province,  PRC.  When  completed,  the Jin Long  Highway will span 72
kilometers  from Longmen  Baisachias  in the north to  Xiaojinkou  in the south.
Presently,  to travel  from  northern  part of China to the major  cities in the
south, namely Hong Kong,  Shenzhen and Yantian Harbour,  commuters must travel a
166 kilometer  road from Xin Faze to Guangzhou and a 134.8  kilometer  road from
Guangzhou  to  Shenzhen.  The  indirect  routing of those  roads  combined  with
congestion  and poor surface  conditions  make travel times between Xin Feng and
Shenzhen  unpredictable  with typical travel time ranging from five and one-half
to eight hours.

     The Jin Long Highway will be a limited  access,  high  quality,  maintained
highway  which will permit  direct  travel from Xin Feng to Shenzhen,  bypassing
Guangzhou.  The Jin Long Highway will save approximately 100 kilometers from the
existing  route with an  anticipated  travel  time of three  hours.  The Company
believes  that the Jin Long Highway will become the  preferred  method of travel
for  businessmen  and the  transportation  of goods from northern China to major
cities in the south.

     Development.  The Jin Long  Highway is being  constructed  in two  separate
phases.  The  first  phase,  consists  of 35  kilometers  beginning  at  Longmen
Baisachias,  of  which  18  kilometers  was  completed  in  March of 1996 and is
presently  in  operation.   The  remaining  17  kilometers  is  presently  under
construction  and is scheduled for completion  during 1997.  Construction of the
second phase, consisting of 37 kilometers, has commenced already and is expected
to be completed during 1997.

     The first phase of the Jin Long  Highway is being  constructed  by HHPD,  a
state-owned  enterprise and a 20% owner of the Highway Joint Venture,  at a cost
of  approximately  RMB 248 million  (US$29.8  million).  In connection  with the
formation  of  the  Highway  Joint   Venture,   HHPD  entered  into  a  turn-key
construction  contract pursuant to which HHPD agreed to construct the entire Jin
Long Highway for RMB 560 million (US$67.3 million), inclusive of the cost of the
first phase.

     Construction  of phase one extends 35 kilometers  from the  intersection of
Provincial  Expressway  Route No. 1914 and National  Expressway Route No. 205 in
Shierling,  Young's Village to the junction of Gongzhuang Town and Yangcun Town,
Boluo. The road bed on the first 35 kilometer  section is 18 meters in width and
may be gradually increased to 23 meters in width in the future.  Construction of
the road is required to comply with the technical  specifications  and standards
for highway  construction  established by the Ministry of  Transportation of the
PRC. The Highway  Joint  Venture will have the right to supervise and ensure the
quality  and  progress of  construction  and will,  in turn,  be required to pay
construction  costs  pursuant  to a  schedule  of  payments  set  forth  in  the
construction  contract.  Performance by HHPD under the construction  contract is
guaranteed by the Huizhou Highway Bureau.

     Operation.  The  Highway  Joint  Venture  has  entered  into  a  management
agreement with HHPD pursuant to which HHPD will be responsible  for operation of
the first 35 kilometer section of the Jin Long Highway, including the payment of
costs  associated  with the operation and  maintenance  of the toll road,  for a
period of  seventeen  years after which time the  parties  will  negotiate a new
contract for the management of the toll road. In return for such  services,  the
Highway  Joint  Venture  will pay to HHPD a  management  fee equal to 15% of the
total tolls collected from the operation of the toll road.

     The Highway Joint Venture and HHPD have selected two initial sites for toll
booths with additional booths to be opened as agreed to by the parties from time
to time.  Operation  of the Jin  Long  Highway  will  generally  consist  of the
collection  of tolls and deposit of such tolls in a designated  bank account and
the maintenance of the toll road,  manning of toll booths and accounting for and
handling  revenues.  Tolls to be charged  will vary based on the type of vehicle
traveling on the road and the  distance  traveled and will be fixed from time to
time by agreement  among the Highway Joint  Venture and HHPD.  Initial tolls for
travel on the 17 kilometer  portion of the road which is  presently  operational
range from $0.24 to $2.40.  Tolls for the  remaining  portions  of the road have
not, as yet, been established.


                                       2
<PAGE>

Joint Venture Agreement

     The terms of the Company's  ongoing  participation  in the  development and
operation of the Jin Long Highway are governed by a joint venture agreement (the
"Joint  Venture   Agreement")   dated  August  6,  1996  between  the  Company's
wholly-owned  subsidiary,  Guang Hui, and HHPD whereby the Highway Joint Venture
was formed.

     Under the terms of the Joint Venture Agreement,  the Company, through Guang
Hui, is required to  contribute  to the Highway  Joint  Venture $9.53 million in
cash and HHPD is  required to  contribute  to the Highway  Joint  Venture  $2.38
million in the form of assets  comprising a part of the Jin Long Highway.  As of
December 31, 1996, the Company had made an initial  contribution  to the Highway
Joint  Venture  of $3.0  million  in  cash.  In  February  of  1997,  Guang  Hui
contributed   an  additional   $7.0  million  to  the  Highway  Joint   Venture,
representing  the  balance  of its  obligation  and a  loan  of  $464,000.  HHPD
contributed  its interest in the assets  comprising the Jin Long Highway with an
appraised value of approximately  $22.35 million in satisfaction of its required
capital  contribution  to the Highway  Joint  Venture.  The excess  value of the
assets  contributed  by  HHPD,  in the  approximate  amount  of  $16.4  million,
constitutes a payable of the Highway  Joint Venture to HHPD.  HHPD has agreed to
forego  repayment of such amount from the Highway Joint Venture until the second
phase of construction of the Jin Long Highway is completed.

     During the first  seven  years of the Highway  Joint  Venture,  profits and
losses will be allocated 80% to the Company and 20% to HHPD; provided,  however,
that the Company  shall be allocated  profits of not less than 22% of the actual
capital  contributed to the Highway Joint Venture by the Company for each of the
first seven years with distributions to be made on the last day of each calendar
quarter  based on the actual time and amount of each capital  injection.  During
each of the  eighth  to the  seventeenth  years,  30% of the net  income  of the
Highway Joint Venture shall be allocated to HHPD until HHPD has received a total
return equal to its capital  contribution  to the Highway  Joint Venture plus an
imputed interest rate of 13.5%. The remaining 70% of net income, and net losses,
if any, will be allocated 80% to the Company and 20% to HHPD. During each of the
eighteenth  year to the thirtieth year of the Highway Joint Venture,  net income
or loss  shall  be  allocated  80% to the  Company  and 20% to HHPD.  After  the
thirtieth  year of the Highway  Joint  Venture,  in August of 2026,  the Highway
Joint  Venture will  terminate and ownership of the Jin Long Highway will revert
to HHPD.

Income Guarantees

     As a further  inducement  for the Company to enter into the  Highway  Joint
Venture,   HHPD  and  the  Huizhou  Highway  Bureau  have  each  unconditionally
guaranteed  payment of the  Company's  preferred  return  during the first seven
years of operations as described  above.  In order to assure that adequate funds
are available to pay such  guaranteed  payment,  the Huizhou  Highway Bureau and
HHPD have  agreed to deposit in the  Highway  Joint  Venture's  designated  bank
account  revenues from a separate toll road in an amount  sufficient to maintain
at all times a three month reserve  against such  payments.  If operation of the
other toll road fails to provide  adequate  funding  to  maintain  the  required
reserves,  the  Huizhou  Highway  Bureau and HHPD have  agreed to make  deposits
against such reserve  account from other  revenues or resources of HHPD so as to
maintain the minimum required guarantee reserves at all times.

Government Regulation

     The Ministry of Transportation of the PRC establishes various standards and
regulations   governing   the   construction,   maintenance   and  operation  of
transportation  facilities  within  the PRC.  Those  standards  and  regulations
generally impose standards  relating to safety in the construction and operation
of such  facilities.  Accordingly,  the Jin  Long  Highway  will be  subject  to
periodic   inspection  by  the  Ministry  of  Transportation   both  during  the
construction phase and the operational phase. As the construction contract calls
for HHPD to construct  the road in accordance  with  Ministry of  Transportation
standards,  the Company  does not believe  that such  regulations  will have any
adverse affect upon construction of the road.

     With  respect  to the  operation  of the Jin Long  Highway,  transportation
standards in the PRC remain relatively  undeveloped by western standards.  It is
possible  that  the  Ministry  of  Transportation   may  impose  new  rules  and
regulations  as to operation of and on  transportation  facilities  from time to
time. The imposition of new rules and  regulations  could  adversely  affect the
Company's  operations  by imposing  standards  or  limitations  on the volume of
traffic,  tolls  chargeable,  access to or other aspects of the operation of the
Jin Long Highway.

                                       3
<PAGE>

     The Company  believes that its  operations  comply with all  applicable PRC
regulations governing the construction and operation of the Jin Long Highway.

Competition

     As discussed, existing non-toll roads service the areas serviced by the Jin
Long  Highway.  The Company  believes  that the Jin Long Highway will be able to
attract adequate traffic to operate  profitably based on the superior quality of
the road,  the limited  access  permitted  on the road and the time and distance
savings  which are expected to be achieved by travel on the road.  As the region
in which the Jin Long Highway is located  continues to grow,  it can be expected
that additional roadways will constructed to services such areas. Such new roads
may be a combination of toll and non-toll roads.

     The Company believes that it is competitive, and will be competitive,  with
transportation  facilities  which may be  constructed in the future based on the
factors discussed above as well as the participation of Huizhou Highway Bureau.

Employees

     The Company and its subsidiaries  currently employ approximately 76 people;
8 in management,  22 in administration and 45 in toll road operations.  Pursuant
to the terms of the  agreement  by which  HHPD  operates  the Jin Long  Highway,
virtually all personnel  involved in the  day-to-day  operations of the Jin Long
Highway are employees of HHPD. The Company and its  subsidiaries are not parties
to any  traditional  labor  contracts.  The Company has not  suffered  any labor
stoppages and believes that it has good relations with its employees.

Additional Infrastructure Investment Strategy

     Since the inception of market reform in the PRC in the late 1970's, the PRC
economy has experienced  strong growth and a general  improvement in standard of
living.  The growth in the PRC economy has been  accompanied by a growing demand
for basic infrastructure  improvements necessary to support continued growth and
higher living standards.

     In recent years,  substantial  investment,  both domestic and foreign,  has
been  made to  establish  and  upgrade  basic  infrastructure  in the PRC.  Such
investment to date has focused largely on providing  power,  other utilities and
transportation  as  well as raw  materials  and  building  products  to  support
industrial  growth in the PRC and to meet  consumer  demand in  rapidly  growing
metropolitan  areas.  While  infrastructure  investment has grown  substantially
since the 1970's,  the Company believes there are substantial  opportunities for
additional  infrastructure  investment  in the PRC. The Company  intends to seek
out, evaluate and, where appropriate,  invest in other  infrastructure  projects
where it believes superior investment returns can be achieved. While the Company
has no  infrastructure  projects  presently under  consideration for investment,
other than the Jin Long Highway, the Company believes that opportunities will be
available to investment in projects in the PRC in areas such as  transportation,
distribution,  telecommunications, power, utilities, natural resources and other
basic infrastructure.

     Management  believes  that the  Company  enjoys a favorable  position  with
respect to potential participation in future infrastructure projects as a result
of (i) the establishment of key contacts with government and industry  officials
as a result of the Company's  participation  in the Jin Long  Highway,  (ii) the
existence of a favorable track record for  participation  in such projects which
the Company  believes it will enjoy as a result of its  interest in the Jin Long
Highway,  (iii) the  existence of a favorable  track record for  financing  such
projects which the Company believes it will enjoy as a result of its interest in
the Jin Long Highway, and (iv) strong cash flows which it believes it will enjoy
as a result of its interest in the Jin Long Highway.

     While the Company believes that it can successfully  seek out, evaluate and
acquire interests in additional infrastructure projects in the PRC, there can be
no assurance that the Company will be successful in that regard or that any such
investments  will ultimately be profitable.  There are numerous  companies which
are presently  involved in infrastructure  development in the PRC and additional
companies can be expected to enter into such market. Many of the companies which
may compete with the Company with  respect to  acquisition  of interests in such
projects,  or operation of competing  projects,  may have substantially  greater
resources, financially and otherwise, than the Company.

                                       4
<PAGE>

ITEM 2. DESCRIPTION OF PROPERTIES

     The Company's executive offices consist of 3,315 square feet located at One
World Trade Center,  Suite 7865, New York, New York. Such space is provided by a
related party free of charge. The related party's lease expires in August, 1999.

     The  Company's  interest in the Jin Long Highway is held pursuant to a land
use right permit  granted by the PRC  government to the Highway  Joint  Venture.
Such land use rights  relate to the land  underlying  the Jin Long  Highway  and
revert to HHPD in August of 2026. See "Item 1. Description of Business. Jin Long
Highway."

     The  Company  believes  that its  properties  are  adequate  to support its
current operations.

ITEM 3. LEGAL PROCEEDINGS

     The Company is not  presently a party to, and  management  is not aware of,
any pending or threatened legal proceedings.

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

     No matters were submitted to a vote of the Company's  stockholders  through
the  solicitation  of proxies,  or otherwise,  during the fourth  quarter of the
Company's fiscal year ended December 31, 1996.

                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

     As of April 15, 1997,  there was no active  trading market in the Company's
Common Stock and no such market existed during 1996.

     The Company  intends to apply for listing of its Common Stock  initially on
the NASD Electronic Bulletin Board and, later, on the Nasdaq Small-Cap Market at
such time as it meets the requisite listing standards,  if ever. There can be no
assurance,  however,  that the Company's  Common Stock will in fact be listed on
Nasdaq or that a sustained trading market will develop.

Record Holders

     As of April 15, 1997,  there were  approximately  624 record  owners of the
Common Stock of the Company.

Dividends

     The  Company  has never  declared  or paid any cash  dividend on its Common
Stock and does not expect to declare or pay any such dividend in the foreseeable
future.


                                       5
<PAGE>

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS

     This Form 10-KSB 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  "Certain Factors
Affecting Future Operating Results" beginning on page of this Form 10-KSB.

     Infrastructure   International,   Inc.   (the   "Company"),   through   its
subsidiaries  and a sino-foreign  joint venture,  is engaged in the construction
and operation of a four lane 72 kilometer toll road in Guangdong Province, PRC.

     The Company's  operations are conducted  exclusively through a sino-foreign
joint venture in which its  wholly-owned  subsidiary,  Guang Hui Highway Project
Company  Limited ("Guang Hui"),  owns an 80% interest.  On December 1, 1996, the
Company  consummated an exchange (the "Exchange") with the shareholders of Guang
Hui  pursuant  to which the Company  acquired  100% of the stock of Guang Hui in
exchange  for  8,430,000  shares  of  common  stock,  representing  87.1% of the
outstanding  common stock, and 100,000 shares of preferred  stock,  representing
100% of the outstanding Series B Preferred Stock, of the Company.

     Guang Hui is a British  Virgin  Island  company  formed on March 5, 1996 to
acquire an interest in and  providing for the  development  and operation of the
Jin  Long  Highway.  An 18  kilometer  section  of the Jin  Long  Highway  began
operation  in March of 1996 and a 17  kilometer  section is scheduled to open by
the end of 1997.  Development  of the  remaining 37  kilometers  of the Jin Long
Highway is presently under way and is scheduled to be completed during 1997. The
development  and  operation  of the Jin Long  Highway is being  undertaken  by a
sino-foreign joint venture,  Guanghui Highway  Development  Company Limited (the
"Highway  Joint  Venture"),  which is 80% owned by the  Company and 20% owned by
Huizhou Highway Property  Development  Company ("HHPD"),  a state-owned  company
incorporated  in the PRC. Guang Hui is generally  entitled to 80% of the profits
derived from the operation of the Jin Long Highway for a period of thirty years,
subject  to  certain  guaranteed  minimum  returns to Guang Hui during the first
seven years of operations and subject to certain additional  allocations to HHPD
during years eight through seventeen of operations.

     The assets of the Highway Joint  Venture and Guang Hui consist  principally
of the land use rights  relating  to, and the  portions  presently  completed or
under  construction  of, the Jin Long  Highway  in the PRC.  The land use rights
relating  to the Jin Long  Highway  expire in  August of 2026 at which  time the
Company's interest in the Jin Long Highway will terminate.

     During the first  seven  years of the Highway  Joint  Venture,  profits and
losses will be allocated 80% to the Company and 20% to HHPD; provided,  however,
that the Company  shall be allocated  profits of not less than 22% of the actual
capital  contributed to the Highway Joint Venture by the Company for each of the
first seven years with distributions to be made on the last day of each calendar
quarter  based on the actual time and amount of each capital  injection.  During
each of the  eighth  to the  seventeenth  years,  30% of the net  income  of the
Highway Joint Venture shall be allocated to HHPD until HHPD has received a total
return equal to its capital  contribution  to the Highway  Joint Venture plus an
imputed interest rate of 13.5%. The remaining 70% of net income,  and net losses
if any, will be allocated 80% to the Company and 20% to HHPD. During each of the
eighteenth  year to the thirtieth year of the Highway Joint Venture,  net income
or loss  shall  be  allocated  80% to the  Company  and 20% to HHPD.  After  the
thirtieth  year of the Highway  Joint  Venture,  in August of 2026,  the Highway
Joint  Venture will  terminate and ownership of the Jin Long Highway will revert
to HHPD.

     As a further  inducement  for the Company to enter into the  Highway  Joint
Venture,   HHPD  and  the  Huizhou  Highway  Bureau  have  each  unconditionally
guaranteed  payment of the  Company's  preferred  return  during the first seven
years of operations as described  above.  In order to assure that adequate funds
are available to pay such  guaranteed  payment,  the Huizhou  Highway Bureau and
HHPD have  agreed to deposit in the  Highway  Joint  Venture's  designated  bank
account  revenues from a separate toll road in an amount  sufficient to maintain
at all times a three month reserve  against such  payments.  If operation of the
other toll road fails to provide  adequate  funding  to  maintain  the  required
reserves,  the  Huizhou  Highway  Bureau and HHPD have  agreed to make  deposits
against such reserve  account from other  revenues or resources of HHPD so as to
maintain the minimum required guarantee reserves at all times.

                                       6
<PAGE>

     The Highway Joint Venture has entered into a management agreement with HHPD
pursuant  to which  HHPD  will be  responsible  for  operation  of the  first 35
kilometer  section  of the Jin Long  Highway,  including  the  payment  of costs
associated  with the operation and maintenance of the toll road, for a period of
seventeen  years after which time the parties will  negotiate a new contract for
the management of the toll road. In return for such services,  the Highway Joint
Venture  will  pay to HHPD a  management  fee  equal to 15% of the  total  tolls
collected from the operation of the toll road.

     Operation of the first phase of the Jin Long Highway  commenced in March of
1996 and the Highway  Joint  Venture was formed in August of 1996.  Accordingly,
the operating  results for 1996 reflect the Company's  allocable share of income
and expenses for the period from March 5, 1996 to December 31, 1996. Because the
Company had no  substantial  operations  prior to the Exchange and because Guang
Hui and the Highway  Joint  Venture  were not formed until 1996 and the Jin Long
Highway was not in operation  prior to March of 1996,  no  comparable  financial
results are presented for 1995.

Results of Operations - Fiscal Year 1996

     Revenues.  Revenues  during 1996 totaled  $706,000,  consisting of $518,000
from toll road  operations and $189,000 from subsidies from the Huizhou  Highway
Bureau pursuant to its minimum profits  guarantee.  Toll paying vehicles for the
period  totaled  approximately  55,000 with an average toll of $.34 per vehicle.
Average monthly  traffic on the Jin Long Highway  increased from 45,043 vehicles
in June, 1996 to 65,165 vehicles in December, 1996.

     Operating  Expense.  Operating expenses during 1996 totaled $106,000 (20.4%
of toll road revenues and 15% of total revenues).  Operating  expenses consisted
principally of a 15% management fee paid to HHPD for turn-key  management of the
operations of the Jin Long Highway ($78,000) and general  corporate  overhead of
the Company. Pursuant to its management agreement with HHPD, HHPD pays all other
operating and maintenance expenses relating to the Jin Long Highway.

     Depreciation.  Depreciation  with respect to the Jin Long  Highway  totaled
$434,000 during 1996.

     Income Taxes.  The Company  reported no income tax expense during 1996 as a
result  of  certain  concessions  granted  by the  PRC.  Pursuant  to  such  tax
concessions,  the Highway  Joint  Venture,  through  which all of the  Company's
current operations are conducted,  is exempt from federal and local income taxes
for the first two  years of  profitable  operations  and are  entitled  to a 50%
reduction in federal income taxes for the next three years.

     Upon  expiration  of the PRC  income tax  concessions,  the  Highway  Joint
Venture will subject to PRC income taxes at current  combined  rate of 33%. On a
pro forma basis, income tax expense of the Highway Joint Venture, after minority
interests, would have been approximately $1,000 during 1996.

     Minority Interests. Minority interest, totaling $650 in 1996 represents the
allocable  share of income or loss  attributable to the 20% share of the Highway
Joint Venture not owned by the Company.

Liquidity and Capital Resources

     At December 31, 1996,  the Company had a working  capital  deficit of $18.7
million and a cash balance of $481.  At December  31,  1995,  the Company had no
assets and had liabilities of $94,000.

     Operating cash flows totaled $2.9 million during 1996. Such cash flows were
primarily attributable to increases in short term operating liabilities relating
to advances of construction costs and management fees due to HHPD ($2.2 million)
and to profitable operations during the year adjusted to reflect $0.4 million of
depreciation which represents a non-cash charge to earnings.

     The Company's  cash flows from financing  activities  totaled $19.4 million
during 1996.  Those cash flows  reflect (i) $2.9 million from the sale of common
stock and  preferred  stock,  net of  issuance  costs,  and (ii)  $16.4  million
representing the excess value of assets contributed to the Highway Joint Venture
by HHPD which amount constituted a payable of the Highway Joint Venture to HHPD.

                                       7
<PAGE>

     The Company utilized $22.3 million of cash flows during 1996 to acquire its
interest in and pay for construction costs of the Jin Long Highway.

     At December 31, 1996, the primary  obligations of the Company  consisted of
(i) $1.64  million  payable to HHPD  relating to the excess  value of the assets
contributed,  (ii)  $2.2  million  payable  to HHPD for  construction  costs and
management fees net of the operating differential subsidy.

     In addition to its various borrowings, the Company and its subsidiaries are
obligated under the agreement governing  operations of the Highway Joint Venture
to contribute an additional $5.1 million to the Highway Joint Venture for use in
connection  with  ongoing  construction  of the Jin Long  Highway.  Such capital
contributions are required to be made as construction  progresses  provided that
the Company shall not be required to contribute  more than $3 million in any one
month.

     During  1996,  the  Company  issued  3,000  shares of Series A  convertible
preferred stock raising  approximately $3.3 million,  net of offering costs, all
of which  shares  remained  outstanding  and  convertible  into Common  Stock at
December  31,  1996.  Each  share of  Series A  convertible  preferred  stock is
convertible  into  shares of Common  Stock at a price equal to the lesser of the
market  price at the time of  conversion  or $1.00  per  share at any time on or
prior to December 31, 1997 and is  redeemable by the Company at $1,000 per share
after December 31, 1997.

     The proceeds from the sale of securities  during 1996 were used to fund the
Company's capital contributions to the Highway Joint Venture.

     Other than the foregoing,  the Company has no sources of available  capital
or  commitments  to provide  additional  capital.  Management  believes that the
Company has sufficient  capital resources to fund its current operations for the
foreseeable future. The Company does not presently have sufficient  resources to
fund the balance of its  required  capital  contributions  to the Highway  Joint
Venture.  The Company intends to seek additional funding during 1997 to meet its
obligations to the Highway Joint Venture. While the Company has no present plans
in that regard,  it is anticipated  that the Company will offer some combination
of common stock,  convertible  preferred stock and convertible debt to meet such
funding obligations.

Certain Factors Affecting Future Operating Results

     This Form 10-KSB 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  include risks pertaining to the timing of completion of
the Jin Long Highway (delays in completion can be expected to reduce  revenues),
the  construction  of new toll or non-toll  roads which may compete with the Jin
Long Highway (such  competing  roads may reduce traffic  volumes and effectively
reduce toll rates,  both of which would reduce  revenues),  economic  conditions
within China and Hong Kong and globally (economic slowdowns,  whether arising as
a result of domestic or global trade or other conditions,  may result in reduced
commercial traffic and changes in consumer  behavior,  any of which might result
in lower revenues),  changes in laws and regulations  within the PRC (including,
but not  limited  to,  the  possible  imposition  of  price  controls,  property
ownership regulations,  tax revisions or other governmental action, any of which
might materially and adversely  impact the Company),  and other risks pertaining
to operations in the PRC.

     The future  operations  results of the  Company  will also be affected by a
number of factors including but not limited to the following: the ability of the
Company to raise  sufficient  funds to execute its business plan; the ability of
the Company to retain its key personnel;  the ability of the Company to complete
the  balance of the highway and  construction  on a timely  basis and within the
budget and; the use of the toll road to meet or exceed Company projections.

Inflation and Exchange Rates

     The Company does not believe that  inflation  has had a material  impact on
the results of its  operations.  However,  high levels of inflation and exchange
rate  fluctuations have  characterized the PRC economy in recent years.  Because
the operations of the Highway Joint Venture are conducted exclusively within the
PRC and because HHPD is required to bear all  operating  and  maintenance  costs
relating  to the toll road  pursuant  to its  management  agreement,  management
believes  that any price  fluctuations  attributable  to inflation or changes in
exchange rates will not adversely effect the Company. There can be no assurance,
however,  that  continued  inflation  and exchange  rate  fluctuations  will not
adversely  impact the Company in the future.  In  particular,  as the  Company's
revenues  are  primarily  received in  Renminbi,  the  Company's  ability to pay
dividends  and  make  other  payments  denominated  in other  currencies  may be
adversely impacted by exchange rate fluctuations.

                                       8
<PAGE>

ITEM 7. FINANCIAL STATEMENTS

     The  consolidated  financial  statements of the Company,  together with the
independent  auditors' report thereon of Arthur  Andersen,  appears on pages F-2
through F-18 of this report.  See Index to Financial  Statements  on page F-1 of
this report.

ITEM 8.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURE

     Following  the  acquisition  of Guang Hui by the  Company,  on December 27,
1996, the Company's  Board of Directors  selected Arthur Andersen & Co. to serve
as  its  new  independent  accountants  and  dismissed  Mantyla,   McReynolds  &
Associates,  Certified  Public  Accountants,  of  Salt  Lake  City,  Utah  which
previously served as the independent accountants for the Company.

     Mantyla,  McReynolds & Associate's  reports on the financial  statements of
the Company for the fiscal  years ended  December  31, 1994 and 1995  contain no
adverse  opinion or  disclaimer of opinion and were not qualified or modified as
to uncertainty,  audit scope, or accounting principles. In connection with their
audits for fiscal years 1994 and 1995 and through  December 27, 1996, there were
no  disagreements  with  Mantyla,  McReynolds  &  Associates  on any  matter  of
accounting principles or practices,  financial statement disclosure, or auditing
scope or procedure,  which  disagreements if not resolved to the satisfaction of
Mantyla,  McReynolds  &  Associates  would have  caused  them to make  reference
thereto in their reports on the financial statements for such years.

     Arthur Andersen & Co. served as the principal accounting firm for Guang Hui
with respect to the financial statements of such company prior to the Exchange.

     The information described above regarding the Company's decision to dismiss
Mantyla,  McReynolds  & Associates  as its  independent  accountants  and select
Arthur  Andersen & Co. as its new independent  accountants,  along with a letter
from  Mantyla,  McReynolds &  Associates  stating that they agree with the above
information  regarding the Company's change of accountants,  was fully disclosed
in a Form 8-K filed with the SEC.

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTION 16(a) OF THE EXCHANGE ACT

Information Regarding Present Directors and Executive Officers

     The following table sets forth certain  information  concerning the current
directors and executive officers of the Company

       Name       Age         Position following Exchange
     --------   -------      -----------------------------

Yiu Yat Hung      44          Chairman of the Board, Chief Executive Officer and
                              President
Yiu Yat On        41          Vice President, Treasurer and Director
Ma Ding Jie       62          Director
Jin Hiu Juan      41          Director

     All  directors   will  hold  office  until  the  next  annual   meeting  of
stockholders or until their successors have been elected and qualified.

     Yiu Yat Hung and Yiu Yat On are  brothers.  Otherwise,  there are no family
relationships among any of the officers or directors.

     The following is a biographical  summary of the business  experience of the
directors and present executive officers of the Company.

     Yiu Yat Hung is a founder of Guang Hui Highway  Project Company Limited and
has served as Chairman of the Board,  Chief  Executive  Officer and President of
the  Company  since the  acquisition  of Guang Hui by the Company in December of
1996.  Mr. Yiu is also a founder of China  Medical  Development  Company Ltd., a
pharmaceutical  manufacturing  and  distribution  company,  and  has  served  as
Chairman and Chief Executive Officer of Natural Way Technologies, Inc. since the
acquisition  of China  Medical  by  Natural  Way  Technologies  in June of 1996.
Natural Way  Technologies is publicly traded  over-the-counter.  Since 1981, Mr.
Yiu has owned and heads a trading and  investment  company in Hong Kong. Mr. Yiu
is a medical doctor by education,  has a Masters Degree in Political Science and
Economics and has spent his entire career in business.

     Yiu Yat On is a co-founder of Guang Hui Highway Project Company Limited and
has served as Vice President,  Treasurer and a Director of the Company since the
acquisition  of Guang Hui by the Company in December of 1996.  Mr. Yiu is also a
co-founder  of  China  Medical  Development  Company  Ltd.,  and has  served  as
Vice-Chairman  and Vice  President  of Natural Way since the exchange in June of
1996.  For over twenty years,  Mr. Yiu has served as a management  consultant to
various  companies in the PRC and has operated various companies in the PRC. Mr.
Yiu has a graduate degree in business administration.

     Ma Ding Jie have been  workshop  director  with many  years  experience  of
production  management,  then transferred as warehouse  director for four years,
now Mr. Ma is  assistant  of  general  manager,  in  Shenzhen  honghua  building
material company, responsible for management.

     Jin Hui Juan  specialized in fine  chemistry  with title of engineer,  have
worked in ShangHai  chemistry  research  institute for many years, and served as
assistant of general  manager in Shenzhen  honghui  printing and dyeing company,
responsible  for technology  supervision  and  management,  and acted as general
manager of Hong Kong hongda company.

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 in this Report any
failure to file by these dates during 1996. All of the filing  requirements were
satisfied  on a timely basis in 1996,  except that Yiu Yat Hung,  Yiu Yat On, Ma
Ding Jie, Jin Hui Juan and New Silver Eagle Holdings Limited failed to file on a
timely basis their initial report of their holdings on Form 3. Reports on Form 3
have since been filed by each of such persons. In making these disclosures,  the
Company has relied  solely on written  statements  of its  directors,  executive
officers  and  shareholders  and copies of the reports  that they filed with the
Commission.

Committees and Attendance of the Board of Directors

     The Company  presently  maintains  no standing  committees  of its board of
directors.  The Company  intends to evaluate  the  creation of a standing  Audit
Committee and a standing Compensation  Committee at such time as the board deems
appropriate.

     During the year ended  December  31, 1996,  the Board of  Directors  held 4
formal  meetings.  Each director  (during the period in which each such director
served)  attended  at least  75% of the  aggregate  of (i) the  total  number of
meetings of the Board of Directors,  plus (ii) the total number of meetings held
by all committees of the Board of Directors on which the director served.

                                       9
<PAGE>

ITEM 10. EXECUTIVE COMPENSATION

Executive Compensation and Other Matters

     The following  table sets forth  information  concerning  cash and non-cash
compensation  paid or accrued  for  services  in all  capacities  to the Company
during  the year  ended  December  31,  1996 of each  person  who  served as the
Company's  Chief  Executive  Officer  during fiscal 1996 and the four other most
highly paid  executive  officers  whose total annual  salary and bonus  exceeded
$100,000 during the fiscal year ended December 31, 1996 (the "Named Officers").

<TABLE>

                                                                                                 Long Term
                                                           Annual Compensation                 Compensation
                                               ---------------------------------------------  ---------------
                                                                              Other Annual         Stock
Name and Principal Position       Year         Salary ($)    Bonus ($)      Compensation ($)      Options (#)
---------------------------       ----         ----------    ---------     -----------------  ---------------
<S>                              <C>           <C>            <C>           <C>                <C>

Yiu Yat Hung (1)................  1996           -0-           -0-                -0-               -0-
  Chairman of the Board and       1995           -0-           -0-                -0-               -0-
  Chief Executive Officer         1994           -0-           -0-                -0-               -0-

</TABLE>


----------------
(1)  Compensation  indicated  for Mr. Yiu for periods  prior to December of 1996
     represent amounts paid by the Company's subsidiary, Guang Hui, prior to the
     acquisition of Guang Hui by the Company.

Compensation of Directors

     No  compensation  is  presently  paid  to  directors  for  service  in such
capacity. The Company intends to establish appropriate compensation arrangements
for non-employee  directors consistent with industry practice following the 1997
Annual Meeting.

Employment Contracts

     The Company has no employment  contracts with any of its present  executive
officers and has no plans or  arrangements  with  respect to payments  resulting
from the resignation,  retirement or any other  termination of a named executive
officer's employment or from a change-in-control of the Company.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Beneficial Ownership of Common Stock

     The  following  table  is  furnished  as of April  15,  1997,  to  indicate
beneficial  ownership  of  shares  of the  Company's  Common  Stock  by (1) each
shareholder of the Company who is known by the Company to be a beneficial  owner
of more than 5% of the Company's  Common Stock,  (2) each director,  Nominee 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.

                                       10
<PAGE>

<TABLE>

Name and Address of                                    Number of Shares
Beneficial Owner (1)                                 Beneficially Owned (2)        Percent
--------------------                                 ----------------------       ---------
<S>                                                   <C>                         <C>

New Silver Eagle Holdings Limited (3)..............     6,100,000                   63.0%
 Suite 5301, Central Plaza
 18 Harbour Road, Wanchai, Hong Kong
Yiu Yat Hung.......................................           -0- (3)                   -
Yiu Yat On.........................................           -0- (3)                   -
Ma Ding Jie........................................           -0-                       -
Jin Hui Juan.......................................           -0-                       -
All officers and directors as a group (4 persons)..    6,100,000                    63.0%
</TABLE>


(1)  Unless  otherwise  noted,  each person or group  identified  possesses sole
     voting and  investment  power with respect to the shares shown opposite the
     name of such person or group.

(2)  Includes shares of Common Stock not  outstanding,  but which are subject to
     options  or  warrants  exercisable  within  60  days  of  the  date  of the
     information set forth in this table, which are deemed to be outstanding for
     the purpose of  computing  the shares held and  percentage  of  outstanding
     Common Stock with  respect to the holder of such options or warrants.  Such
     shares  are not,  however,  deemed to be  outstanding  for the  purpose  of
     computing the percentage of any other person.

(3)  New Silver Eagle  Holdings  Limited is controlled by Yiu Yat Hung,  Yiu Yat
     On, and family  members,  the officers and  directors of the Company.  Such
     individuals may be deemed to be the beneficial owners of the shares held by
     New  Silver  Eagle  Holdings  Limited.  However,  each of such  individuals
     disclaim beneficial ownership of the shares indicated as held by New Silver
     Eagle Holdings Limited.

Series B Preferred Stock

     The  following  table  is  furnished  as of  April  15,  1997  to  indicate
beneficial  ownership  of  the  Company's  Series  B  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 B Preferred Stock.

Name and Address of                                 Number of Shares
Beneficial Owner (1)                               Beneficially Owned    Percent
--------------------                               ------------------    -------

New Silver Eagle Holdings Limited (2)...........       100,000            100.0%
 Suite 5301, Central Plaza
 18 Harbour Road, Wanchai, Hong Kong

(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)  New Silver Eagle  Holdings  Limited is controlled by Yiu Yat Hung,  Yiu Yat
     On, and family  members,  the officers and  directors of the Company.  Such
     individuals may be deemed to be the beneficial owners of the shares held by
     New  Silver  Eagle  Holdings  Limited.  However,  each of such  individuals
     disclaim  beneficial  ownership  of the shares  indicated as held by Silver
     Eagle Holdings Limited.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The  Company  acquired  its  interest  in Guang Hui and the  Highway  Joint
Venture  during 1996 pursuant to a share  exchange with Yiu Yat Hung and Yiu Yat
On, the principal shareholders of Guang Hui. Pursuant to the terms of such share
exchange,  the Company  acquired  100% of the stock of Guang Hui in exchange for
8,430,000  shares of common stock and 100,000 shares of Series B Preferred Stock
of the Company.

     HHPD, which previously  operated the Jin Long Highway and is a 20% owner of
the Highway Joint Venture,  provides certain management  services,  construction
services and profit  guarantees  in connection  with the Jin Long  Highway.  See
"Description  of Business."

                                       11
<PAGE>

     The Company has,  from time to time,  borrowed  funds from New Silver Eagle
Holdings Limited,  a company  controlled by Yiu Yat Hung and family. At December
31,  1996,  the  Company  had a balance  of  $75,000  owed to New  Silver  Eagle
Holdings. Such loans are unsecured,  non-interest bearing and have no definitive
repayment terms.

     The  Company  has  no  existing   policy  with  respect  to  related  party
transactions.  However,  management  believes  that  each  of  the  transactions
described  above was, or will be, on terms at least as  favorable to the Company
as could have been  obtained from  unaffiliated  third  parties.  Other than the
foregoing,  management  is not aware of any  material  transactions  between the
Company and any officers, directors or five percent shareholders,  or affiliates
of such persons.

                                     PART IV

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

     (a)  Exhibits

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

  2.1   Acquisition Agreement dated December 1, 1996 between
        Infrastructure International, Inc. and the shareholders of
        Guang Hui Highway Project Company Limited (1)
  3.1   Amended and Restated Articles of Incorporation (2)
  3.2   Bylaws, as amended to date (2)
  4.1   Certificate of Designation for Series A Convertible Preferred Shares (2)
  4.2   Certificate of Designation for Series B Convertible Preferred Shares (2)
 10.1   Cooperation Contract dated August 5, 1996 (1)
 10.2   Supplementary Contract amending Cooperation Contract (1)
 10.3   Memorandum amending Cooperation Contract (1)
 10.4   Contract of Assurance (1)
 10.5   Jinlong Highway Project Construction Turn-key Contract (1)
 10.6   Regular Expenses Turn-key Contract (1)
 16.1   Letter from Mantyla, McReynolds & Associates re change in
        certifying accountant (1)
 21.1*  Subsidiaries of Registrant
 27.1*  Financial Data Schedule

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

 *   Filed herewith
(1)  Incorporated  by  reference  to the  respective  exhibits  filed  with  the
     Company's Current Report on Form 8-K dated December 1, 1996.
(2)  Incorporated  by  reference  to the  respective  exhibits  filed  with  the
     Company's  Quarterly  Report on Form 10-QSB for the quarter ended September
     30, 1996.

(b)  Reports on Form 8-K

     The Company filed a Form 8-K dated December 1, 1996  reporting  under items
1, 2, 4, 5 and 7 the  acquisition of Guang Hui, the resulting  change in control
of the Company,  a change of auditors,  a change of officers and  directors  and
providing certain financial statements and exhibits.


                                       12
<PAGE>

                                   SIGNATURES

     In accordance  with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                  INFRASTRUCTURE INTERNATIONAL, INC.



                                  By: /s/ Yiu Yat Hung
                                     -------------------------------------
                                     Yiu Yat Hung
                                     Chairman and Chief Executive Officer

Dated: December 2, 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/ Yiu Yat Hung    Chairman & Chief Executive Officer          December 2, 1999
-----------------
Yiu Yat Hung


/s/ Yiu Yat On      Chief Financial Officer                     December 2, 1999
-----------------
Yiu Yat On


/s/ Ma Ding Jie     Director                                    December 2, 1999
------------------
Ma Ding Jie

/s/ Jin Hiu Juan    Director                                    December 2, 1999
------------------
Jin Hiu Juan


                                       13
<PAGE>

               INFRASTRUCTURE INTERNATIONAL, INC. AND SUBSIDIARIES

                   Index to Consolidated Financial Statements


                                                                           Page
                                                                           ----
Report of Independent Public Accountants...............................    F-2

Consolidated Balance Sheets as of December 31, 1996 and 1995...........    F-3

Consolidated Statements of Operations for the Years Ended
  December 31, 1996, 1995 and 1994.....................................    F-4

Consolidated Statements of Cash Flows for the Years Ended
  December 31, 1996, 1995 and 1994.....................................    F-5

Statements of Changes in Shareholders' Equity for the Years Ended
  December 31, 1996, 1995 and 1994.....................................    F-6

Notes to Financial Statements..........................................    F-7


                                       F-1
<PAGE>


REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the  Shareholders  and Board of  Directors of  Infrastructure  International,
Inc.:  We  have  audited  the  accompanying   consolidated   balance  sheets  of
Infrastructure  International,  Inc.  (a  company  incorporated  in the State of
Nevada;  "the Company') and  Subsidiaries  ("the Group') as of December 31, 1995
and 1996, and the related consolidated statements of operations,  cash flows and
changes in shareholders'  equity for the years ended December 31, 1994, 1995 and
1996.  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  Infrastructure
International,  Inc. and  Subsidiaries as of December 31, 1995 and 1996, and the
results of their  operations  and their cash flows for the years ended  December
31, 1994,  1995 and 1996,  in  conformity  with  generally  accepted  accounting
principles in the United States of America.

ARTHUR ANDERSEN & CO.
Certified Public Accountants
Hong Kong


Hong Kong,
April 11, 1997

                                      F-2
<PAGE>

 INFRASTRUCTURE INTERNATIONAL, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS
                        AS OF DECEMBER 31, 1995 AND 1996

<TABLE>

                                                       1995             1996
                                                      ------           ------
                                                        Rmb              Rmb         US$
<S>                                                   <C>            <C>        <C>

ASSETS
Current assets:
Cash                                                      -            4,002         481
Due from shareholders                                 9,762          108,160      13,000
                                                     -------     -----------  ----------
Total current assets                                      -          112,162      13,481
Property, net                                             -      201,475,776  24,215,838
                                                     -------     -----------  ----------
Total assets                                          9,762      201,587,938  24,229,319
                                                     =======     ===========  ==========
LIABILITI AND SHAREHOLDERS' EQUITY
Current liabilities:Accrued expenses                      -          266,240      32,000
Due to a related company                                  -          622,808      74,855
Due to a joint venture partner                            -       18,238,655   2,192,146
Loan from a joint venture partner                         -      136,838,179  16,446,897
                                                     -------     -----------  ----------
Total current liabilities                                 -      155,965,882  18,745,898
                                                     -------     -----------  ----------
Minority interest                                         -       19,842,556   2,384,922
                                                     -------     -----------  ----------
Shareholders' equity:
Preferred stock, Series A convertible and
redeemable, par value US$0.001; issued and
outstanding - nil as of December 31, 1995 and
3,000 shares as of December 31, 1996                      -               25           3
Preferred stock, Series B supervoting, par value
US$0.001; issued and outstanding - 100,000
shares as of December 31, 1995 and 1996                 832              832         100
Common stock, par value US$0.001; issued and
outstanding - 9,680,000 shares as of
December 31, 1995 and 1996                           80,532           80,532       9,680
Additional paid-in capital                        4,892,202       29,233,017   3,513,584
Accumulated deficit                              (4,963,804)      (3,585,488)   (430,948)
Cumulative translation adjustments                        -           50,582       6,080
                                                     -------     -----------  ----------
Total shareholder equity                              9,762       25,779,500   3,098,499
                                                     -------     -----------  ----------
Total liabilities, minority interest and
shareholders' equity                                  9,762      201,587,938  24,229,319
                                                     =======     ===========  ==========

</TABLE>

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

--------------
Translation of amounts from Renminbi  ("Rmb") into United States dollars ("US$")
is for the  convenience of readers,  which 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, 1997 of
US$1.00=Rmb8.32. No representation is made that the Rmb amounts could have been,
or could be, converted into US$ at that rate or at any other rate.



                                       F-3
<PAGE>

                      CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

<TABLE>

                                            1994          1995               1996
                                           ------        ------      ----------------------
                                            Rmb            Rmb        Rmb              US$
<S>                                      <C>             <C>      <C>              <C>

Revenue from operation of a toll
expressway                                    -             -      4,305,636         517,504
Operating-differential subsidies              -             -      1,571,890         188,929
                                         -------       -------   -----------      ----------
Total revenue                                 -             -      5,877,526         706,433
                                         -------       -------   -----------      ----------
General and administrative expenses
- Depreciation                                -             -    (3,611,920)       (434,125)
-     Other operating expenses                -             -      (881,879)       (105,995)
                                         -------       -------   -----------      ----------
Total expenses                                -             -    (4,493,799)       (540,120)
                                         -------       -------   -----------      ----------
Income before income taxes
                                              -             -      1,383,727         166,313
Provision for income taxes                    -             -              -               -
                                         -------       -------   -----------      ----------
Income before minority
Interest                                      -             -      1,383,727         166,313
Minority interest                             -             -        (5,411)           (650)
                                         -------       -------   -----------      ----------
Net income                                    -             -      1,378,316         165,663
                                         =======       =======   ===========      ==========
Earnings per common share
Net income per common share             Rmb   -       Rmb   -    Rmb   0.139         $ 0.017
                                         =======       =======   ===========      ==========
Weighted average number of
shares outstanding                    9,680,000     9,680,000      9,934,098       9,934,098
                                      ==========    ==========   ===========      ==========

</TABLE>


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

-------------
Translation of amounts from Renminbi  ("Rmb") into United States dollars ("US$")
is for the  convenience of readers,  which 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, 1997 of
US$1.00=Rmb8.32. No representation is made that the Rmb amounts could have been,
or could be, converted into US$ at that rate or at any other rate.



                                       F-4
<PAGE>

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
               FOR THE YEARS ENDED DECEMBER 31, 1994 1995 AND 1996

<TABLE>

                                   1994           1995                   1996
                                  ------         ------         -----------------------
                                    Rmb            Rmb           Rmb               US$
<S>                              <C>            <C>             <C>               <C>

Cash flows from operating
activities:
Net income                           -              -         1,378,316          165,663
Adjustments to reconcile net
income to net cash provided
by operating activities
Depreciation of property             -              -         3,611,920          434,125
Minority interest                    -              -             5,411              650
Increase in operating assets
Due from shareholders                -              -           (98,398)         (11,827)
Increase in operating liabilities
Accrued expenses                     -              -           266,240           32,000
Due to a relate company              -              -           622,808           74,857
Due to a joint venture partner       -              -        18,238,655        2,192,146
                                 -------       -------      -----------       ----------
Net cash provided by
operating activities                 -              -        24,024,952        2,887,614
                                 -------       -------      -----------       ----------
Cash flows from investing
activities:
Additions to property                -              -      (185,250,551)     (22,265,691)
Effect of translation adjustments    -              -            50,582            6,080
                                  -------      -------      -----------       ----------
Net cash used in investing
Activities                           -              -      (185,199,969)     (22,259,611)
                                  -------      -------      -----------       ----------
Cash flows from financing
activities:
Loan, subsequently capitalized by
issuance of preferred stock          -              -        27,431,640        3,297,072
Costs for issuance of stock          -              -        (3,090,800)        (371,491)
Loan from a joint venture partner    -              -       136,838,179       16,446,897
                                  -------      -------      -----------       ----------
Net cash provided by
financing activities                 -              -       161,179,019       19,372,478
                                  -------      -------      -----------       ----------
Net increase in cash                 -              -             4,002              481
Cash, as of beginning of year        -              -                 -                -
                                  -------      -------      -----------       ----------
Cash, as of end of year              -              -             4,002              481
                                  =======      =======      ===========       ==========
</TABLE>

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

-------------
Translation of amounts from Renminbi  ("Rmb") into United States dollars ("US$")
is for the  convenience of readers,  which 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, 1997 of
US$1.00=Rmb8.32. No representation is made that the Rmb amounts could have been,
or could be, converted into US$ at that rate or at any other rate.



                                       F-5
<PAGE>


                  STATEMENTS OF CHANGES IN SHAREHOLDERS' EOUITY
              FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996


<TABLE>

                     Series A convertible                                                     Additional                 Cumulative
                        and redeemable         Series B supervoting                            paid in     Accumulated  translation
                        preferred stock          preferred stock           Common Stock        capital      deficit     adjustments
                  ------------------------    ----------------------  ---------------------- -----------  ------------ -------------
                   Number of                   Number of                Number of                 Rmb          Rmb          Rmb
                   shares          Amount      shares        Amount      shares       Amount
                  -----------    ---------    -----------   --------  ------------   -------
                                     Rmb                      Rmb                      Rmb
<S>                 <C>          <C>          <C>           <C>        <C>           <C>         <C>          <C>          <C>

Balance as of
December 31, 1993,
1994 and 1995             -             -         100,000       832      9,680,000     80,532   4,892,202    (4,963,804)       -

Issuance of Series A
preferred stock       3,000            25               -         -              -          -  27,431,615             -        -

Issuance costs            -             -               -         -              -          -  (3,090,800)            -        -

Net income                -             -               -         -              -          -           -     3,378,316        -

Translation
adjustments               -             -               -         -              -          -           -             -   50,582
                     -------       --------       --------  --------    ----------     -------  ---------     ---------  --------
Balance as of
December 31, 1996     3,000            25         100,000       832      9,680,000     80,532  29,233,017    (3,585,488)  50,582
                    ========       ========       ========  ========    ==========     ======= ==========     ========== ========

</TABLE>



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


                                       F-6
<PAGE>


                          NOTES TO FINANCIAL STATEMENTS

1.   ORGANIZATION AND PRINCIPAL ACTIVITIES
     -------------------------------------

Infrastructure International, Inc. ("the Company") was incorporated in the State
of Nevada, United States of America in 1955 under the name of Dolomite King Inc.
It changed its name to React  Systems Inc. on October 22, 1973,  and changed its
name from React Systems Inc. to Infrastructure International,  Inc., the present
one, with effect from October 4, 1996.

Acquisition of a subsidiary
---------------------------

On December l, 1996,  the Company  entered into an agreement  with Yat-on Yiu to
acquire  from him 100%  interest in Guanghui  Highway  Project  Company  Limited
("GHHP"; a company incorporated in the British Virgin Islands) by issuing to him
8,430,000  shares of common  stock,  par value  US$0,001 each (after the reverse
stock split and  redenomination of par value - see Note 7.a), and 100,000 shares
of Series B supervoting preferred stock.

On January 2, 1997,  Yat-on Yiu transferred (i) 5,000,000 shares of common stock
of  the  Company  to  New  Eagle   Infrastructure   Limited  ("NEI";  a  company
incorporated  in the British Virgin  Islands),  (ii) 1,100,000  shares of common
stock of the Company and 100,000 shares of Series B supervoting  preferred stock
of the Company to New Silver Eagle Holdings  Limited (a company  incorporated in
the British Virgin  Islands),  and (iii) 2,330,000 shares of common stock of the
Company to unrelated  parties.  NEI is wholly owned by New Silver Eagle Holdings
Limited,  which is beneficially owned by Yat-on Yiu, Yat-hung Yiu and his family
members.

GHHP and its joint venture
--------------------------

On August 5, 1996, GHHP entered into an agreement with Huizhou Highway  Property
Development  Company ("HHPD";  a state-owned  company  established in the People
Republic of China  directly  under  Huizhou City  Roadways  Bureau) to build and
operate the "Jin Long Highway",  a 72 kilometers  four-lane  highway in Huizhou,
Guangdong Province, the People' s Republic of China ("the PRC"). The first phase
of the investment is to establish a sino-foreign  contractual co-operative joint
venture in the PRC - Guanghui  Highway  Development  Company Limited ("GHDC") to
build and operate 35  kilometers  of the "Jin Long  Highway"  for a period of 30
years from August 1996 to August 2026.


                                       F-7
<PAGE>


1.   ORGANIZATION AND PRINCIPAL ACTIVITIES (Cont'd)
     -------------------------------------

GHHP and its joint venture (Cont'd)
--------------------------

Pursuant to the joint venture  agreement,  GHHP is required to  contribute  into
GHDC US$9,536,000 (equivalent to approximately  Rmb79,349,000,  determined at an
exchange rate of US$1.00 for Rmb8.32),  representing 80% of the total registered
capital  of GHDC,  in  cash;  and  HHPD is  required  to  contribute  into  GHDC
US$2,384,000  (equivalent  to  approximately  Rmb19,837,000,  determined  at  an
exchange rate of US$1.00 for Rmb8.32),  representing 20% of the total registered
capital of GHDC, in the form of a partially  completed  section of the "Jin Long
Highway".  As of December 31, 1996, GHHP has contributed into GHDC  US$3,000,000
(equivalent to  approximately  Rmb24,963,000,  determined at an exchange rate of
US$1.00 for Rmb8.32),  representing  approximately 31% of its obligation;  while
HHPD  has  contributed  into  GHDC  US$2,384,000  (equivalent  to  approximately
Rmb19,837,000,   determined  at  an  exchange  rate  of  US$1.00  for  Rmb8.32),
representing  100%  of its  obligation.  All of  these  contributions  had  been
verified  by  a  certified  public  accountant  in  the  PRC  according  to  PRC
regulations.

Subsequent  to  December  31,  1996,  on  February  20,  1997,  GHHP has further
contributed into GHDC US$7,000,000  (equivalent to approximately  Rmb58,247,000,
determined at an exchange rate of US$1.00 for Rmb8.32), representing the balance
of its obligation, and a loan of approximately Rmb3,861,000.

GHHP' s entitlement to the profit or loss of GHDC is summarized below:

a.   During each of the first seven years of the joint venture period, GHHP will
     be  entitled  to the  higher of 80% of the net  income of GHDC,  or (ii) an
     amount  determined at 22% of the capital  contributed into GHDC by GHHP. If
     the entire net income of GHDC is insufficient to cover GHHP' s entitlement,
     HHPD  has  agreed  to pay  GHHP  the  shortfall  as  operating-differential
     subsidies.  The  obligations  of HHPD in relation to such an agreement  are
     guaranteed by the Huizhou City Roadways Bureau.

b.   During  each of the  eighth to the  seventeenth  year of the joint  venture
     period,  30% of the net  income of GHDC will be  distributed  to HHPD until
     HHPD has received a total return equal to its capital  contribution plus an
     imputed  interest of 13.5% per annum.  GHHP will be entitled to receive 80%
     of the remaining 70% of the net income of GHDC; while HHPD will be entitled
     to receive 20% of the remaining 70% of the net income of GHDC. In case GHDC
     incurs a loss, GHHP will share 80% of the loss.

c.   During each of the  seventeenth  to the thirtieth year of the joint venture
     period,  GHHP will be  entitled  to 80% of the net  income or loss of GHDC;
     while HHPD will be entitled to 20% of the net income or loss of GHDC.

The other key provisions of the joint venture agreement include the followings:

*    the  Board  of  Directors  of GHDC  consists  of  nine  members,  with  six
     designated by GHHP and three designated by HHPD.

*    upon early  termination  or  liquidation of GHDC, the net current assets of
     GHDC will be distributed to GHHP (80%) and HHPD (20%).


                                       F-8
<PAGE>


1.   ORGANIZATION AND PRINCIPAL ACTIVITIES (Cont'd)
     -------------------------------------

GHHP and its joint venture (Cont'd)
--------------------------

The first phase of in Long  Highway" to be built and operated by GHDC  comprises
the following:
                                                           Cost of acquisition/
      Length       Date of completion of construction          construction
     --------     -------------------------------------    ---------------------
     35 km          18 kilometers completed on March 1,       Rmb247,936,000
                    1996 and the remaining 17 kilometers
                    are expected to be completed around
                    December 1997

Upon  establishment  of GHDC on August 5, 1996,  HHPD  transferred the partially
completed  section  of the "Jin Long  Highway"  into  GHDC,  which was valued at
approximately Rmb185,948,000 as of February 29, 1996 by Huizhou Assets Appraisal
Office,  an  authorized  state-owned  assets  appraiser  in  Huizhou,  Guangdong
Province,  the PRC.  Approximately  Rmb19,837,000  of this value was regarded as
HHPD' s capital  contribution  into GHDC.  Up to December 31, 1996,  GHDC repaid
approximately Rmb29,273,000 of the loan from HHPD. HHPD has agreed not to demand
repayment of the remaining  balance of the loan of approximately  Rmb136,838,000
until  completion of the  construction of the first phase (35 kilometers) of the
"Jin Long  Highway",  which is expected to be completed  around  December  1997,
unless GHDC has financial ability to make repayment earlier.

Under a  subcontracting  agreement  dated  October 30, 1996,  HHPD has agreed to
construct the remaining  portion of the first phase (35  kilometers) of the "Jin
Long  Highway" for a fixed amount of  Rmb61,988,000.  Total  construction  costs
incurred  from the  establishment  of GHDC to  December  31,  1996  amounted  to
approximately  Rmb19,140,000.  In  addition,  GHDC  entered  into  a  management
agreement  dated October 30, 1996 with HHPD,  under which HHPD is responsible to
operate the "Jin Long Highway" and pay all  operating  costs in return for a fee
determined at 15% of the gross toll fees collected for 17 years from August 1996
to August 2013.  Such  management  fee payable by GHDC to HHPD during the period
ended December 31, 1996 amounted to approximately Rmb670,000.

Upon  completion of the first phase (35  kilometers)  of the "Jin Long Highway",
GHDC and HHPD will  proceed to invest to develop and operate an  extension of 37
kilometers of the "Jin Long Highway", with total investment cost estimated to be
approximately Rmb312,064,000.


                                       F-9
<PAGE>


2.   SUBSIDIARIES
     ------------

Details of the  Company' s  subsidiaries  (which  together  with the Company are
collectively  referred  to as "the  Group")  as of  December  31,  1996  were as
follows:
                                        Percentage of
                       Place of        equity interest        Principal
     Name            incorporation      held directly         activities
    ------          ---------------    ----------------      -------------

Guanghui Highway     The British            100%            Investment holding
Project Company      Virgin Islands
Limited ("GHHP")

Guanghui Highway     The People              80%            Build and operate a
Development Company  Republic of                            toll road in the PRC
Limited ("GHDC")     China (the "PRC")


3.   BASIS OF PRESENTATION
     ---------------------

The  acquisition  of GHHP by the  Company on  December  1, 1996 was treated as a
recapitalization  of GHHP with GHHP as the acquirer  (reverse  acquisition).  On
this basis,  the  historical  consolidated  financial  statements of the Company
prior to  December  1, 1996 are those of GHHP and the  historical  shareholders'
equity amounts of GHHP as of December 31, 1995 have been retroactively  restated
to reflect the one-for-thirty  reverse stock split and the redenomination of par
value as  described  in Note 7.a and the  Company's  common  stock and  Series B
supervoting preferred stock issued for this acquisition.

The  acquisition  of GHDC by GHHP on August 5, 1996 has been accounted for using
the  purchase  method  of  accounting.  Accordingly,  the  assets  acquired  and
liabilities  assumed have been recorded at their  estimated fair value,  and the
operations of GHDC are included in the consolidated  financial statements of the
Company from the date of acquisition.

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

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

The consolidated  financial  statements include the accounts of the Company, its
subsidiaries  and its  contractual  joint  venture  which is considered de facto
subsidiary.  All  material  intra-group  balances  and  transactions  have  been
eliminated on consolidation.



                                       F-10
<PAGE>


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

b.   Contractual joint venture
     -------------------------

     A contractual joint venture is an entity established  between the Group and
     one or more other  parties,  with the rights and  obligations  of the joint
     venture  partners  governed  by a  contract.  In case the  Group is able to
     govern and control the  financial  and  operating  policies of the economic
     activity of the contractual joint venture, such joint venture is considered
     as a de facto subsidiary, and is accounted for as a subsidiary.

c.   Property
     --------

     Property  represents  the  construction  costs  of  roads,  structures  and
     facilities,  including  toll  stations and  maintenance  facilities,  where
     construction  is completed  and is under  operation,  and is stated at cost
     less  accumulated  depreciation.  Major renewals and betterment  which will
     result in future economic  benefits are capitalized,  while maintenance and
     repair  costs are  expensed  when  incurred.  Depreciation  of property for
     financial reporting purpose is provided using the straight-line method over
     30 years, the term of the joint venture period.

d.   Construction-in-progress
     ------------------------

     Construction-in-progress  represents road,  structures and facilities under
     construction,  and is  stated  at  cost  which  includes  construction  and
     acquisition  costs. No depreciation is provided until the construction work
     is completed and the related costs are transferred to property.

e.   Revenue
     -------

     Revenue from operation of a toll highway  comprises toll fees received from
     the  operation  of the highway  less  business tax levied at 5% of the toll
     fees  received,   and  is  recognized   when  the  services  are  rendered.
     Operating-differential  subsidies  represents  the recovery  from HHPD when
     GHHP' s net  income  from its  investment  in GHDC is below the  guaranteed
     minimum as described in Note 1.

f.   Income taxes
     ------------

     Income tax is provided  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 retums. Deferred
     income tax is provided  using the  liability  method.  Under the  liability
     method,  deferred  income tax is recognized for all  significant  temporary
     differences  between the tax and the financial  statements  bases of assets
     and  liabilities.  Income tax is not  accrued  for  unremitted  earnings of
     international operations that have been, or are intended to be reinvested.

                                       F-11
<PAGE>

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

g.   Foreign currency translation
     ----------------------------

     The  Company  considers  Renminbi  ("Rmb") as its  functional  currency  as
     primary activities of the Group are based in Renminbi.

     The  translation  of the  financial  statements  of  group  companies  into
     Renminbi is performed for balance sheet accounts using the closing exchange
     rate in  effect at the  balance  sheet  date and for  revenue  and  expense
     accounts using an average exchange rate during each reporting period. Gains
     or losses resulting from  translation are included in shareholders'  equity
     separately as cumulative translation adjustments. There was no gain or loss
     arisen from foreign currency  transactions for the years ended December 31,
     1994, 1995 and 1996.

h.   Earnings per common share
     -------------------------

     The  computation  of  primary  earnings  per  common  share is based on the
     weighted  average number of shares of common stock  outstanding  and common
     stock  equivalents  arising from  conversion  of  preferred  stock based on
     average  market price of common stock during the year.  Earnings per common
     share  assuming  full  dilution is determined by dividing net income by the
     weighted  average number of shares of common stock  outstanding  and common
     stock  equivalents  arising from conversion of preferred stock based on the
     market price of common stock as of the balance sheet date.  The primary and
     fully diluted earnings per share are the same for 1996, 1995 and 1994.

i.   Use of estimates
     ----------------

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


5.   PROPERTY
     --------

Property comprised:

                                   1 9 9 5                     1 9 9 6
                                  ---------         ----------------------------
                                    Rmb                  Rmb              US$
Road, structures and facilities       -             132,196,276      15,888,975
Less:  Accumulated
depreciation                          -              (3,611,920)       (434,125)
                                   ------           -----------     ------------
                                      -             128,584,356      15,454,850
Construction-in-progress              -              72,891,420       8,760,988
                                   ------           -----------     ------------
                                      -             201,475,776      24,215,838
                                   ======           ===========     ============


                                       F-12
<PAGE>

5.   PROPERTY (Cont'd)
     --------

GHDC  holds  land use  rights  to the  land  occupied  by the  first  phase  (35
kilometers)  of the "Jin Long  Highway"  for 30 years from August 1996 to August
2026. As of the date of this report,  GHDC is in the process of applying for the
issuance of the formal land use right certificate. Pursuant to the joint venture
agreement governing the establishment of GHDC, the right to use the land and the
ownership  of  the  highway  will  revert  to  HHPD  without  compensation  upon
expiration of the joint venture in August 2026.

6.   LOAN FROM A JOINT VENTURE PARTNER
     ---------------------------------

The amount  represented a loan from HHPD (see Note 1). The loan is unsecured and
non-interest  bearing.  HHPD has agreed not to demand GHDC for  repayment  until
completion of  construction  of the first phase (35 kilometers) of the "Jin Long
Highway",  which is expected to be completed  around December 1997,  unless GHDC
has financial ability to make repayment earlier.

7.   CAPITAL STOCKS
     --------------

a.   Common stock
     ------------

     On August 9, 1996,  the Company  effected a  one-for-thirty  reverse  stock
     split and changed the denomination of its common stock, with all fractional
     shares to be rounded to the nearest whole share and any shareholder holding
     100 or more presplit shares will retain a minimum of 100 post-split shares.
     As a result,  the then outstanding  2,984,118 shares of common stock with a
     par value of US$0.05 each have become 159,060 shares of common stock with a
     par value of US$0.001 each.

     In  1996,  the  Company   capitalized  a  note  payable  of   approximately
     Rrnb782,000  (equivalent to  approximately  US$94,000) by issuance of 1,667
     shares of common  stock,  par value  US$0.001 each (after the reverse stock
     split and redenomination of par value), and capitalized certain payables on
     constancy fee of US$3,175 by issuance of 63,500 shares of common stock, par
     value  US$0.001 each (after the reverse stock split and  redenomination  of
     par value).  In 1996, the Company issued  1,025,773 shares of common stock,
     par value  US$0.001 each (after the reverse stock split and  redenomination
     of par value) to certain  of its  directors  and  shareholders.  Also,  the
     Company issued  8,430,000  shares of common stock,  par value US$0.001 each
     (after  the  reverse  stock  spilt  and  redenomination  of par  value)  in
     connection with its acquisition of GHHP (see Note 1).

     The  Company  authorized  common  stock is  25,000,000  shares,  par  value
     US$0.001  each (after the reverse  stock  split and  redenomination  of par
     value).

                                       F-13
<PAGE>


7.   CAPITAL STOCK (Cont'd)
     -------------

b.   Preferred stock
     ---------------

     Effective  from  October 4, 1996,  the Company  authorized  the creation of
     25,000,000  shares of preferred  stock with par value of US$0.001  each. In
     this  connection,  the Board of Directors of the Company are  authorized to
     assign such shares to different series and to fix the related  designation,
     powers, preferences and rights of the shares.

     i.   Series A convertible and redeemable preferred stock
          ---------------------------------------------------

          In 1996, the Company  issued 3,000 shares of Series A convertible  and
          redeemable  preferred stock, par value US$0.001 each, for US$3,313,000
          (equivalent  to  Rmb27,432,000),  by  capitalizing  loans  of the same
          amount.  The  Series A  convertible  and  redeemable  preferred  stock
          carries  preferential  rights  to  dividends  and  distributions  upon
          liquidation.  Each share of the Series A  convertible  and  redeemable
          preferred  stock is  convertible  into common stock with the number of
          shares of common  stock  determined  by 1,000  divided by a conversion
          factor.  The  conversion  factor  equals to the lesser of the  average
          closing  price of the  Company'  s  common  stock  for the  five  days
          immediately preceding the date of notice of conversion or US$1.00. The
          outstanding  Series A convertible  and redeemable  preferred  stock is
          redeemable at the option of the Company at any time after December 31,
          1997 by giving  ten days of notice at a price  equal to  US$1,000  per
          share  plus  any  accrued  dividends.  No  Series  A  convertible  and
          redeemable preferred stock has been converted or redeemed.

     ii.  Series B supervoting preferred stock
          ------------------------------------

          In 1996,  the Company  issued  100,000  shares of Series B supervoting
          preferred  stock,  par value  US$0.001  each, in  connection  with its
          acquisition  of GHHP (see Note 1). The Series B supervoting  preferred
          stock carries  preferential rights to dividends and distributions upon
          liquidation.  These 100,000  shares of Series B supervoting  preferred
          stock carry superior voting right,  which account for 30% of the total
          voting right of the Company on all corporate matters.


                                       F-14
<PAGE>

8.   INCOME TAXES
     ------------

The Company and its  subsidiaries are subject to income taxes on an entity basis
on income arising in or derived from the tax jurisdiction in which they operate.
The British Virgin Islands entity (GHHP) is incorporated under the International
Business  Companies  Act of the British  Virgin  Islands  and,  accordingly,  is
exempted from the payment of the British Virgin Islands income taxes.  The joint
venture enterprise  established in the PRC (GHDC) is subject to PRC income taxes
at a rate of 33%  (30%  state  unified  income  tax and 3%  local  income  tax).
However, upon applications and approval by the relevant tax authorities, GHDC is
exempted  from  state  unified  income  tax and local  income  tax for two years
starting from the first year of profitable  operations and then is entitled to a
50%  reduction in state unified  income tax for the next three years.  As of the
date of this  report,  GHDC is in the process of applying the issuance of formal
tax exemption certificate.

The first  profitable year for GHDC was the year ended December 31, 1996. If the
tax holiday  for GHDC did not exist,  the Group' s income tax  expenses  (net of
minority  interest) would have been increased by approximately  Rmb7,143 for the
year ended  December  31, 1996.  Primary  earnings per common share for the year
ended December 31, 1996 would have been approximately Rmb0.138.

The Company has not provided for income taxes on the  undistributed  earnings of
its international  subsidiaries  because the earnings are reinvested and, in the
opinion of management, will continue to be reinvested in the foreseeable future.

The reconciliation of the United States federal income tax rate to the effective
income tax rate based on the income before  provision for income taxes stated in
the consolidated statements of operations are as follows:

                                       1994          1995               1996
                                      ------        ------             ------

U.S. federal income tax rate             -             -                35%
Effect of different tax rates in
foreign jurisdictions                    -             -                (2%)
Effect of tax exemption for
GHDC                                     -             -               (33%)
                                     ------        ------            -------
                                         -             -                 0%
                                     ======        ======            =======

9.   DISTRIBUTION OF INCOME
     ----------------------

The income of GHDC available for  distribution  to its  shareholders is based on
the income reported in its statutory  accounts prepared under generally accepted
accounting  principles in the PRC. This differs from the amount  reported  under
generally accepted accounting  principles in the United States of America. As of
December 31, 1996, such difference was insignificant.


                                       F-15
<PAGE>

10.  CAPITAL COMMITMENT
     ------------------

As of December 31, 1996,  the Group had  outstanding  capital  comn-Litments  of
approximately Rmb42,848,000 for the construction of the "Jin Long Highway".

11.  RELATED PARTY TRANSACTIONS
     --------------------------

a.   Name and relationship of related parties:

                                                        Existing relationships
      Name of related parties                             with the Company
     -------------------------                         ------------------------
     New Silver Eagle Holdings Limited-Hong Kong       Common directors with
      ("NSE")                                          the Company

     Huizhou Highway Property Development              PRC joint venture partner
       Company ("HHPD")

b.   Summary of related party transactions:

                                                1995                1996
                                                 Rmb          Rmb           US$
                                               ------       --------------------
Due from shareholders                           9,762        108,160      11,827

Due to a related company
- NSE (i)                                           -        622,808      74,857

Due to a joint venture partner
HHPD (ii)                                           -     18,238,655   2,192,146

                            1994                1995                1996
                           ------              ------       --------------------
                             Rmb                Rmb           Rmb           US$
Management fee
paid to HHPD
(see Note 1)                  -                    -      670,545        80,594

Operating-
differential
subsidies
received from
HHPD (see Note 1)             -                    -    1,571,890       188,929

Construction cost
paid to HHPD
(see Note 1)                  -                    -   19,140,000     2,300,481


                                       F-16
<PAGE>


11.  RELATED PARTY TRANSACTIONS (Cont'd)
     --------------------------

     Note -

     (i)  This represents  payment of certain stock issuance costs and operating
          expenses  by NSE on behalf of the  Company.  The amount is  unsecured,
          non-interest bearing and without pre-determined repayment terms.

     (ii) This  represents  payables on  construction  costs and  management fee
          after  netting off  receivable  of  operating-differential  subsidies,
          which is unsecured,  non-interest  bearing and without  pre-determined
          repayment terms.

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

Non-cash investing activities:
-----------------------------

a.   Certain property  purchased by the Group of approximately  Rmb9,837,000 was
     resulted  from  capital  contribution  by HHPD into GHDC in the form of the
     property.

b.   In 1996,  the  Company  issued  8,430,000  shares of its  common  stock and
     100,000 shares of its Series B supervoting  preferred stock to acquire 100%
     interest in GHHP (see Note 1).

C.   In 1996, the Company issued 1,667 shares of common stock in connection with
     a capitalization of a note payable of approximately  Rmb782,000 (equivalent
     to approximately US$94,000) (see Note 7.b.).

d.   In  1996,  the  Company   capitalized   loans  amounting  to  Rmb27,432,000
     (equivalent  to  US$3,313,000)  by  issuance  of 3,000  shares  of Series A
     convertible and redeemable preferred stock (see Note 7.b.).

13.  OPERATING RISKS
     ---------------

a.   Strategic relationships
     -----------------------

     The Group present  operations and  construction  of the in Long Highway" in
     the PRC are conducted through various agreements with HHPD and Huizhou City
     Roadways  Bureau  as  described  in Note 1.  Any  changes  in any of  these
     strategic relationships would have a material adverse affect on the revenue
     and profitability of the Group.


                                       F-17
<PAGE>


13.  OPERATING RISKS (Cont'd)
     ---------------

b.   Country risk
     ------------

     GHDC   operates  in  the  PRC  and   accordingly   is  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 others,  the political,  economic and legal
     environments  and  foreign  currency  exchange.  GHDC'  s  results  may  be
     adversely  affected by, among other  things,  changes in the  political and
     social  conditions  in the PRC and changes in  governmental  policies  with
     respect to laws and regulations, inflationary measures, currency conversion
     and  remittance  abroad,  and rates and methods of taxation.  While the PRC
     government is expected to continue its economic  reform  policies,  many of
     the reforms are new or  experimental  and may be refined or changed.  It is
     also possible that a change in the PRC leadership  could lead to changes in
     economic policy.

     A  substantial  portion of GHDC's  revenue is  denominated  in Renminbi.  A
     portion of the future  profit of GHDC,  if any,  will need to be  converted
     into other currencies to meet foreign currency  obligations such as payment
     of dividends  declared.  Both the conversion of Renminbi into other foreign
     currencies and the remittance of foreign  currencies  abroad are subject to
     PRC government approvals.  No assurance can be given that GHDC will be able
     to acquire  sufficient  amounts of foreign  currencies  in the PRC  foreign
     exchange markets in the future to meet its needs.

                                      F-18