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 [Fee Required]

                   For the Fiscal Year Ended December 31, 1997

[ ]  TRANSITION  REPORT  PURSUANT  TO SECTION  13 OR 15(d) OF THE  SECURITIES
     EXCHANGE ACT OF 1934 [No Fee Required]

        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)

              Rm 2211-2215, Science and Technology Building No 1001
                Shangbuzhong Road, Futian District Shenzhen, PRC
              ------------------------------------------------------
               (Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, Include Area Code: 011-07-55-369-9588

Securities Registered Pursuant to Section 13 of the Act:

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

Securities Registered Pursuant to Section 15(d) of the Act:

                         Common Stock, $0.001 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. [x]

     The issuer's revenues for its most recent fiscal year were $0.00.

     As of December 1, 1999,  2,430,000 shares of Common Stock of the Registrant
were outstanding.  There was no market for the stock and accordingly there is no
aggregate market value.

                       DOCUMENTS INCORPORATED BY REFERENCE

     No annual reports to security holders, proxy or information statements,  or
prospectuses  filed  pursuant  to Rule 424(b) or (c) have been  incorporated  by
reference in this report.

<PAGE>

                                TABLE OF CONTENTS

                                                                          Page
                                                                         ------
PART I

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

PART II

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

PART III

         ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
                  AND CONTROL PERSONS; COMPLIANCE WITH
                  SECTION 16(a) OF THE EXCHANGE ACT....................    6
         ITEM 10. EXECUTIVE
                  COMPENSATION.........................................    6
         ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
                  OWNERS AND MANAGEMENT................................    7
         ITEM 12. CERTAIN RELATIONSHIPS AND RELATED
                  TRANSACTIONS.........................................    8
         ITEM 13. EXHIBITS AND REPORTS OF FORM
                  8-K..................................................    8

SIGNATURES.............................................................    9


<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.

ITEM 1.  DESCRIPTION OF BUSINESS

General and Development of Business

     Infrastructure International,  Inc. (the "Company") was incorporated in the
State of Nevada 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. effective October 4, 1996.

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

     On  December  1,  1996,   the  Company   entered  into  an  agreement  (the
"Acquisition  Agreement")  with Yiu Yat On 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) and 100,000  shares of Series B  supervoting  preferred  stock.  GHHP was
developing and operating a toll road in the People's Republic of China.

     On January 2, 1997, Yiu Yat On 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  ("NSEHL",  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 NSEHL,
which is  beneficially  owned  by Yiu Yat On,  Yiu Yat  Hung  and  their  family
members.

     On August 5, 1996,  GHHP  entered into an  agreement  with Huizhou  Highway
Property  Development  Company ("HHPD; a state-owned  company established in the
People's 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.

     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  to  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  have  been
verified  by  a  certified  public  accountant  in  the  PRC  according  to  PRC
regulations.

                                       3
<PAGE>

     Pursuant to an agreement  dated June 7, 1997 but retroactive to December 1,
1996, (the "Termination  Agreement"),  the Company disposed of its 100% interest
in GHHP to its original owner. Under the terms of the Termination Agreement, the
Company agreed to return all the issued and outstanding  shares of GHHP and both
the 8,430,000  shares of common stock and 100,000 shares of series B supervoting
preferred stock of the Company were thereupon to be returned and canceled.  GHHP
also agreed to return the sum of $3,000,000 injected by the Company in 1996. The
operating results of GHHP have been accounted for as discontinued operations for
the years ended  December 31, 1996 and 1997.  Revenue of GHHP for the year ended
December 31, 1996 was approximately US$706,490. GHHP had no revenue for 1997.

Financial Information About Industry Segments

     The Company had no operating business and therefore can report no financial
information on industry segments.

ITEM 2.  DESCRIPTION OF PROPERTIES

         None

ITEM 3.  LEGAL PROCEEDINGS

         None

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

     No matters were submitted to a vote of the Company's  shareholders  through
the  solicitation of proxies,  during the fourth quarter of the Company's fiscal
year ended December 31, 1997.


                                       4
<PAGE>


                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The Company's Common Stock is available for trading in the over-the-counter
market.  The following table sets forth the high and low bid price per share for
the Company's  Common Stock for each full  quarterly  period within the two most
recent fiscal years.

                              1997                           1996
                    -----------------------       ----------------------
                       High          Low             High          Low
First Quarter        No Quote      No Quote        No Quote       No Quote
Second Quarter       No Quote      No Quote        No Quote       No Quote
Third Quarter        No Quote      No Quote        No Quote       No Quote
Fourth Quarter       No Quote      No Quote        No Quote       No Quote

     As of December 1, 1999, there was no quote for the stock

     As of December 1, 1999, there were  approximately  624 holders of record of
the Common Stock of the Company.

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

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS

     As discussed above (see "ITEM 1. Description of Business"), the Company has
been in  existence  since  1955  and has had  business  operations  but does not
currently operate a business of any type.  Accordingly,  all risks inherent in a
new and  inexperienced  enterprise are inherent in the Company's  business.  The
Company has not made a formal study of the economic  potential of any  business.
The Company has no assets but $114,000 of liabilities. No business opportunities
are presently  contemplated  for  acquisition.  In addition,  the Company has no
liquidity and no presently  available capital  resources,  such as credit lines,
guarantees, etc. All expenses have been paid by the shareholders.

ITEM 7.  FINANCIAL STATEMENTS

     The  consolidated  financial  statements of the Company,  together with the
independent  auditor's report thereon of Arthur  Andersen,  appears on pages F-2
through F-16 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

     During  the   Company's   two  most  recent  fiscal  years  there  were  no
disagreements with Company's  accountants on any matter of accounting  principal
or practice,  financial  statement  disclosure,  or auditing scope or procedure.
Further,  the previous  accountant's report on the financial  statements for the
past two years did not contain an adverse  opinion or  disclaimer of opinion and
were not  qualified  or modified as to  uncertainty,  audit scope or  accounting
principal.

                                       5
<PAGE>

                                    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 the names and ages of the present  executive
officers and directors of the Company and the positions held by each.

 Name              Age         Title
------           -------      -------

Yiu Yat On        41          Chairman, Chief Executive Officer and Director
Ma Ding Jie       62          Chief Financial Officer and Director
Jin Hui Juan      41          Director

     Each of the  directors  has been  elected  to serve  until the next  annual
meeting  of  the  directors  by  the  shareholders  or  until  their  respective
successors have been duly elected and shall have qualified.

     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. Since June of 1997,
Mr. Yiu has served as the Company's  Chief Executive  Officer and Chairman.  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  has  many  years  experience  in  production  management  and
warehousing  operations.  Mr. Ma is presently an  assistant  general  manager of
HongHua Building Material Company in Shenzhen.

     Jin Hui Juan is a chemical  engineer with the Shanghai  Chemistry  Research
Institute and is the assistant  general  manager of HongHui  Printing and Dyeing
Company. He has also served as general manager of Hong Kong Hongda Company.

Information Regarding Nominees for Election as Directors

     All of the  present  directors  have  been  nominated  for  re-election  as
directors at the Company's next annual shareholders' meeting.


                                       6
<PAGE>

ITEM 10. EXECUTIVE COMPENSATION

     No  compensation  has been paid to any officer,  director or control person
during the prior three years.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Security Ownership of Management

     No officer of  director  of the  Company  owned any shares of the  Company,
either directly or beneficially.

Security Ownership of Certain Beneficial Owners

     The following table sets forth, as of December 1, 1999 the number of shares
of the Company's Common Stock know to be held by beneficial  owners of more than
five percent of the Company's Common Stock.


Name and Address of             Amount and Nature of
Beneficial Owner                Beneficial Ownership        Percent of Class
--------------------            --------------------        ----------------

Metrolink Holdings, Ltd.            325,000                  13.37 %
4703 Central Plaza
18 Harbour Road
Wanchai, Hong Kong

Murphy Limited                      331,000                  13.62 %
4703 Central Plaza
18 Harbour Road
Wanchai, Hong Kong

Regent Holdings Ltd.                150,000                   6.17 %
4703 Central Plaza
18 Harbour Road
Wanchai, Hong Kong

Xin Yue Company Ltd.                500,000                  20.58 %
Unit 1-2, 18/F
Yat, Chau International Plaza
18 Connaught Road West
Hong Kong


                                       7
<PAGE>

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 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."

     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 OF FORM 8-K

(a)     Exhibits

2.1     Acquisition Agreement dated December 1, 1996 between
        Infrastructure International, Inc. and the shareholders of
        Guang Hui Highway Project Company Limited (1)
2.2     Termination Agreement (2)
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 Schedules
__________
*        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.

                                       8
<PAGE>

(b)  Reports on Form 8-K

     None

                                   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 On
                                         ----------------------------------
                                         Yiu Yat On
                                         Chairman, Chief Executive Officer


Dated: December 3, 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
   -----------                   -------                             ------

                        Yiu Yat On
/s/ Yiu Yat On          Chairman & Chief Executive Officer      December 3, 1999
-----------------
Yiu Yat On


                        Ma Ding Jie
/s/ Ma Ding Jie         Chief Financial Officer                 December 3, 1999
-----------------
Ma Ding Jie


                                       9
<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, 1997 and 1996             F-3

Consolidated Statements of Operations for the Years Ended
  December 31, 1997, 1996 and 1995                                       F-4

Consolidated Statements of Cash Flows for the Years Ended
  December 31, 1997, 1996 and 1995                                       F-5

Statements of Changes in Shareholders' Equity for the Years Ended
  December 31, 1997, 1996 and 1995                                       F-6

Notes to Financial Statements                                            F-7


                                       10
<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. and  Subsidiaries as of December 31, 1996, and 1997 and the
related  consolidated  statements  of  operations,  cash  flows and  changes  in
shareholders' equity for the years ended December 31, 1995, 1996 and 1997. These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the  financial  position of  Infrastructure
International,  Inc. and  Subsidiaries as of December 31, 1996 and 1997, and the
results of their  operations  and their cash flows for the years ended  December
31, 1995,  1996 and 1997,  in  conformity  with  generally  accepted  accounting
principles in the United States of America.

The accompanying financial statements have been prepared assuming that the Group
will  continue  as a going  concern.  As  shown  in the  accompanying  financial
statements,  for the year ended  December 31, 1997,  the Group  suffered loss of
approximately   Rmb26,653,000,   and  as  of  December  31,  1997,  the  Group's
liabilities  exceeded  its  assets  by  approximately  Rmb919,000.  That  raises
substantial  doubt  about  its  ability  to  continue  as a going  concern.  The
financial  statements do not include any adjustments  that might result from the
outcome of this uncertainty.


ARTHUR ANDERSEN & CO.
Certified Public Accountants
Hong Kong





Hong Kong,
September 30, 1999.

                                      F-2
<PAGE>

               INFRASTRUCTURE INTERNATIONAL, INC. AND SUBSIDIARIES


                           CONSOLIDATED BALANCE SHEETS

                        AS OF DECEMBER 31, 1996 AND 1997

<TABLE>

                                                            1 9 9 6                   1 9 9 7
                                                           ---------           --------------------
                                                              Rmb               Rmb             US$
<S>                                                       <C>               <C>             <C>

ASSETS
Current assets:
   Cash                                                      4,002               -               -
   Accounts receivable, net                                      -               -               -
   Due from shareholders                                   108,160               -               -
                                                      ------------        --------        --------
         Total current assets                              112,162               -               -
Property, net                                          201,475,776               -               -
                                                      ------------        --------        --------
Total assets                                           201,587,938               -               -
                                                      ============        ========        ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
   Accrued expenses                                        266,240         919,360         110,500
   Due to a related company                                622,808               -               -
   Due to a joint venture partner                       18,238,655               -               -
   Loan from a joint venture partner                   136,838,179               -               -
                                                       -----------        --------        --------
         Total current liabilities                     155,965,882         919,360         110,500
                                                       -----------        --------        --------
Minority interest                                       19,842,556               -               -
                                                       -----------        --------        --------
Shareholders' equity (deficit):
   Preferred stock, Series A convertible and
   Preferred stock, Series B supervoting, par value
   Common stock, par value US$0.001; issued and
   Additional paid-in capital                           29,233,017      29,227,195       3,512,884
   Accumulated deficit                                  (3,585,488)    (30,167,616)     (3,625,916)
   Cumulative translation adjustments                       50,582               -               -
                                                       -----------      ----------       ---------
Total shareholders' equity (deficit)                    25,779,500        (919,360)       (110,500)
                                                       -----------      ----------       ---------
Total liabilities, minority interest and               201,587,938               -               -
                                                       ===========      ==========       =========

</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,  and has been made at the noon buying rate in
New York City for cable transfers in foreign currencies as certified for customs
purposes  by the  Federal  Reserve  Bank of New  York on  December  31,  1997 of
US$1.00=Rmb8.32.  No representation is made that the Renminbi amounts could have
been, or could be,  converted  into United States dollars at that rate or at any
other rate.

                                      F-3
<PAGE>

               INFRASTRUCTURE INTERNATIONAL, INC. AND SUBSIDIARIES


                      CONSOLIDATED STATEMENTS OF OPERATIONS

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


<TABLE>

                                          1 9 9 5           1 9 9 6                     1 9 9 7
                                         ---------         ---------          -------------------------
                                           Rmb               Rmb                Rmb               US$
<S>                                     <C>               <C>              <C>               <C>

Revenue                                       -                 -                  -                 -
General and administrative expenses           -                 -           (427,649)          (51,401)
                                        -------          ---------         ---------         ---------
       Loss from continuing
        operations before income taxes        -                 -           (427,649)          (51,401)
Provision for income taxes                    -                 -                  -                 -
                                        -------          ---------         ---------         ---------
       Loss from continuing
         operations                           -                 -           (427,649)          (51,401)

Discontinued operations
   Income from discontinued
         operations of toll road
         (less: Nil amount of applicable
         income taxes)                        -         1,383,727                  -                 -

Loss on disposal of discontinued
         operations                           -                 -        (26,225,241)       (3,152,072)
                                        -------          ---------         ---------         ---------

       Income (Loss) before
          minority interest                   -         1,383,727        (26,652,890)       (3,203,473)

Minority interests                            -            (5,411)                 -                 -
                                        -------          ---------         ---------         ---------

       Net income (loss)                      -         1,378,316        (26,652,890)      (3,203,473)
                                        =======         ==========         =========         =========
Basic earnings (loss) per common
       share
   Loss from continuing operations    Rmb     -         Rmb     -       Rmb   (0.194)     US$  (0.023)
   Income (Loss) from discontinued
       operations                             -             0.142            (11.939)          (1.435)
                                        -------          ---------         ---------         ---------

                                      Rmb     -         Rmb 0.142       Rmb  (12.133)     US$  (1.458)
                                        =======          =========         =========         =========
Diluted earnings (loss) per common
      share
   Loss from continuing operations    Rmb     -         Rmb     -       Rmb   (0.102)     US$  (0.012)
   Income (loss) from discontinued
     operations                               -             0.139             (6.249)          (0.751)
                                        -------          ---------         ---------         ---------
                                      Rmb     -         Rmb 0.139       Rmb   (6.351)     US$  (0.763)
                                        =======          =========         =========         =========

</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,  and has been made at the noon buying rate in
New York City for cable transfers in foreign currencies as certified for customs
purposes  by the  Federal  Reserve  Bank of New  York on  December  31,  1997 of
US$1.00=Rmb8.32.  No representation is made that the Renminbi amounts could have
been, or could be,  converted  into United States dollars at that rate or at any
other rate.

                                      F-4
<PAGE>

               INFRASTRUCTURE INTERNATIONAL, INC. AND SUBSIDIARIES


                      CONSOLIDATED STATEMENTS OF CASH FLOWS

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


<TABLE>

                                             1 9 9 5           1 9 9 6                   1 9 9 7
                                            ---------         ---------       ------------------------------
                                               Rmb               Rmb              Rmb               US$
<S>                                        <C>                <C>              <C>                 <C>

Cash flows from operating activities:
   Net income (loss)                                -         1,378,316       (26,652,890)      (3,203,473)
   Adjustments to reconcile net income
     Depreciation of property                       -         3,611,920                 -                -
     Minority interests                             -             5,411                 -                -
     Loss on disposal of discontinued               -                 -        26,225,241        3,152,072
   (Increase) Decrease in operating
     Due from shareholders                          -           (98,398)          108,160           13,000
   Increase (Decrease) in operating
     Accrued expenses                               -           266,240           653,120           78,500
     Due to a related company                       -           622,808          (283,038)         (34,019)
     Due to a joint venture partner                 -        18,238,655                 -                -
                                             --------        ----------       -----------       ----------
         Net cash provided by
operating activities                                -        24,024,952            50,593            6,080
                                             --------        ----------       -----------       ----------
Cash flows from investing activities:
   Additions to property                            -      (185,250,551)                -                -
   Cash outflow from disposal of a subsidiary       -                 -            (4,002)            (481)
                                             --------        ----------       -----------       -----------
         Net cash used in investing
activities                                          -      (185,250,551)           (4,002)            (481)
                                             --------        ----------       -----------       -----------
Cash flows from financing activities:
   Loan, subsequently capitalized by
          issuance of preferred stock               -        27,431,640                 -                -
   Costs for issuance of stock                      -        (3,090,800)                -                -
   Loan from a joint venture partner                -       136,838,179                 -                -
                                             --------        ----------       -----------       -----------
         Net cash provided by
          financing activities                      -       161,179,019                 -                -
                                             --------        ----------       -----------       -----------
         Net increase (decrease) in                 -           (46,580)           46,591            5,599
Effect of translation adjustments                   -            50,582           (50,593)          (6,080)
Cash, as of beginning of year                       -                 -             4,002              481
                                             --------        ----------       -----------       -----------
Cash, as of end of year                             -             4,002                 -                -
                                             ========        ==========       ===========       ===========


</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,  and has been made at the noon buying rate in
New York City for cable transfers in foreign currencies as certified for customs
purposes  by the  Federal  Reserve  Bank of New  York on  December  31,  1997 of
US$1.00=Rmb8.32.  No representation is made that the Renminbi amounts could have
been, or could be,  converted  into United States dollars at that rate or at any
other rate.

                                      F-5
<PAGE>

               INFRASTRUCTURE INTERNATIONAL, INC. AND SUBSIDIARIES


             STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)

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


<TABLE>

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

Balance as of
December 31,
1994, 1995                -             -         100,000       832     8,430,000   70,132           -              -             -

Effect of exchange
reorganization            -             -               -         -     1,250,000   10,400   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                -             -               -         -             -        -           -      1,378,316            -

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

Conversion of 700
 Series A preferred
 stock into 700,000
 shares of common
 stock                 (700)           (6)              -         -       700,000    5,824      (5,822)            -            -

Cancellation of Series
  A preferred stock    (300)           (2)              -         -             -        -           -             -            -

Cancellation of common
  stock                   -             -               -         -    (7,950,000) (66,144)          -             -            -

Net loss                  -             -               -         -             -        -           -    26,652,890)           -

Reversal of goodwill
  previously eliminated   -             -               -         -             -        -           -        70,762            -

Translation adjustments   -             -               -         -             -        -           -             -      (50,582)
                   --------        -------        -------   --------   -----------  -------    ----------  ----------    ---------
Balance as of December
31, 1997              2,000            17         100,000       832     2,430,000   20,212   29,227,195   (30,167,616            -
                   ========        =======        =======   ========   ===========  ======== ============ ===========    =========

</TABLE>


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

                                      F-6
<PAGE>

               INFRASTRUCTURE INTERNATIONAL, INC. AND SUBSIDIARIES


                          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 to Infrastructure International, Inc., the present one, on October 4, 1996.

Acquisition of a subsidiary - GHHP

On December 1, 1996,  the Company  entered into an agreement  (the  "Acquisition
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 5.a), and 100,000 shares of Series B supervoting  preferred stock. GHHP
was principally  engaged in developing and operating a toll road in the People's
Republic of China.

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  ("NSEHL";  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 NSEHL,
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's
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.

Disposal of a subsidiary - GHHP
-------------------------------
In June 1997, the Company  entered into an agreement to dispose of 100% interest
in GHHP to Yat-on Yiu and New Silver Eagle Holdings  Limited.  As consideration,
Yat-on Yiu and New Silver Eagle Holdings Limited have agreed to surrender to the
Company  their  interest in 8,430,000  shares of common stock of the Company and
100,000  shares of Series B supevoting  preferred  stock of the  Company.  As of
December  31,  1997,  Yat-on  Yiu and New Silver  Eagle  Holdings  Limited  only
surrendered  to the Company  7,950,000  shares of common stock,  which have been
cancelled.  In connection  with the disposal of GHHP, GHHP have agreed to return
the sum of US$3,000,000  contributed by the Company to GHHP in 1996. However, it
is uncertain whether GHHP has the necessary resources to repay its obligation to
the Company  and,  consequently,  the Company has  recorded a full  provision of
US$3,000,000  against this  receivable  as of December 31, 1997.  The  operating
results of GHHP have been accounted for as discontinued operations for the years
ended  December 31, 1996 and 1997.  Revenue of GHHP for the years ended December
31, 1996 and 1997 were approximately Rmb5,878,000 and Nil respectively.

2.   BASIS OF PRESENTATION
     ---------------------
The  acquisition  of GHHP by the  Company on  December  1, 1996 was treated as a
reverse  acquisition  since  GHHP is the  continuing  entity  as a result of the
exchange  reorganization.  On this basis, the historical  consolidated financial
statements of the Company prior to December 1, 1996 represented the consolidated
financial  statements  of GHHP.  The  shareholders'  equity of the Company 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 5.a
and the Company's  common stock and Series B supervoting  preferred stock issued
for this acquisition.

                                      F-8
<PAGE>

3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
     ------------------------------------------
a.   Basis of consolidation
     ----------------------
     The consolidated  financial  statements include the accounts of the Company
     and its majority-owned subsidiaries.  All material intra-group balances and
     transactions have been eliminated on consolidation.

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

c.   Comprehensive income
     --------------------
     The Group has adopted Statement of Financial  Accounting Standards No. 130,
     which  requires the Group to report all changes in equity  during a period,
     except for those resulting from investment by shareholders and distribution
     to shareholders,  in financial  statements for the period in which they are
     recognized. The Group has disclosed comprehensive income, which encompasses
     net  income  and  currency  translation  adjustments,  in the  consolidated
     statements of changes in shareholders' equity and Note 7.

d.   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  returns.
     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.

e.   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
     arising from foreign currency transactions for the years ended December 31,
     1995, 1996 and 1997.

                                      F-9
<PAGE>

3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
     ------------------------------------------
     f.   Earnings (loss) per common share
          --------------------------------
     Basic  earnings  (loss) per common  share is  computed in  accordance  with
     Statement of Financial  Accounting Standards No. 128 by dividing net income
     (loss)  for each year by the  weighted  average  number of shares of common
     stock  outstanding.  Diluted  earnings (loss) per common share reflects the
     dilution  that would  have  resulted  from the  conversion  of  convertible
     debentures and convertible  preferred  stock,  and exercise of warrants and
     options based on the average  market price of common stock during the year.
     The numerator in calculating  both basic and diluted earnings per share for
     each year is the reported net income  (loss).  The  denominator is based on
     the following weighted average number of common shares.

                                       1 9 9 5         1 9 9 6          1 9 9 7
                                      ---------       ---------        ---------
                  Basic               9,680,000       9,680,000        2,196,667
                  Diluted             9,680,000       9,934,098        4,196,667

     g.   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.


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

                                           1 9 9 6               1 9 9 7
                                          ---------      -----------------------
                                             Rmb            Rmb           US$
Accounts receivable                           -          24,960,000   3,000,000
Less: Allowance for doubtful account          -         (24,960,000) (3,000,000)
                                          ------         ----------   ---------
Accounts receivable, net                      -                   -           -
                                          ======         ==========   =========

As mentioned in Note 1, in connection  with the disposal of GHHP, GHHP agreed to
return the sum of  approximately  Rmb24,960,000  (equivalent to US$3,000,000) to
the Company.  However,  it is uncertain whether GHHP has the necessary resources
to repay its  obligation  to the  Company  and,  consequently,  the  Company has
recorded  a  full  provision  of  approximately   Rmb24,960,000  (equivalent  to
US$3,000,000) against this receivable as of December 31, 1997.

                                      F-10
<PAGE>


5.   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  pre-split  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 Rmb782,000
     (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
     consultancy  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).

     On May 1, 1997, 700 shares of Series A convertible and redeemable preferred
     stock, par value US$0.001 each were converted into 700,000 shares of common
     stock, par value US$0.001 each.

     In 1997, in connection  with the disposal of GHHP  mentioned in Note 1, the
     Company  cancelled  7,950,000  shares of common stock,  par value  US$0.001
     each.

                                      F-11
<PAGE>

5.   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 approximately 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. On May 1, 1997, 700 shares of Series
          A convertible  and  redeemable  preferred  stock were  converted  into
          700,000  shares of common stock.  In addition,  300 shares of Series A
          convertible   and  redeemable   preferred   stock  were  tendered  for
          cancellation in December 1997.

     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-12
<PAGE>

6.   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)  was   incorporated   under  the
International  Business  Companies  Act  of  the  British  Virgin  Islands  and,
accordingly,  was exempted from the payment of the British Virgin Islands income
taxes. The joint venture enterprise established in the PRC (GHDC) was 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 was exempted from state  unified  income tax and local income
tax for two years starting from the first year of profitable operations and then
was entitled to a 50% reduction in state  unified  income tax for the next three
years.

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. Basic 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  reconciliations  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:

                                            1 9 9 5        1 9 9 6       1 9 9 7
                                            -------        -------       -------
U.S. federal income tax rate                    -             35%           35%
Effect of different tax rates in foreign
Effect of tax exemption for GHDC                -            (33)%           -
Effect of tax loss                              -              -           (35)%
                                            ------         -------      --------
                                                -              -             -
                                            ======         =======      ========

7.   COMPREHENSIVE INCOME (LOSS)
     --------------------------

<TABLE>

                                   1 9 9 5        1 9 9 6                1 9 9 7
                                  ---------     -----------     --------------------------
                                     Rmb            Rmb            Rmb               US$
<S>                               <C>           <C>           <C>               <C>

Net income (loss)                      -        1,378,316     (26,652,890)      (3,203,473)
Other comprehensive income -
translation adjustments                -           50,582         (50,582)          (6,080)
                                   ------       ---------      ----------        ---------
Comprehensive income (loss)            -        1,428,898     (26,703,472)      (3,209,553)
                                   ======       =========      ==========        =========

</TABLE>

                                      F-13
<PAGE>

8.   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.

9.   RELATED PARTY TRANSACTIONS
     --------------------------
Summary of related party transactions:

                                  1 9 9 5       1 9 9 6            1 9 9 7
                                 ---------     ---------   ---------------------
                                    Rmb           Rmb       Rmb              US$
Management fee paid to HHPD
(See Note 1)                         -          670,545      -                -

Operating-differential
subsides received from HHPD
(See Note 1)                         -        1,571,890      -                -

Construction cost paid to HHPD
(See Note 1)                         -       19,140,000      -                -


10.  SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
     ------------------------------------------------
a.   Non-cash investing activities:

     i.   Certain  property  purchased  by the  Group  in 1996 of  approximately
          Rmb19,837,000 was resulted from capital contribution by HHPD into GHDC
          in the form of the property.

     ii.  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.   7,950,000  shares  of  common  stock  were
          subsequently  cancelled upon disposal of 100% interest in GHHP in 1997
          (see Note 1).

     iii. 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 5.a).

     iv.  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 5.b).


                                      F-14
<PAGE>

10.  SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (Cont'd)
     ------------------------------------------------

b.   Details of net assets  disposed of as a  consequence  of the  disposal of a
     subsidiary (GHHP) in 1997 were as follows (Note 1):

          Property, net                                     $     201,475,776
          Cash and bank deposits                                        4,002
          Accounts receivable                                       2,788,598
          Due to a related company                                 (3,128,363)
          Due to a joint venture partner                         (155,076,834)
          Minority interests of GHHP acquired                     (19,842,556)
                                                                 ------------
          Net assets upon disposal                                 26,220,623
          Percentage of interest to reverse                               100%
                                                                 ------------
          Group's share of net assets before reversal              26,220,623
          Goodwill previously eliminated                               70,762
          Loss on disposal of a subsidiary                        (26,225,241)
                                                                 ------------
          Consideration received                            $          66,144
                                                                 ============
          Satisfied by:

          Cancellation of 7,950,000 shares of common stock of
          US$0.001 each                                     $         66,144
                                                                 ============

     Net cash outflow in respect of the disposal of interest in a subsidiary was
     as follows:
          Cash and bank deposits disposed                   $         (4,002)
                                                                 ============

c.   Cash paid for interest and income taxes:

                              1 9 9 5       1 9 9 6              1 9 9 7
                             ---------     ---------     -----------------------
                                Rmb           Rmb         Rmb               US$
           Interest               -            -           -                 -
           Income taxes           -            -           -                 -
                              ======        ======      ======           ======

11.  SUBSEQUENT EVENT
     ----------------
Subsequent  to December  31,  1997,  the Company  issued and alloted  17,720,000
shares of common stock, par value US$0.001 each, to Beautimate Group Limited,  a
related company,  for a cash consideration of approximately  US$200,000 which is
yet to be received.

                                      F-15
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