UNITED STATES
                       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, 1996
                                             -----------------

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
    EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

               FOR THE TRANSITION PERIOD FROM ________ TO ________

                        COMMISSION FILE NUMBER 33-14751-D
                                               ----------

                          FIRST AMERICAN RAILWAYS, INC.
                 ----------------------------------------------
                 (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)

                    NEVADA                            87-0443800
         -------------------------------          -------------------
         (STATE OR OTHER JURISDICTION OF          (I.R.S. EMPLOYER
         INCORPORATION OR ORGANIZATION)           IDENTIFICATION NO.)

           3700 NORTH 29TH AVENUE, SUITE 202, HOLLYWOOD, FLORIDA 33020
           -----------------------------------------------------------
               (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

                ISSUER'S TELEPHONE NUMBER          (954) 920-0606
                -------------------------------------------------

       SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT: NONE

         SECURITIES REGISTERED UNDER SECTION 12(G) OF THE EXCHANGE ACT:
                          COMMON STOCK, $.001 PAR VALUE

         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 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 90 days. 
[X] Yes [ ] No

         Check if there is no disclosure of delinquent filers in response to
Items 405 of Regulation S-B in this form, and no disclosure will be contained,
to the best of the 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 the year ended December 31, 1996, its most
recent fiscal year, were $ -0- .
                         -------

         The aggregate market value of the voting stock held by non-affiliates
computed using $2.0625 per share, the closing price of the Common Stock on March
5, 1997, was approximately $12,377,706.

         As of March 20, 1997, 9,355,778 shares of the issuer's common stock
were issued and outstanding.

<PAGE>

                                     PART I
                                     ------

                                     ITEM 1
                                     ------

                             DESCRIPTION OF BUSINESS
                             -----------------------

OVERVIEW

         First American Railways, Inc., a Nevada corporation (the "Company") was
organized in the State of Nevada in 1987.

         On April 26, 1996, the Company merged with First American Railways,
Inc., a Florida corporation (First American-Florida). The Company is currently
pursuing its strategy of becoming the recognized leader in providing innovative,
quality entertainment passenger rail service through the development of "Fun
Trains" and the acquisition of "Scenic Destination Railroads." The Company is
currently developing its first Fun Train, an entertainment-based train operating
between two tourist destinations. This train, the Florida Fun-Train, is
anticipated to commence operations in the fall of 1997 and operate between South
and Central Florida. In March 1997 the Company acquired its first "Scenic
Destination Railroad," - the Durango & Silverton Narrow Gauge Railroad (the
"Railroad").

         The Florida Fun-Train concept is to provide an enjoyable, high quality
entertainment alternative to other means of transportation between South and
Central Florida. The Company's goal is to maximize the entertainment value of
the travel time while providing an efficient, safe and reliable form of
transportation at a reasonable price.

         The Florida Fun-Train is being designed to provide passengers with an
exciting, unique, fun-filled overland leisure excursion. The Company expects
that this will be accomplished through the use of a variety of entertainment
features, including video games, as well as dining, dancing and lounge cars
offering a variety of live entertainment. The Company expects that most of its
passengers will be tourists, and that the Company's service will be offered as
an "extension" of the passenger's vacation.

         Over the last several years Florida has had an annual tourist base of
approximately 40 million tourists. Florida attracts tourists from across the
world and was the top tourist destination in the United States in 1995. South
Florida, including the Florida Keys, offers a number of well-known tourist
destinations and a climate that allows year-round outdoor activities, and is
also a key entry point into the state for cruise ships entering and leaving the
Port of Miami and Port Everglades (Fort Lauderdale), as well as tourists
utilizing Miami International and Hollywood-Fort Lauderdale Airports. Central
Florida (Greater Orlando) plays host to world renowned tourist destinations such
as Universal Studios

                                        2

<PAGE>

Florida, Walt Disney World, Sea World, Kennedy Space Center and Port Canaveral.
In 1994, approximately 14 million people traveled between South and Central
Florida.

         The Company is actively pursuing its strategy of acquiring scenic
railroads. On March 13, 1997, the Company purchased all of the capital stock of
The Durango & Silverton Narrow Gauge Railroad Company, a Colorado corporation
("D&SNG"), a privately-held, scenic railroad, from Charles E. Bradshaw, Jr. (the
"Durango Acquisition").

         D&SNG operates an antique, narrow gauge tourist railroad over a 45-mile
route between Durango and Silverton, Colorado along the Animas River. D&SNG
provides a scenic railroad excursion which is unique within the industry, and it
has been operated principally as a tourist railroad since 1968. The railroad was
built between 1881 and 1882 by the Denver & Rio Grande Railway Company to
service the mining regions of the San Juan Mountains in southwestern Colorado.
The coal-fired, steam-driven locomotives were manufactured between 1923 and
1925, and the coaches, many of which are original, are of 1880s vintage. The
railroad is a registered National Historic Landmark and has exclusive rights for
passage through the San Juan National Forest. D&SNG's operations are seasonal
with peak months in June, July and August, and with up to four daily trains
except during the winter. The 90-mile round trip takes nine hours including a
two-hour layover in Silverton. From November through April, one train is
operated daily from Durango to Cascade Canyon (a 52-mile round trip of
approximately five hours). See "Plan of Operations."

         During 1996, the Company was in its development stage, and during
fiscal 1996 it had no material operations; however, the Company has taken
significant steps to commence operations of the Florida Fun-Train. Further, the
acquisition of D&SNG will provide revenues and cash flow to the Company prior to
the operation of the Florida Fun-Train. The Company anticipates constructing
additional Fun Trains in the future and acquiring additional Scenic Railroads.
See "Business -- Florida Fun-Train." The Company's ability to meet its planned
commencement date (Fall 1997) depends on, among other things, successful and
prompt completion of the Company's pre-opening development activities.
Presently, the Company believes it has or will have access to sufficient funds
to commence operations of the Florida Fun-Train. See "Plan of Operations."

         The Company maintains offices at 3700 North 29th Avenue, Hollywood,
Florida 33020. Its telephone number is (954) 920-0606.


                                        3

<PAGE>

THE DURANGO & SILVERTON NARROW
    GAUGE RAILROAD COMPANY

         D&SNG operates a historic railroad (the "Railroad") which was built
between 1881-82 by the Denver & Rio Grande Railway Company, and is now owned by
D&SNG. The Railroad is a registered National Historic Landmark and has been
carrying passengers for more than 114 years. The Railroad operates between
Durango and Silverton, Colorado, a 90-mile round trip, which takes approximately
nine hours. The Railroad is located entirely within the State of Colorado, near
the "Four Corners" region of the United States (where the borders of Colorado,
Utah, New Mexico and Arizona come together).

         The steam-operated locomotives used to pull the trains are coal-fired.
These antique locomotives were manufactured between 1923 and 1925. In addition,
many of the coaches used by the Railroad are the original coaches dating back to
the 1880s.

         The Railroad has combined strict adherence to historical authenticity
and exacting standards of replication to provide a historically authentic
railroad service. Because of its historic authenticity, the Railroad has been
used as the location for the shooting of several films, including BUTCH CASSIDY
AND THE SUNDANCE KID.

         The Railroad operates as a tourist railroad, carrying tourists on an
unparalleled scenic and historic excursion along the Animas River and through
the San Juan National Forest. D&SNG's business is seasonal in nature with the
peak season being in the months of June, July and August when D&SNG operates
four trains daily. In 1995, D&SNG resumed year-round operations, offering one
train during the months of November through April (the "Winter Train"). The
Winter Train consists of a 52-mile round trip to Cascade Canyon (approximately
halfway between Durango and Silverton).

         The operating rolling stock of D&SNG consists of six 1920s vintage
steam locomotives, 45 passenger coaches (enclosed, open gondola and parlor
cars), and one caboose. In addition to such rolling stock used in the passenger
consists, the D&SNG owns approximately 175 additional flat cars, box cars, side
dump and hopper cars, stock cars, cabooses, maintenance equipment, etc. for use
on the line for maintenance, storage or other purposes.

         The locomotives and cars are maintained at company-owned facilities
located in a state-of-the-art roundhouse and car shop. Both shops are capable of
totally rebuilding a locomotive or car. In 1989, the roundhouse was rebuilt
after a fire destroyed the building; it has 15 stalls which can house all the
locomotives. Attached to the roundhouse is a fully equipped machine shop which
can fabricate any locomotive part.


                                        4

<PAGE>

         PROPERTIES

         The real property used by D&SNG consists of approximately 975 acres and
includes two terminals. Of the total acreage, D&SNG uses approximately 735 acres
pursuant to easements and rights-of-way, and the remainder is held in fee simple
ownership. One terminal is in Durango (La Plata County), Colorado, and is
located on approximately 40 acres of D&SNG-owned land, along with other
improvements, including various buildings and a parking lot. The second terminal
is in Silverton (San Juan County), Colorado, where D&SNG owns approximately 50
acres of land including the depot. The D&SNG terminals are connected by an
approximate 45-mile railroad right-of-way, which ranges between 100 to 200 feet
in width, approximately 30 miles of which are located on public lands within the
San Juan National Forest. The right-of-way has railroad track and various other
improvements located thereon.

         The real estate improvements consist primarily of the following
buildings:
                                                   SQUARE
         DESCRIPTION                               FOOTAGE
         -----------                               -------
         Depot (Durango)                            4,952
         Roundhouse (Durango)                      39,089
         Car Shops (Durango)                        9,956
         Security Building (Durango)                  207
         Freight Depot (Durango)                    2,684
         Warehouse (Durango)                        2,232
         Garage (Rockwood)                          1,100
         Depot (Silverton)                          2,480

         In addition, the D&SNG owns other small buildings that are used for
miscellaneous storage. The condition of all of the buildings listed above would
be categorized as average to good. The administrative offices of D&SNG occupy
the second floor of the depot at Durango and are believed to be adequate for the
present operation of D&SNG.

         PRODUCTS AND SERVICES

         D&SNG offers a variety of train excursions to its customers with
different departure times. Covering a total of 90 miles, the round trip from
Durango to Silverton is by far the most popular expedition and takes
approximately nine hours to complete. During the peak season, D&SNG offers four
round-trip trains, with departure times ranging from 7:30 AM to 10:10 AM. During
the winter, D&SNG offers a five-hour excursion from Durango to Cascade Canyon
which is a 52-mile round-trip.

         D&SNG also offers one-way trips, with return from Silverton via motor
coach. Additionally, any round-trip (with the exception of the parlor car) can
consist of a layover in Silverton for up to

                                        5

<PAGE>

15 days. To accommodate hikers desiring transportation, D&SNG offers trains that
stop at several popular hiking trails.

         Passengers may choose to ride in enclosed coaches, open gondola cars,
authentic parlor cars or the caboose with round-trip prices ranging from
approximately $43 to approximately $75.

         Refreshments and snacks are available on all trains with the parlor
cars offering a full bar.

         MARKETING

         D&SNG's principal source of ticket sales is the consumer- direct market
which is served by its Durango-based reservation office. Approximately 86% of
D&SNG's business passengers come from the direct "sales" to consumers, with the
balance handled through travel agents and group tours. The Company compensates
travel agents through the use of commissions. Historically, the operations of
D&SNG have been the subject of limited marketing efforts. The great majority of
D&SNG's passengers come from "word- of-mouth" as well as other "indirect" forms
of contact with the public, e.g., billboards and newsprint articles. According
to a 1994 passenger survey, commissioned by D&SNG, the five major states of
origin of D&SNG passengers were Colorado, Texas, California, Arizona and New
Mexico, which account for nearly 60% of D&SNG's passenger totals.

         D&SNG currently markets its services on a regional basis. Marketing
efforts consist principally of advertising in regional and local travel
publications, as well as the limited use of billboards, directories and
advertising on local radio programs. In addition, D&SNG is the subject of
repeated, unsolicited articles which appear in local and national newspapers and
magazines. A promotional brochure describing D&SNG's program and services is
used to promote ridership. The brochure is distributed by a third-party service
to brochure "racks" located in hotels, restaurants, airports and other
tourist-related sites in selected cities that have been good "feeder markets"
for D&SNG ridership.

         In an attempt to broaden the passenger base in the future, D&SNG
intends to concentrate its marketing efforts on the broad-based, travel-related
industry. The Company expects to establish relationships, in coordination with
the Florida Fun-Train's marketing efforts, in international and domestic areas
through direct contact with distributors and general sales agents having
knowledge and experience in the development of contractual arrangements.

         EMPLOYEES

         D&SNG employs approximately 65 people in the off-season (November-
April), and more than 200 people during the peak season

                                        6

<PAGE>

(June-August). Seasonal employees are added during the peak season primarily in
the concession, operations and reservation departments. The full-time staff is
concentrated in the administrative and maintenance departments where turnover is
very low. The D&SNG has no labor unions and management believes that the
company's relationship with its employees is satisfactory.

THE FLORIDA FUN-TRAIN

         The Company's predecessor by merger, First American-Florida, was
specifically organized in February 1994 by persons who have experience in the
passenger rail and tourism industries in order to offer a unique passenger train
service in the Florida tourist market. The Company intends to capitalize upon
the Florida tourist base by developing and operating an entertainment-based
passenger rail service, the "Florida Fun-Train", between South and Central
Florida.

         Florida attracts tourists from across the world and was the top tourist
destination in the United States in 1995. Over the last several years Florida
has had an annual tourist base of approximately 40 million persons. South
Florida not only contains a number of well-known tourist destinations, but is
also a key entry point into the state for cruise ships entering and leaving the
Port of Miami and Port Everglades (Fort Lauderdale), as well as tourists
utilizing Miami International and Hollywood-Fort Lauderdale Airports. Central
Florida (Greater Orlando) plays host to world renowned tourist destinations such
as Universal Studios Florida, Walt Disney World, Sea World, Kennedy Space Center
and Port Canaveral. In 1994, approximately 14 million people traveled between
South and Central Florida.

         The Fun-Train concept is to provide an enjoyable, high-quality
entertainment alternative to other means of transportation between South and
Central Florida. The Company's goal is to maximize the entertainment value of
the travel time while providing an efficient, safe and reliable form of
transportation at a reasonable price. The Florida Fun-Train is being designed to
provide passengers with a unique overland leisure excursion and the Company
expects to accomplish this through the use of various entertainment features,
including "virtual reality" and a variety of "high-tech" video games, as well as
dining, dancing and lounge cars offering a variety of live entertainment. It is
anticipated that the exterior of the Florida Fun-Train will be designed to have
the appearance of a colorful, ultra-modern train. The train's colors will be
vibrant unlike the typical passenger train in the United States. The Company
intends to provide a high level of service ("customer care") in order to
accommodate its passengers; to facilitate this the Company has hired an employee
(vice president) who is specifically charged with these duties.


                                        7

<PAGE>

         The Company expects that most of its passengers will be tourists, and
that the Company's service will be offered as an "extension" of the passenger's
vacation. As such, management of the Company believes it will be able to capture
both a portion of the tourist market intent on travelling between South and
Central Florida while also encouraging travel on the Florida Fun-Train by
tourists and residents who would not otherwise make the trip. Currently, travel
is made between South and Central Florida primarily by either automobile or
airplane. The Company believes the Florida Fun-Train will generally offer price
advantages to travelling by airplane. Travelling by automobile or airplane does
not offer the entertainment value provided on the Florida Fun-Train.

         The Company has taken significant steps to commence the operation of
the Florida Fun-Train. In that regard, the Company has: purchased its first
passenger car; entered into an agreement with Rader Railcar II, Inc. ("RRI") to
manufacture the remaining railcars for the Florida Fun-Train; entered into an
agreement with CSX Transportation, Inc. ("CSXT") for track use; entered into an
agreement with the Florida Department of Transportation ("FDOT") for certain
track usage in South Florida ; selected a prospective terminal site on the
Orlando International Airport property and entered into a letter of intent with
the Greater Orlando Aviation Authority ("GOAA") and is currently negotiating
with the Orlando Utilities Commission ("OUC") in connection with that site and
for the rights to use OUC tracks leading into the proposed site in the Greater
Orlando area; is finalizing negotiations with National Railroad Passenger
Corporation ("Amtrak") for certain technical services in connection with the
Florida Fun-Train; has received a market study by an outside consultant; entered
into an agreement with Universal Studios for joint marketing and sales efforts
in connection with Florida Fun-Train services; and entered into a track rights
agreement with Florida East Coast Railway Company ("FEC") for future use.

         FLORIDA FUN-TRAIN EQUIPMENT AND TRACK RIGHTS

         The Company plans to commence operations of the Florida Fun-Train
during the Fall 1997.


         8 Dome Passenger Cars      Each car will provide comfortable,
                                    spacious seating and meal service
                                    for approximately 75 passengers
                                    (which includes the initial
                                    prototype car already owned by the
                                    Company).

         4 Bilevel Entertain-
         ment Cars*                 These cars will consist of (i) one
                                    "tropical-themed bar/lounge car"


                                        8

<PAGE>

                                    which will sell cocktails,
                                    beverages and high-end
                                    appetizers and offer live
                                    entertainment including
                                    music for listening and/or
                                    dancing (to be provided by
                                    musicians or a disc
                                    jockey), (ii) one "video
                                    game and kidzone car" which
                                    will offer a variety of
                                    high-tech video games and
                                    virtual reality, as well as
                                    a separate children's play
                                    area (including a roving,
                                    close-up magician and/or
                                    clowns, etc.), (iii) one
                                    multi-media car which will
                                    include a custom designed,
                                    audio-visual presentation
                                    (the waiting area will have
                                    a concession and video
                                    facilities) and (iv) one
                                    "lounge car" to include an
                                    ice cream/pizza parlor, a
                                    gift shop, photo area, wine
                                    bar and pub and lounge
                                    area.

         1 Baggage Car              This car will provide storage space
                                    for the passengers' luggage.

----------
*        The Fun-Train's operation will commence with less than eight
         passenger cars and/or less than four entertainment cars.


         The Company intends to have all of these railcars (except the baggage
car which may be leased) constructed by Rader Railcar II, Inc.

         In addition, each Fun-Train intends to utilize three leased diesel
locomotives, which will be repainted and may be remodeled to give the appearance
of a sleek, high-speed locomotive. It is currently contemplated that one
locomotive will be positioned on each end of the train, allowing the train to be
operated in either direction without the need to turn the train around.

         The Company plans to initially operate the Florida Fun-Train between
Fort Lauderdale and Orlando on currently existing FDOT and CSXT tracks.

         The tracks between Ft. Lauderdale and West Palm Beach which comprise
part of the proposed route of the Florida Fun-Train are controlled by FDOT. The
Company has entered into an agreement dated January 6, 1997 (the "FDOT
Agreement"), with FDOT to obtain the use of this track. Pursuant to the FDOT
Agreement, the Company will have access to and the use of that portion of the
track between mile marker ("MM") 1034 located in Hialeah, Florida, and MM


                                        9

<PAGE>

965 located in West Palm Beach, Florida. In addition, the parties have agreed in
principle (subject to further negotiation) to allow the Company the use of the
Hialeah railroad maintenance facility and the Broward Boulevard Station (MM
1012.2) to be used as the southern terminal for the Florida Fun-Train. The FDOT
Agreement is for a five-year term beginning upon the commencement of the Florida
Fun-Train operations. The Company is required to pay the FDOT $500 for each
one-way trip over the foregoing route which amount increases by $50 after each
anniversary of the FDOT Agreement. Compensation for access to the Hialeah
railroad maintenance facility and the Broward Boulevard Station is still to be
negotiated by the parties.

         Pursuant to the FDOT Agreement, the Company has agreed to waive certain
future claims, if any, against FDOT for losses or costs arising out of the use
of FDOT's track, including those arising from the negligence or omissions of the
FDOT. Further, the Company has agreed to indemnify FDOT from third-party claims,
including but not limited to, personal injury claims, made against FDOT and
arising from the Company's operations pursuant to the FDOT Agreement. The
Company has also agreed to maintain at least $125 million in comprehensive
general liability insurance with a $100,000 deductible (or self-insurance
amount).

         The FDOT Agreement may be terminated if (i) the Florida Fun- Train does
not commence operations within two years from the date of the FDOT Agreement,
(ii) the Company's operations are suspended for more than 90 days, (iii) there
are more than ten independent suspensions in such operations, (iv) there is a
material violation in the Company's obligations under the FDOT Agreement which
is not cured upon 45 days' written notice, and (v) future high-speed rail
operations are such that the route cannot be shared (in the FDOT's sole opinion,
but with three year's notice to the Company).

         The CSXT Agreement dated October 31, 1996, provides for the use of
CSXT's tracks between West Palm Beach and Orlando to be used for the operation
of the Florida Fun-Train. The CSXT provides, in part, that the Company will
initially pay CSXT the greater of $20 per train-mile, or 16% of the Company's
gross ticket revenue (less discounts) from the Florida Fun-Train operations. The
Company's payment requirements under the CSXT Agreement are as follows: the per
train-mile amount is subject to various increases for inflation and other price
adjustments including, (i) an annual increase, beginning January 1, 1999, in the
per train-mile charge equal to the inflation index of the Association of
American Railroads, (ii) a $50,000 per month reduction for the aggregate
train-mile charge in 1997, 1998 and 1999, and (iii) a $2.20 increase in the per
train-mile charge along with a limit in certain circumstances on the total
annual compensation to CSXT beginning in the year 2000 and thereafter. In
addition, the Company is required to maintain at least $300 million in
comprehensive general liability insurance with a $100,000 deductible (or
self-insurance).

                                       10

<PAGE>

         Pursuant to the CSXT Agreement, CSXT has agreed not to grant similar
access rights to the subject rail corridor (between West Palm Beach and Orlando)
to any other private rail passenger operator or contractor which would provide
comparable conventional rail passenger service for the cruise ship market. The
exclusivity provision specifically excepts the provision of access to the
subject CSXT route by Amtrak and the Tri-County Commuter Rail Authority, as well
as other publicly-funded authorities with statutory and/or contractual rights
with respect thereto. The exclusivity also does not apply to high-speed rail
activities. In addition, the exclusivity clause will be voidable at CSXT's
option if (i) after the first year of operation, the Company does not operate at
least 16 Florida Fun-Trains a week, or (ii) management of the Company changes
significantly. The term of the agreement will be five years. In addition to the
foregoing, the Company has agreed to sell up to 475,000 warrants to CSXT,
exercisable at $4.50 per warrant with the initial installment of 75,000 warrants
being exercisable upon the commencement of operations of the Florida Fun-Train
and thereafter in four equal annual installments of 100,000 warrants each
commencing January 1, 1998; no provision has been made herein for the effect of
the issuance or exercise of these warrants when and if issued. Pursuant to the
CSXT Agreement, the Company has appointed a CSXT representative, Albert B.
Aftoora, to its Board of Directors.

         The track rights agreements that the Company has or is expected to have
with track owners, will require the substantial amounts of general comprehensive
liability insurance (up to $300 million in coverage). The Company has received
proposals from various insurance brokers to assist it in obtaining the coverage.
In this regard, the Company has selected an internationally- recognized
insurance brokerage firm which has advised the Company that this type and amount
of insurance is generally available, at reasonable rates, and it believes the
Company will be able to secure a commitment for such insurance prior to the
commencement of the Florida Fun-Train's operations.

         The initial terminal locations are planned to be in Fort Lauderdale
(which is located in the center of the metropolitan area comprising Dade,
Broward and Palm Beach Counties) and in the Greater Orlando area, the home of
Walt Disney World, Universal Studios Florida, Sea World and numerous other
attractions.

         As part of the FDOT Agreement, the Company and the FDOT have agreed in
principle to negotiate a formal agreement to provide for the Company's use of an
existing railroad terminal (which is currently used by Tri-Rail and Amtrak)
located on a rail corridor in Broward County and which is proximate to the
intersection of I-95 and Broward Boulevard. This site will serve as the southern
terminal for the Florida Fun-Train. The Company is also negotiating with
Tri-Rail for the right to use various sidings along this section of the route,
including those near the aforementioned

                                       11

<PAGE>

terminal site and with Amtrak for the use of the rail maintenance facility in
Hialeah, FL. The proposed northern terminal location is on Orlando International
Airport property controlled by GOAA and OUC. The Company has commenced
negotiations with OUC and GOAA in this regard. OUC has advised the Company that
it may construct a rail terminal and platform on its main line near Boggy Creek
Road (which is proximate to the Orlando International Airport), and for the
rights to use OUC tracks leading to the proposed site. Further, the Company is
negotiating with OUC for rights to temporarily "store" the Florida Fun-Train on
this property. Although the Company is attempting to obtain funding for the
northern terminal from state and/or local governments, final terms regarding the
construction of these facilities have not been negotiated, and there can be no
assurance that any such negotiations will be successful.

         The estimated travel time for the Florida Fun-Train between Central
Florida and South Florida is just in excess of four hours. To serve the general
domestic and international tourist market, the Company plans to offer daily
weekday service origination in South Florida in the morning and in Central
Florida in the afternoon. To serve the South Florida weekend cruise market (Port
Everglades and Port of Miami) the Company plans to offer special inbound and
outbound service for cruise passengers.

         The Company is currently negotiating with Amtrak for the provision of
technical services by the latter in connection with the operation of the Florida
Fun-Train. These technical services may include the provision of train and
engine crews, maintenance of equipment, fuel and leasing of locomotives and a
baggage car. The Company expects to reach an agreement with Amtrak in this
regard in the near future. As part of these negotiations, the Company has
requested Amtrak's consent to the Company's use of the CSXT track, as required
by the CSXT Agreement.

         MARKET

         The Florida Fun-Train's principal market is approximately 40 million
persons who visit Florida each year. The Company also intends to rely for
passengers on the more than 1.4 million residents of the Central Florida
(principally the Greater Orlando metropolitan area) and the more than 3.3
million residents of the South Florida (Miami/Ft. Lauderdale) metropolitan area,
as well as on the rest of the more than 13.4 million residents of Florida.
According to a recent study, Florida's population and tourist base are expected
to continue to grow significantly during the next decade; however, the rates of
growth are expected to slow some during the 1990's, the growth in portions of
Florida's tourism industry slowed, with some areas and attractions experiencing
declines. According to the same study, in 1994 approximately 14 million persons
traveled between Central and South Florida. Of these trips, 55% were for
tourism/recreation, 24% were for

                                       12

<PAGE>

family/personal reasons, and 21% were for business. SOURCE: "1994 Florida
Visitor Study," Florida Department of Commerce, Bureau of Economic Analysis,
Tallahassee, FL (1995).

         From 1980 to 1995 the number of annual visitors to Florida increased by
105%, from 20 million to 41.3 million. According to the Florida Department of
Transportation, approximately half of these visitors arrived without an
automobile. From 1980 to 1995, the resident population of Florida increased from
9.7 million to 14.4 million, a 49% increase. During that period, the population
of Central Florida increased by 75%, from 800,000 to 1.4 million, and the South
Florida population grew from 2.6 million to 3.5 million, a 35% increase. SOURCE:
Florida Department of Commerce, Division of Economic Development, Bureau of
Economic Analysis. The recent slowdown has been attributed, in part, to
highly-publicized criminal attacks on tourists, and increasing competition from
other tourist destinations in the U.S. and the Caribbean region as well as
economic problems in some of Florida's overseas tourism markets.

         The Company's planned operations may be materially adversely affected
by declining growth or an absolute decline in the number of tourists visiting
Florida; however, the Company believes that, by offering a unique and safe
tourist attraction and service, it can attract the passenger base needed for
profitability, notwithstanding possible adverse trends in the growth of the
Florida tourist market as a whole.

         Given the status of both Central Florida and South Florida as major
tourist destinations, as well as the size of the underlying metropolitan areas,
the Company sees great potential in the market for transportation between the
two areas. The Company plans to target the tourists and residents already
traveling between the two destinations, but it also plans to stimulate, through
a marketing effort, travel between the areas to be serviced by the Florida
Fun-Train by persons who otherwise would not have made the trip. By providing a
convenient, entertaining and reasonably priced service between South Florida and
Central Florida, the Company's Fun-Train will be marketed as an inducement to
South Florida visitors and residents to travel to Central Florida, and vice
versa. Given the significant size of the potential market, the Company believes
that it needs to capture only a small portion in order to be successful.

         According to the 1995 Department of Commerce Study, the greater Orlando
area was the fastest growing metropolitan statistical area in Florida in the
early 1990's. The greater Orlando area added nearly 172,000 residents between
1990 and 1995 for an estimated population of 1.4 million. The Orlando area's
rate of growth during this period was 2.5 times the United States average.

         Approximately 22.5 million passengers enplaned and deplaned at the
Orlando International Airport in 1994, up from approximately

                                       13

<PAGE>

22.4 million in 1993 and 21.5 million in 1992. Of these passengers,
approximately 11% were international visitors, primarily from Europe, Canada
and, to a lesser extent, Latin America.

         Central Florida is filled with a number of attractions including Walt
Disney World's Magic Kingdom, Epcot Center, Disney-MGM Studios, Universal
Studios (Florida), Sea World of Florida, as well as Church Street Station,
Seminole Greyhound Park (Turf Club) and Splendid China.

         Walt Disney World (and its related attractions) is one of the dominant
components of the Central Florida economy; the relative influence of the Disney
attractions has lessened with the significant development of other major tourist
facilities. Walt Disney World's 1995 attendance was approximately 35.3 million,
which was an amount over four times that for Central Florida's next most popular
attraction (Universal Studios).

         One of the fastest growing components of the Central Florida economy is
the convention industry. Orlando is one of the largest convention markets (in
terms of number of delegates) in the United States. Reasons cited for the
increasing popularity of Orlando as a location for conventions and conferences
include the continuing development of area attractions, the addition of hotel
rooms, and the increased availability of transportation.

         The Miami/Fort Lauderdale metropolitan area contains approximately 3.3
million residents and is also a major tourist destination, with numerous
attractions, two major cruise ports, four major-league professional sports teams
and miles of beaches. The area attracts millions of domestic and international
visitors each year, who come for tourism, shopping, business and family visits.
Miami is the financial and trade capital of Latin America, and Miami Beach,
famous for its night life, is internationally known as a center for the fashion,
music and movie industries. Fort Lauderdale, Miami and Miami Beach are also
major convention destinations. Miami International Airport is the primary travel
connection linking the Americas, the Caribbean, Europe and Africa. Served by
approximately 135 airlines, more than any other airport in the world, Miami
International Airport logs approximately 1,400 daily departures and arrivals. In
1995, over 33.5 million (14.5 million international) passengers flew to or from
Miami.

         South Florida has expanded from its traditional role as a wintertime
destination for North Americans to become a year-round destination for domestic
and international visitors. South Americans now comprise 35% of annual
international visitors, European visitors make up 27% of the annual total,
visitors from Central America and the Caribbean account for 23%, and North
Americans account for 15%.

                                       14

<PAGE>

         The Port of Miami is the home port to a world-leading fleet of 17
luxury cruise ships, including five of the world's largest passenger ships,
which are expressly outfitted for pleasure cruise vacations. The Port of Miami
handles approximately 3.2 million passengers per year from its 12 passenger
terminals - more than any other cruise port.

         Port Everglades, located approximately 30 miles north of Miami in Fort
Lauderdale, received in excess of 2.3 million cruise passengers during 1995.
There are 32 cruise ships based at Port Everglades, with four cruise terminals
just a short walk from the Broward County Convention Center.

         The Fort Lauderdale/Hollywood International Airport is another major
transportation destination for tourists going to South Florida. In 1995 the
airport handled approximately 8.6 million domestic passengers and 1.2 million
international passengers. There are approximately 35 major airlines serving the
Fort Lauderdale/Hollywood International Airport with 362 daily arrivals and
departures. The airport is located just one and one-half miles from Port
Everglades and the Broward County Convention Center.

         MARKETING

         The initial one-way ticket price for the Florida Fun-Train is expected
to be in the range of $65-$75, and the per-passenger en route revenue (for food,
beverages, entertainment and souvenirs) is expected to be in the range of
$20-$25.

         On July 23, 1996, the Company engaged a third party to conduct a market
study for the Company for the purpose of providing recommendations with respect
to targeting market segments most likely to use the Florida Fun-Train, traffic
volume (including seasonal fluctuations), schedules that would generate the
highest volume of ridership, fare structure, types of entertainment, and key
product attributes such as classes of service, language or other special
requirements. This study includes conclusions based on discussions with
wholesale travel and tour companies, rental car companies, airline and cruise
lines. The total cost of this market study which was completed in late November
1996 (including reimbursement for professional fees and out-of-pocket expenses)
was $176,800.

         Over the next 12 months the Company plans to develop and implement its
sales and marketing efforts. The Company plans to hire approximately four
employees who will begin marketing the Company to the travel and tour
industries. Among other things these employees will market and sell tickets
(passenger seats) through wholesale travel and tour operators and retail travel
agents. Wholesale tour operators have historically represented a material source
of business for the travel industry in South and Central Florida, particularly
in the cruise and lodging businesses.

                                       15

<PAGE>

While the Company cannot anticipate what percentage of its future business will
be with wholesale tour operators it is expected that wholesalers will represent
approximately one-half of its business.

         In addition, marketing efforts which feature the Company's services are
presently planned through various channels such as trade shows and conferences,
as well as advertising in various tour industry publications as well as to the
general public. During this stage, the Company plans to sell Fun-Train tickets
through an internal reservation system which must be developed. The Company also
may negotiate computer time-sharing or other arrangements with third parties
which operate systems for or similar to those used by the travel and tour
industries. In addition, the Company intends to attempt to market its services
and sell tickets by means of joint arrangements with cruise lines, airlines and
hotels. General advertising on radio and television and in periodicals,
newspapers and other media, is also planned as an important component of the
Company's marketing program. The Company anticipates that national and
international marketing and sales efforts will enhance business, while the
implementation and execution of a yield management system and reservations
program will increase incremental revenues.

         On October 30, 1996, the Company entered into an agreement with
Universal Studios Florida (a major Central Florida tourist attraction) for joint
advertising, promotion and publicity programs in order to form a "strategic
alliance" for on-going joint activities from November 4, 1996 to December 31,
1998.

FUTURE ENTERTAINMENT TRAINS

         After the introduction of the Florida Fun-Train, and assuming the
Company has sufficient capital available, it expects to provide "Fun-Train"
passenger service between South Florida and the Florida Space Coast (near the
Kennedy Space Center). The Space Coast Fun-Train is expected to provide daily
round-trip service at a fixed price which will include a full tour of the
Kennedy Space Center. The Kennedy Space Center is one of Florida's most popular
tourist attractions, receiving over 2.1 million visitors in 1994 and is
especially popular with international tourists. The Company expects to market
the Space Coast Fun-Train as a convenient and entertaining travel opportunity to
see the Kennedy Space Center. The Space Coast Fun-Train will operate over
existing tracks owned and operated by FEC.

         On February 28, 1995, the Company entered into an agreement with FEC
for the use of certain track rights in the Miami-Fort Lauderdale-West Palm
Beach-Titusville corridor. The ten-year term of the FEC agreement starts when
the Space Coast Fun-Train is operational and the agreement provides for a
standard, per-car mileage charge of $1.20 per car-mile (which is equivalent to
$18 per train-mile based on the minimum FEC 15-car train requirement),

                                       16

<PAGE>

payable monthly, with a minimum guaranteed annual amount of $500,000 per route
to be paid by the Company to FEC. When the Space Coast Fun-Train is operable,
the minimum payment will be $500,000 per annum. The Company will operate the
Space Coast Fun-Train with locomotives it provides subject to dispatching (and
related controls) by FEC. The agreement provides for limited exclusivity to the
Company to operate "Fun-Train" type train services and/or services to cruise
lines over the prescribed route, with certain exceptions. Further, the Company
is obliged to indemnify FEC for claims under actions arising from the operation
of the Space Coast Fun-Train, and the Company is obliged to obtain a minimum of
$200 million in comprehensive general liability insurance coverage in favor of
FEC, with a $100,000 deductible.

GENERAL

         COMPETITION

         Generally, the Company faces extensive competition for the spending of
leisure time and dollars from numerous attractions in the tourist entertainment
sector. The success of its proposed operations will depend primarily on its
ability to quickly develop an entertaining, high-quality, efficient, safe and
reliable service, as well as its ability to market such service and secure
consumer acceptance. It is uncertain whether the Company will be successful in
these efforts.

         With regard to the proposed operations of the Florida Fun- Train,
numerous companies, most of which are substantially larger than the Company and
have much greater financial and other resources, offer alternative modes of
transportation over the proposed Florida Fun-Train route. In addition to the
extensive competition in the transportation sector, the Company faces extensive
competition for the spending of leisure time and dollars from numerous
attractions in the tourist entertainment sector. These alternative modes of
transportation, offer transportation that is less expensive and/or faster than
the Company's proposed rail service. Most of these competitors already enjoy an
established presence in the Florida transportation and tourism markets. The
Company expects to compete on the basis of what will be its unique product,
which will provide a combined package of transportation and entertainment.

         The Company believes that the principal transportation competition for
the Florida Fun-Train will be from airlines, automobiles and inter-city buses.
While air travel is a faster means of transportation, it is generally more
expensive than the Company's proposed fares; however, there are certain low-fare
air carriers operating in the South Florida/Orlando corridor. Further the
Company believes that airline travel does not provide significantly greater
convenience within the scope of the Florida Fun-Train's projected routes.
Automobile travel is, on the other

                                       17

<PAGE>

hand, less expensive, but lacks the convenience and ease of transport expected
to be provided by the Florida Fun-Train. The Company is not aware of any other
person or entity currently planning to provide a service directly competitive
with the Florida Fun-Train; however, the Company is generally aware of the fact
that Walt Disney Company has indicated from time to time its interest in
establishing a rail link between its operations in greater Orlando and one or
more cruise ports in Florida. There can be no assurance that such a competitor
will not appear before or after the Company commences Florida Fun-Train
operations. In addition, Amtrak currently operates passenger train service
between Miami/Fort Lauderdale and Orlando, Florida with numerous stops in
between. The cost of a round-trip ticket on Amtrak between Miami/Fort Lauderdale
and Orlando is currently $123 (first class service) and $55 (coach service).
Presently Amtrak service does not include the "entertainment-type" service which
the Company proposes to provide on the Florida Fun-Train; however, there can be
no assurance that Amtrak will not improve its service and offer amenities
similar to those proposed to be offered by the Company. The Company is currently
negotiating with Amtrak for the latter to provide certain "technical services"
for the Florida Fun-Train.

         With regard to the operation of D&SNG, two other popular railroads
exist in Colorado: the Georgetown Loop and the Cumbres & Toltec Railroad.
Located west of Denver, the Georgetown Loop is a seven-mile 70-minute excursion.
The trains are pulled mainly by steam locomotives with the remainder being
pulled by diesel locomotives. The Cumbres & Toltec, like D&SNG and the
Georgetown Loop, is a narrow gauge scenic railroad. Its trains are pulled mainly
by steam locomotives, with the remainder being pulled by diesel locomotives. The
Cumbres & Toltec runs from Chama, New Mexico to Antonito, Colorado, a distance
of 64 miles. Its closest boarding point to the D&SNG is located in Chama,
approximately 100 miles from Durango. Although the Cumbres & Toltec is scenic,
it does not travel through a national forest nor is it a registered National
Historic Landmark. Owned by the States of New Mexico and Colorado, the Cumbres &
Toltec is maintained primarily by volunteers. The termini of the Cumbres &
Toltec are not "tourist towns" and do not have the same atmosphere or appeal as
D&SNG.

         Competition could come from others entering the industry but is
unlikely due to barriers to entry. There are few authentic steam locomotives in
existence today making it very difficult to enter into competition with D&SNG.
In addition, it would be nearly impossible for anyone to obtain right-of-way
through the San Juan National Forest.

         GOVERNMENTAL REGULATION

         The Company's operations are (or will be) subject to safety regulation
by the Federal Railroad Administration (which are administered in Florida by the
Department of Transportation), as

                                       18

<PAGE>

well as environmental regulation by federal and state agencies. The Company's
operations are also required to maintain a state liquor license and a Special
Tax Stamp issued by the Federal Bureau of Alcohol, Tobacco and Firearms, and it
is subject to health and other regulations promulgated by federal, state and
local authorities. D&SNG's operations are subject to rate, administrative and
safety regulation by the Colorado Public Utilities Commission, as well as
environmental regulation by federal and state agencies.

         The Company believes that its proposed operations as well as the
operations of D&SNG are, and will be, in material compliance with all
environmental laws and regulations, and it estimates that such compliance will
not have any material adverse effect on its profitability or capital
expenditures.

         EMPLOYEES

         At March 21, 1997, the Company employed 17 persons, eight of whom are
senior management and the remaining nine are staff members. Over the next 12
months, the Company expects to hire approximately 70 persons. See "Plan of
Operations." The Company also intends to rely extensively on independent
contractors and the outsourcing of certain functions, e.g. marketing and rail
operations. For a description of D&SNG's employees, see "-- The Durango &
Silverton Narrow Gauge Railroad," above.

         Traditionally, railroad operating crews have been unionized, and with
respect to the Florida Fun-Train operations the Company may have no alternative
but to use a unionized crew. Further, while unionization among railroad
passenger service workers is less prevalent than among crew members, there can
be no assurance that the Company will not have to use unionized personnel in
passenger service positions as well. While the Company does not anticipate
material labor relations problems and believes that it can reach mutually
beneficial collective bargaining agreements with any unionized employees, there
can be no assurance that these problems will be avoided. The Company is
considering outsourcing its Florida Fun-Train rail operations.

                                     ITEM 2
                                     ------

                             DESCRIPTION OF PROPERTY
                             -----------------------


         The Company leases approximately 14,800 square feet of space in a
facility located at 3700 North 29th Avenue, Suite 202, Hollywood, Florida 33020,
pursuant to a ten-year lease at a monthly rental rate of $7,625. For a
description of the properties of D&SNG see "Business -- The Durango & Silverton
Narrow Gauge Railroad Company."

                                       19

<PAGE>

                                     ITEM 3
                                     ------

                                LEGAL PROCEEDINGS
                                -----------------


         Neither the Company nor D&SNG is a party to any material legal
proceedings or arbitration proceedings, and to the best of the Company's
knowledge and belief, none is contemplated or threatened.


                                     ITEM 4
                                     ------

               SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
               ---------------------------------------------------

         There were no matters submitted to a vote of security holders during
the fourth quarter of the fiscal year ended December 31, 1996.

                                       20

<PAGE>

                                     PART II
                                     -------

                                     ITEM 5
                                     ------

             MARKET FOR COMMON STOCK AND RELATED SHAREHOLDER MATTERS
             -------------------------------------------------------


         The Company's Common Stock is quoted on the Nasdaq SmallCap Market
under the symbol "FTRN"; however, there was no active trading market for the
Common Stock until the Second Quarter of 1996, to the best knowledge of the
company's management. The following table sets forth the high and low sale
prices of the Common Stock for the periods indicated in 1996 and 1997.

                                         HIGH              LOW
                                         ----              ---

1995:
         First Quarter                    -                 -
         Second Quarter                   -                 -
         Third Quarter                    -                 -
         Fourth Quarter                   -                 -

1996:
         First Quarter                    -                 -
         Second Quarter                 6.375              3.00
         Third Quarter                  6.25               3.00
         Fourth Quarter                 4.75               2.00

1997:
         First Quarter (through
         March 20, 1997)                2.75               1.75

         On March 20, 1997, the last reported sale price of the Common Stock was
$2.375 per share. As of March 5, 1997, there were 379 holders of record of the
Common Stock.

         The Company has not paid any dividends on its Common Stock. The Company
intends to retain all earnings for use in its operations and to finance the
development and the expansion of its business, and does not anticipate paying
any dividends on the Common Stock in the foreseeable future. The payment of
dividends is within the discretion of the Company's Board of Directors. Any
future decision with respect to dividends will depend on future earnings, future
capital needs and the Company's operating and financial condition, among other
factors. See "Plan of Operations."


                                       21

<PAGE>

                                     ITEM 6
                                     ------

                               PLAN OF OPERATIONS
                               ------------------

GENERAL

         The Company intends to provide its customers with innovative, quality,
entertainment-based passenger rail service. The Company has been in the
developmental stage and in 1996 it had no material operations; however, the
Company has taken significant steps to commence operations of the Florida
Fun-Train. In that regard, the Company has done the following: purchased its
first passenger car; entered into an agreement with Rader Railcar II, Inc.
("RRI"), a company owned by a director and shareholder, to manufacture the
remaining railcars for the Florida Fun-Train; entered into an agreement with CSX
Transportation, Inc. for track use; entered into an agreement with the Florida
Department of Transportation for certain track usage in South Florida; selected
a prospective terminal site on the Orlando International Airport property and
entered into a letter of intent with the Greater Orlando Aviation Authority and
is currently negotiating with the Orlando Utilities Commission ("OUC")in
connection with that site and for the rights to use OUC tracks leading thereto;
commenced discussions with others regarding an alternative terminal location in
the Greater Orlando area; negotiated with the National Railroad Passenger
Corporation ("Amtrak") for certain technical services in connection with the
Florida Fun-Train; completed a marketing study by an outside consultant (which
included discussions with wholesale travel and tour companies, rental car
companies, airlines and cruise lines); entered into an agreement with Universal
Studios Florida for joint marketing and sales efforts in connection with the
Florida Fun-Train services; and entered into a track rights agreement with
Florida East Coast Railway Company (FEC) for future use. The Company anticipates
commencing promotional rail service for the Florida Fun-Train in the Summer
1997, and full rail service in the Fall 1997. During the next twelve months the
Company expects to have significant capital expenditures for railcar
construction, terminal leasing and/or construction, track and leasehold
improvements, and significant operating expenses for salaries, marketing and,
when Fun-Train service commences, track use.

         The Company plans to use its currently available funds to pay the
expenses and capital expenditures in connection with the commencement of the
operations of the Florida Fun-Train and provide working capital from prospective
leasing and financing opportunities to support the Florida Fun-Train's initial
operations to the extent that cash flow from such operations is insufficient.

         The Company has agreed to purchase additional Fun-Train railcars
pursuant to a construction agreement with RRI. The

                                       22

<PAGE>

Company has contracted to spend a maximum of approximately $8.8 million
(including applicable sales taxes) to purchase up to 11 additional railcars. The
Company expects to lease three diesel locomotives and a baggage car prior to
commencing operations, and it estimates, based on currently available
information, that three diesel locomotives and a baggage car are generally
available for lease for approximately $53,000 per month.

         The railcar construction agreement with RRI required a significant down
payment with the balance of the contract price to be paid in installments;
however, this payment schedule will vary depending on the number and delivery
schedules of the cars actually purchased. The Company expects certain of the
railcars to be completed and delivery to begin in the Summer 1997 and it expects
staggered delivery of additional railcars to continue during the Summer 1997 so
that it can begin offering promotional rail service of the Florida Fun-Train at
that time. Service is expected to begin with five passenger railcars in the Fall
1997 and it is anticipated to expand to eight passenger railcars by the Spring
1998.

         Before the Florida Fun-Train rail operations can commence, the Company
must construct or otherwise obtain the use of terminals at each end of the
proposed route. The Company is currently in negotiations in this regard and it
is in the process of finalizing its cost estimates and determining the extent of
governmental support for these activities, if any. During the next 12 months the
Company expects to increase its work force from the seventeen persons currently
employed by the Company (eight of whom are senior management). The Company will
be required to hire approximately 70 additional employees; however, the exact
number of employees is dependent on the Company's decision with respect to
outsourcing its marketing and rail operations functions, etc.

ACQUISITION

         The Company has pursued its strategy of acquiring tourist destination
railroads. In March 1997, the Company purchased all of the common stock of The
Durango & Silverton Narrow Gauge Railroad Company ("D&SNG"). The purchase price
consisted of the following: (i) two promissory notes aggregating $10.05 million
which are subordinate to a purchase money loan provided by a third-party lender;
(ii) 200,000 shares of the common stock of the Company; (iii) a six-year warrant
to purchase 1,610,000 shares of the Company at an exercise price of $3.50 per
share; and (iv) cash of approximately $5 million. Portions of the seller
financing are personally guaranteed by two of the Company's officers for which
the Company will pay guaranty fees to the officers.

                                       23

<PAGE>

DEVELOPMENT STAGE ACTIVITIES AND LIQUIDITY
------------------------------------------

         GENERAL: During 1996, neither the Company nor its predecessor by
merger, First American Railways, Inc., a Florida corporation, had any revenue
from operations.The Company has had accumulated losses of approximately $3.9
million for the period from February 14, 1994 (incorporation) through December
31, 1996. The Company expects such losses to continue at least through
commencement of its full rail operations in the Fall 1997 and perhaps
thereafter. Since inception through December 31, 1996, the Company's (and its
predecessor's) activities have been funded by the private placement of its
securities and by borrowings, the net cash proceeds from which have totaled
approximately $15.2 million.

         EIGHT MONTHS ENDED DECEMBER 31, 1995: The Company explored various
financing alternatives; however, no additional capital was raised during this
period. Instead, it borrowed an additional $270,000 in order to support its
operations. During this period, the Company had a net loss of $720,413 of which
approximately $282,000 were expenses of offerings not completed. In addition, a
significant amount of other expenses, principally the salaries of officers and
employees, were expended in connection with capital raising activities.

         YEAR ENDED DECEMBER 31, 1996: In March 1996, the Company completed a
private placement of securities in which it sold an aggregate 375,004 shares of
common stock and issued $500,000 in convertible secured notes, bearing interest
at 10% per annum, for aggregate net proceeds of approximately $394,000. In
April, May 1996, the Company completed a private placement of securities in
which it sold 4,050,274 shares of Common Stock valued at approximately $8.25
million, 3,950,271 Series A Redeemable Warrants exercisable at $3.50 per share,
and issued approximately $8.25 million (principal amount) in convertible secured
notes, bearing interest at 10% per annum, for aggregate net proceeds of
approximately $14.2 million (of which approximately $416,000 was not cash
consideration, but represented the conversion of the principal and accrued
interest on certain secured promissory notes issued in the March 1996 private
placement into securities sold in the April, May 1996 private placement).

         The Company used approximately $778,000 of the proceeds to repay
approximately $333,000 in notes payable to related parties and others, and
$445,000 to repay notes payable from the financing completed in March 1996. In
addition, in June 1996 the Company made a payment of $536,000 representing the
final payment (plus interest) due on the first railcar purchased. A material
portion of the proceeds of the May 1996 private placement (approximately
$830,000) were escrowed to pay the first year's interest on the convertible
secured notes sold in that private placement. In October 1996, the Company made
its initial interest payment. In

                                       24

<PAGE>

September and October 1996, the Company advanced $1.4 million to RRI for the
commencement of construction of additional railcars.

         During the year ended December 31, 1996, the Company had a net loss of
approximately $2.6 million. The major components of the loss were salary and
payroll tax expense of approximately $947,000 resulting from the hiring of nine
people (including five executives) during the year and the incurrence of
approximately $452,000 of legal, accounting, professional and consulting fees
for initial and ongoing railroad and marketing agreements, executive recruitment
and general corporate purposes. The loss for the year ended December 31, 1996,
was also impacted by net interest expense of approximately $167,000 resulting
from the April - May private placement and the amortization of approximately
$221,000 of deferred loan costs related to notes payable that were replaced in
May 1996 and the convertible notes payable resulting from the April - May
private placement.

         To date the Company has not generated any revenue and, as of December
31, 1996, it had accumulated losses of approximately $3.9 million. At December
31, 1996, the Company had working capital approximately of $7.2 million and
stockholders' equity of approximately $4.3 million.

         LIQUIDITY: The Company's future cash requirements will be significant.
The Company expects that the proceeds from the private placements, along with
prospective leasing and financing opportunities which management believes are
available on commercially reasonable terms, will be sufficient to enable the
Company to commence operations of the Florida Fun-Train in the Fall 1997. There
can be no assurance, however, that operations will in fact commence as
scheduled, or that unanticipated problems will not arise which necessitate the
need for additional financing. Additionally, there can be no assurance that the
Company will be able to obtain or generate the required capital to commence
operations of the Florida Fun-Train in the Fall 1997.

         In connection with the acquisition of D&SNG by the Company, D&SNG
borrowed, and the Company guaranteed $8.5 million from a commercial lending
institution pursuant to a five-year term loan, portions of which were used to
pay a pre-existing lender to fund a portion of the cash required to close the
acquisition. The balance was used for working capital for D&SNG's operations
(approximately $1 million). This working capital and the funds generated from
D&SNG's operations are expected to be adequate to meet D&SNG's cash requirements
(including capital expenditures and debt service) for 1997. There are no
material short-term or long-term commitments for capital expenditures; however,
the Company anticipates expenditures in 1997 for property and equipment, but has
not yet finalized its plan in this regard, and does not expect such expenditures
to be material. Additionally, D&SNG is expected to incur in excess of $2 million
of interest and principal payments in 1997 resulting from the $8.5 million term
loan and the $10.05 million seller financing. Although D&SNG's business and cash
flow are historically seasonal in nature with the peak season being the months
of June, July and August, the seasonality is not expected to have a material
adverse impact on the Company's ability to meet cash requirements from existing
cash sources.

         Capital expenditures and debt service in 1998 and subsequent years are
expected to be funded from the working capital generated from D&SNG's
operations. In the event that the working capital from D&SNG is not adequate to
fund D&SNG's cash requirements in 1998 and subsequent years, D&SNG will seek to
obtain unsecured lines of credit, or will borrow funds from the Company, if
available; however, there can be no assurance that these sources of funds will
be available to D&SNG in the future.

                                       25

<PAGE>


         Further, there can be no assurance that the Company will not experience
adverse changes in its business prospects, its proposed operations, in the
transportation or tourism industries, or the U.S. economy generally.

                                       26

<PAGE>

                                     ITEM 7
                                     ------

                              FINANCIAL STATEMENTS
                              --------------------


         The financial statements are included herein beginning at page F-1.

                                     ITEM 8
                                     ------

                        CHANGES IN AND DISAGREEMENTS WITH
               ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
               ---------------------------------------------------


         On May 6, 1996, the Registrant's Board of Directors voted to engage BDO
Seidman, LLP to act as the Registrant's independent certified public
accountants, thereby dismissing and replacing Hansen, Barnett & Maxwell, P.C.
The former accountants' reports for the Registrant's last two fiscal years did
not contain any adverse opinion, or disclaimer of opinion, nor were any such
reports modified as to uncertainty, audit scope or accounting principles. There
have been no disagreements between the Registrant and the former accountants
with regard to any matters which would have caused such accountants to make
reference to the subject matter thereof with their report.


                                    PART III
                                    --------

                                     ITEM 9
                                     ------

          DIRECTORS, EXECUTIVE OFFICERS, PROMOTORS AND CONTROL PERSONS;
                COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
                -------------------------------------------------

         The information required by this item with respect to the executive
officers and directors of the Company is incorporated herein by reference to the
section entitled "Compensation of Directors and Executive Officers" and
"Election of Directors" in the Company's Proxy Statement for its 1997 Annual
Meeting of Shareholders (the "1997 Proxy Statement").

                                     ITEM 10
                                     -------

                             EXECUTIVE COMPENSATION
                             ----------------------

         The information required by this item with respect to the executive
compensation is incorporated herein by reference to the section entitled
"Compensation of Directors and Executive Officers" in the Company's 1997 Proxy
Statement.

                                       27

<PAGE>

                                     ITEM 11
                                     -------

                    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
                              OWNERS AND MANAGEMENT
                              ---------------------

         The information required by this item with respect to security
ownership is incorporated herein by reference to the section entitled "Voting
Securities and Principal Holders Thereof" in the Company's 1997 Proxy Statement.

                                     ITEM 12
                                     -------

                 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
                 ----------------------------------------------


         The information required by this item with respect to security
ownership is incorporated herein by reference to the section entitled "Certain
Transactions" in the Company's 1997 Proxy Statement.


                                     ITEM 13
                                     -------

                        EXHIBITS AND REPORTS ON FORM 8-K
                        --------------------------------

         (a) FINANCIAL STATEMENTS AND EXHIBITS

             FINANCIAL STATEMENTS

             The consolidated financial statements of the Company and its
subsidiaries filed as part of this Annual Report on Form 10-KSB are listed in
Item 7 of this Annual Report on Form 10-KSB, which listing is hereby
incorporated by reference.

          EXHIBITS
          --------

   EXHIBIT NO.                      DESCRIPTION
   -----------                      -----------

         3.1                        Articles of Incorporation, as
                                    amended, are hereby incorporated by
                                    reference to Exhibit 3.1 of the
                                    Registrant's Registration Statement
                                    on Form 8-A filed with the SEC on
                                    May 30, 1996.

         3.2                        Plan and Articles of Merger are
                                    hereby incorporated by reference to
                                    Exhibit 3.2 of the Registrant's
                                    Registration Statement on Form 8-A
                                    filed with the SEC on May 30, 1996.

         3.3                        Amended Bylaws.**

                                       28

<PAGE>

         4.1                        Form of Common Stock Certificate is
                                    hereby incorporated by reference to
                                    Exhibit 4.1 of the Registrant's
                                    Registration Statement on Form 8-A
                                    filed with the SEC on May 30, 1996.

         4.2                        Form of Series A Redeemable Warrant
                                    Agreement.*

         4.3                        Series A Redeemable Warrant
                                    Agreement.*

         4.4                        Form of Financial Advisory Warrant
                                    Certificate.*

         4.5                        Financial Advisory Warrant
                                    Agreement.*

         4.6                        Common Stock Purchase Warrant
                                    Certificate held by Charles E.
                                    Bradshaw, Jr., dated March 13,
                                    1997.**


         10.1                       Agreement effective as of June 28,
                                    1994, between First American-Florida
                                    and Rader Railcar, Inc., as
                                    amended.*

         10.2                       Employment Agreement dated February
                                    16, 1994, between First American-
                                    Florida and Allen C. Harper.*
 
         10.3                       Employment Agreement dated December
                                    2, 1996, between the Registrant and
                                    Gordon L. Downing.**

         10.4                       Employment Agreement dated July 1,
                                    1994, between First American-
                                    Florida and Michael J. Acierno, 
                                    as amended.*

         10.5                       Employment Agreement dated July 1,
                                    1996, between the Registrant and
                                    Raymond Monteleone, as amended.*

         10.6                       Agreement dated February 28, 1995,
                                    between First American-Florida and
                                    Florida East Coast Railway Company.*

                                       29

<PAGE>

         10.7                       Form of Non-Competition Agreement
                                    between Thomas G. Rader and First
                                    American-Florida.*

         10.8                       Railcar Construction Agreement
                                    (without appendices) between Rader
                                    Railcar II, Inc. and Fun Trains,
                                    Inc. dated October 23, 1996.*

         10.9                       Financial Advisory and Consulting
                                    Agreement between the Registrant and
                                    International Capital Growth, LLC,
                                    dated April 26, 1996*, as amended
                                    December 5, 1996.**

         10.10                      Note Escrow Agreement between the
                                    Registrant, Capital Growth Interna-
                                    tional, LLC, and Sterling National
                                    Bank and Trust Company of New York
                                    dated April 26, 1996.*

         10.11                      Form of Convertible Secured Note.*

         10.12                      Employment Agreement dated October
                                    15, 1996, between the Registrant and
                                    William T. Nanovsky.*

         10.13                      Employment Agreement dated October
                                    9, 1996, between the Registrant and
                                    Donald P. Cumming.*

         10.14                      Employment Agreement dated August
                                    23, 1996, between the Registrant and
                                    Thomas E. Blayney.*

         10.15                      Employment Agreement dated September
                                    30, 1996, between the Registrant and
                                    Pamela S. Petcash.*

         10.16                      Form of Confidentiality and Non-
                                    competition Agreement between the
                                    Registrant's executive employees and
                                    the Registrant.*

         10.17                      Consulting Agreement between
                                    Management Resource Group, Inc. and
                                    the Registrant dated July 23, 1996.*

         10.18                      Agreement between Universal Studios
                                    Florida and the Registrant, dated
                                    October 30, 1996.*

                                       30

<PAGE>

         10.19                      Agreement between CSX Transporta-
                                    tion, Inc. and the Registrant, dated
                                    October 31, 1996.*

         10.20                      Business Lease between Mandel
                                    Development, a Florida general
                                    partnership, and the Registrant,
                                    dated January 15, 1997.**

         10.21                      Operating Agreement between the
                                    Florida Department of Transportation
                                    and the Registrant, dated January 6,
                                    1997.**

         10.22                      Form of the Registrant's 1996 Non-
                                    Qualified Stock Option Plan.**

         10.23                      Loan Agreement (without exhibits) between
                                    NationsBank, N.A. (South) and the Durango
                                    & Silverton Narrow Gauge Railroad
                                    Company, dated March 13, 1997.**

         10.24                      Share Purchase Agreement between The
                                    Durango & Silverton Narrow Gauge
                                    Railroad Company and the Registrant,
                                    dated December 10, 1996, and
                                    Addendum to Share Purchase
                                    Agreement, dated February 28,
                                    1997.**

         10.25                      Promissory Note in the amount of
                                    $4,200,000 from the Registrant in
                                    favor of Charles E. Bradshaw, Jr.,
                                    dated March 13, 1997.**

         10.26                      Promissory Note in the amount of
                                    $5,850,000 from the Registrant in
                                    favor of Charles E. Bradshaw, Jr.,
                                    dated March 13, 1997.**

         10.27                      Registration Rights and Price
                                    Guaranty Agreement between Charles
                                    E. Bradshaw, Jr. and the Registrant,
                                    dated March 13, 1997.**

         16                         Letter dated May 10, 1996, from the
                                    Company's former accountants,
                                    Hansen, Barnett & Maxwell, to the
                                    Registrant is hereby incorporated by
                                    reference to Exhibit 16 to the
                                    Registrant's Current Report on Form
                                    8-K dated May 6, 1996.

                                       31

<PAGE>

         21                          Subsidiaries of the Registrant.**


         23.1                        Consent of BDO Seidman LLP.**

         27                          Financial Data Schedule.**

----------

*        Incorporated by reference to the comparable exhibit numbers as
         contained in the Registrant's Registration Statement on Form SB-2, as
         filed with the Securities and Exchange Commission on August 6, 1996.

**       Filed herewith.



         (b)      REPORTS ON FORM 8-K FILED DURING THE
                  THREE MONTHS ENDED DECEMBER 31, 1996

                  There were no reports on Form 8-K filed during the three
months ended December 31, 1996.

                                       32

<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.

DATED:  MARCH 28, 1997             FIRST AMERICAN RAILWAYS, INC.


                                         BY: /s/ ALLEN C. HARPER
                                             -----------------------------
                                             ALLEN C. HARPER, CHAIRMAN OF THE
                                             BOARD  OF  DIRECTORS  AND  CHIEF
                                             EXECUTIVE OFFICER

         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.

SIGNATURES                  TITLE                                DATE

/s/ ALLEN C. HARPER         CHAIRMAN OF THE BOARD                March 27, 1997
-------------------------   AND CHIEF EXECUTIVE
ALLEN C. HARPER             OFFICER (PRINCIPAL   
                            EXECUTIVE OFFICER)   

/s/ RAYMOND MONTELEONE      PRESIDENT, CHIEF OPERATING           March 27, 1997
-------------------------   OFFICER AND DIRECTOR
RAYMOND MONTELEONE

/s/ WILLIAM T. NANOVSKY     VICE PRESIDENT, SECRETARY,           March 27, 1997
-------------------------   TREASURER AND CHIEF FINANCIAL
WILLIAM T. NANOVSKY         OFFICER (PRINCIPAL FINANCIAL
                            OFFICER)

/s/ DONALD P. CUMMING       VICE PRESIDENT AND CONTROLLER        March 27, 1997
-------------------------   AND CHIEF ACCOUNTING OFFICER
DONALD P. CUMMING           (PRINCIPAL ACCOUNTING OFFICER)

/s/ THOMAS G. RADER         DIRECTOR                             March 27, 1997
-------------------------
THOMAS G. RADER

/s/ DAVID RUSH              DIRECTOR                             March 27, 1997
-------------------------
DAVID RUSH

/s/ LUIGI SALVANESCHI       DIRECTOR                             March 27, 1997
-------------------------
LUIGI SALVANESCHI

/s/ GLENN P. MICHAEL        DIRECTOR                             March 27, 1997
-------------------------
GLENN P. MICHAEL

/s/ ALBERT B. AFTOORA       DIRECTOR                             March 27, 1997
-------------------------
ALBERT B. AFTOORA

                            DIRECTOR                                     , 1997
-------------------------
CHARLES E. BRADSHAW, JR.

                                       33

<PAGE>


                                                   FIRST AMERICAN RAILWAYS, INC.

                                                   (A DEVELOPMENT STAGE COMPANY)
                                                                           INDEX

                                                                           PAGE
                                                                           ----

             REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS            F - 2

             BALANCE SHEET                                                 F - 3

             STATEMENTS OF OPERATIONS                                      F - 4

             STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)                  F - 5

             STATEMENTS OF CASH FLOWS                                      F - 6

             NOTES TO FINANCIAL STATEMENTS                                 F - 7

                                      F-1

<PAGE>

                                                   FIRST AMERICAN RAILWAYS, INC.
                              
                                                   (A DEVELOPMENT STAGE COMPANY)


REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of
First American Railways, Inc.
(A Development Stage Company)

We have audited the accompanying balance sheet of First American Railways, Inc.
(a development stage company) as of December 31, 1996 and the related statements
of operations, stockholders' equity (deficit) and cash flows for the year then
ended, the eight months ended December 31, 1995 and the cumulative period from
February 14, 1994 (incorporation) through December 31, 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. Those standards require that we plan and perform the audit 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 financial statements referred to above present fairly, in
all material respects, the financial position of First American Railways, Inc.,
(a development stage company) as of December 31, 1996 and the results of its
operations and its cash flows for the year then ended, the eight months ended
December 31, 1995 and the cumulative period from February 14, 1994
(incorporation) through December 31, 1996 in conformity with generally
accepted accounting principles.

                                                                BDO Seidman, LLP


Miami, Florida
January 14, 1997, except for Note 9
which is as of March 13, 1997

                                      F-2

<PAGE>

                                                   FIRST AMERICAN RAILWAYS, INC.

                                                   (A DEVELOPMENT STAGE COMPANY)
                                                            BALANCE SHEET


                                                         DECEMBER 31, 1996
                                                         -----------------
ASSETS

CURRENT
  Cash                                                     $  7,174,020
  Restricted cash (Note 7)                                      430,834
                                                           ------------
     Cash and cash items                                      7,604,854
  Prepaids and other                                            255,372
                                                           ------------
Total current assets                                          7,860,226
Fixed assets, net (Note 2)                                    2,413,320
Deposit for acquisition (Note 9)                              2,000,000
Deferred loan costs, net (Note 7)                               867,107
                                                           ------------
                                                           $ 13,140,653
                                                           ============

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT
  Accounts payable                                         $    166,722
  Accrued liabilities                                           459,561
                                                           ------------
Total current liabilities                                       626,283
Convertible notes payable, net (Note 7)                       8,250,682
                                                           ------------
                                                              8,876,965
                                                           ------------
COMMITMENTS AND CONTINGENCIES (NOTE 4)
STOCKHOLDERS' EQUITY  (NOTES 5 AND 7)
  Preferred stock, $.001 par value,
     500,000 shares authorized                                       --
  Common stock, $.001 par value,
     100,000,000 shares authorized,
     9,061,078 shares issued and outstanding                      9,061
  Additional paid-in capital                                  8,189,798
  Deficit accumulated during the development stage           (3,935,171)
                                                           ------------
TOTAL STOCKHOLDERS' EQUITY                                    4,263,688
                                                           ------------
                                                           $ 13,140,653
                                                           ============

                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

                                      F-3

<PAGE>
<TABLE>
<CAPTION>

                                                   FIRST AMERICAN RAILWAYS, INC.

                                                   (A DEVELOPMENT STAGE COMPANY)
                                                         STATEMENT OF OPERATIONS

                                        CUMULATIVE FROM
                                       FEBRUARY 14, 1994                        FOR THE
                                        (INCORPORATION)                      EIGHT MONTHS
                                            THROUGH        FOR THE YEAR          ENDED
                                          DECEMBER 31,   ENDED DECEMBER 31,  DECEMBER 31,
                                              1996              1996            1995
                                       ----------------- ------------------ -------------
<S>                                    <C>               <C>                <C>
EXPENSES:
  Salaries and payroll taxes              $ 1,551,549      $   946,750      $   242,007
  General and administrative                  723,567          522,237          125,723
  Interest, net (Note 2)                      185,990          166,911           19,079
  Legal and accounting fees                   221,648          217,733            3,464
  Professional and consulting fees            293,873          234,501           46,802
  Marketing study                             176,800          176,800             --
  Trackage rights expenses                     46,107           46,107             --
  Amortization of deferred loan costs
    (Note 7)                                  220,722          220,722             --
  Depreciation                                  8,352            6,172            1,088
  Expenses from offerings
    not completed                             506,563           57,829          282,250
                                          -----------      -----------      -----------
Total expenses                              3,935,171        2,595,762         (720,413)
                                          ===========      ===========      ===========
Net loss, representing deficit
 accumulated during the
 development stage                        $(3,935,171)     $(2,595,762)     $  (720,413)
                                          ===========      ===========      ===========
Weighted average number of
  common shares outstanding
  (Note 1)                                                   7,623,050        4,275,000
                                                           ===========      ===========
Net loss per common share                                  $      (.34)     $      (.17)
                                                           ===========      ===========
</TABLE>

                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

                                      F-4

<PAGE>
<TABLE>
<CAPTION>

                                                   FIRST AMERICAN RAILWAYS, INC.

                                                   (A DEVELOPMENT STAGE COMPANY)
                                    STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)


                                                                                
                                                                                                  DEFICIT   
                                                         COMMON STOCK            ADDITIONAL     ACCUMULATED 
                                                    ----------------------        PAID-IN       DURING THE      
                                                     SHARES        AMOUNT         APITAL    DEVELOPMENT STAGE  
                                                    --------      --------     ------------  -----------------  
<S>                                                 <C>           <C>          <C>           <C> 
Balance at February 14, 1994 and
  April 30, 1994                                         --       $   --       $      --        $      --
Initial capitalization for cash at $0.0046
   per share (Note 5(b))                            3,854,430        3,854          14,146             --
Issuance of common stock for cash
   at $2.29 per share, net of offering
   costs of $20,965 (Note 5(c))                       420,570          421         960,614             --
Capital contribution - forgiven salaries                 --           --           136,000             --   
Net loss                                                 --           --              --           (618,996)
                                                    ---------     --------     -----------      -----------
Balance at April 30, 1995                           4,275,000        4,275       1,110,760         (618,996)
Net loss                                                 --           --              --           (720,413)
                                                    ---------     --------     -----------      -----------
Balance at December 31, 1995                        4,275,000        4,275       1,110,760       (1,339,409)
Issuance of common stock in connection
   with Stage I offering, net of
   offering costs of $11,692 (Note 7)                 375,004          375          42,933             --
Issuance of common stock in connection
   with Stage II offering, net of offering
   costs of $1,247,967 (Note 7)                     4,050,274        4,050       6,998,666             --
Merger with Asia-America Corporation
   (Note 5(a))                                        350,000          350            (350)            --
Issuance of common stock to officer (Note 4(a))        10,800           11          37,789             --
Net loss                                                 --           --              --         (2,595,762)
                                                    ---------     --------     -----------      -----------
Balance at December 31, 1996                        9,061,078     $  9,061     $ 8,189,798      $(3,935,171)
                                                    =========     ========     ===========      ===========
</TABLE>


                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

                                      F-5

<PAGE>
<TABLE>
<CAPTION>

                                                   FIRST AMERICAN RAILWAYS, INC.

                                                   (A DEVELOPMENT STAGE COMPANY)
                                                        STATEMENTS OF CASH FLOWS


                                                   CUMULATIVE FROM
                                                   FEBRUARY 14, 1994                          FOR THE EIGHT
                                                    (INCORPORATION)      FOR THE YEAR ENDED   MONTHS ENDED
                                                       THROUGH               DECEMBER 31,      DECEMBER 31,
                                                   DECEMBER 31, 1996            1996              1995
                                                   -----------------     ------------------   -------------
<S>                                                <C>                   <C>                  <C>
OPERATING ACTIVITIES:
   Net loss                                           $ (3,935,171)        $ (2,595,762)        $(720,413)
   Adjustments to reconcile net loss to
       net cash used by operating activities:
      Salaries forgiven                                    136,000                 --                --
      Depreciation                                           8,352                6,172             1,088
      Amortization of deferred loan costs                  220,722              220,722              --
      Salaries paid with common stock                       37,800               37,800              --
      Write-off of deferred offering costs                  25,000                 --              25,000
      Increase in restricted cash                         (430,834)            (430,834)             --   
      Increase in prepaids and other                      (255,372)            (253,692)             --
      Increase (decrease) in accounts payable              166,722              (29,354)          173,954
      Increase in accrued liabilities                      459,561              338,591           120,970
                                                      ------------         ------------         ---------
   Total adjustments                                       367,951             (110,595)          321,012
                                                      ------------         ------------         ---------
   Net cash used by operating activities                (3,567,220)          (2,706,357)         (399,401)
                                                      ------------         ------------         ---------
INVESTING ACTIVITIES:
  Capital expenditures                                  (2,421,672)          (2,063,500)             --
  Deposit for acquisition                               (2,000,000)          (2,000,000)             --
                                                      ------------         ------------         ---------
  Net cash used in investing activities                 (4,421,672)          (4,063,500)             --
                                                      ------------         ------------         ---------
FINANCING ACTIVITIES:
   Borrowings from related parties                         338,388               68,388           270,000
   Repayments of notes payable to related
     parties and others                                   (338,388)            (333,388)           (5,000)
   Net proceeds from issuance of notes payable           8,695,682            8,695,682              --
   Repayment of notes payable                             (445,000)            (445,000)             --
   Payment of loan costs                                (1,087,829)          (1,087,829)             --
   Net proceeds from issuance of common stock            8,025,059            7,046,024              --
   Payment of offering costs                               (25,000)                --                --
                                                      ------------         ------------         ---------
   Net cash provided by financing activities            15,162,912           13,943,877           265,000
                                                      ------------         ------------         ---------
Net increase (decrease) in cash                          7,174,020            7,174,020          (134,401)
Cash at beginning of period                                   --                   --             134,401
                                                      ------------         ------------         ---------


Cash at end of period                                 $  7,174,020         $  7,174,020         $    --
                                                      ============         ============         =========
SUPPLEMENTAL DISCLOSURES:
   Cash paid for interest                             $    542,731         $    542,731         $    --
                                                      ============         ============         =========
</TABLE>

                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

                                      F-6

<PAGE>

                                                   FIRST AMERICAN RAILWAYS, INC.

                                                   (A DEVELOPMENT STAGE COMPANY)
                                                   NOTES TO FINANCIAL STATEMENTS


1.  SUMMARY OF        ORGANIZATION AND BUSINESS
    SIGNIFICANT
    ACCOUNTING
                         First American Railways, Inc. ("the Company") was
                         incorporated on February 14, 1994, in the state of
                         Florida. The Company is a development stage entity,
                         organized for the purpose of constructing, acquiring
                         and marketing entertainment based passenger trains.
                         Initially the Company intends to initiate service
                         between Ft. Lauderdale and Orlando and subsequently
                         to other parts of the United States and
                         internationally. In March 1997 the Company acquired a
                         tourist destination train ("scenic railroad") (Note 9)
                         and subsequently will not be a development stage
                         entity.

                      PREPARATION OF FINANCIAL STATEMENTS

                         The preparation of financial statements in conformity
                         with generally accepted accounting principles requires
                         management to make estimates and assumptions that
                         affect the reported amounts of assets and liabilities
                         and disclosure of contingent assets and liabilities at
                         the date of the financial statements and the reported
                         amounts of revenues and expenses during the reporting
                         period. Actual results could differ from those
                         estimates.

                     FIXED ASSETS AND DEPRECIATION

                         Fixed assets are stated at cost less accumulated
                         depreciation. Office and computer equipment are
                         depreciated on the straight line basis over 3 to 5
                         years. Assets held for future use will be depreciated
                         beginning at the time they are placed into service.

                                      F-7

<PAGE>

                                                   FIRST AMERICAN RAILWAYS, INC.

                                                  (A DEVELOPMENTY STAGE COMPANY)
                                                   NOTES TO FINANCIAL STATEMENTS


                     OFFERING COSTS

                         Costs incurred in connection with the Company's efforts
                         to obtain additional financing through a public
                         offering or private placement of securities are
                         deferred and offset against the proceeds in
                         stockholders' equity or charged to operations if an
                         offering or placement is unsuccessful.

                     IMPAIRMENT

                         On January 1, 1996, the Company adopted Summary of
                         Financial Accounting Standards No. 121 "Accounting for
                         the Impairment of Long-Lived Assets and for Long-Lived
                         Assets to Be Disposed Of" ("SFAS No. 121"). SFAS No.
                         121 requires, among other things, impairment loss of
                         assets to be held and gains or losses from assets that
                         are expected to be disposed of be included as a
                         component of income from continuing operations before
                         taxes on income. During 1996 there have been no
                         write-downs required in the accompanying financial
                         statements.

                     STOCK-BASED COMPENSATION

                         Stock-based compensation is accounted for by using the
                         intrinsic value based method in accordance with
                         Accounting Principles Board Opinion No 25, "Accounting
                         for Stock Issued to Employees" ("APB 25"). The Company
                         has adopted Statements of Financial Accounting
                         Standards No. 123, "Accounting for Stock-Based
                         Compensation," ("SFAS No. 123") which allows companies
                         to either continue to account for stock-based
                         compensation using APB 25, or to adopt a fair value
                         based method of accounting. The Company intends to
                         continue with its current method of accounting in
                         accordance with APB 25 for employees, but has made the
                         required proforma disclosures in accordance with SFAS
                         No. 123.

                      FINANCIAL INSTRUMENTS

                         The carrying value of financial instruments including
                         accounts and notes payable approximate their fair value
                         at December 31, 1996.

                                       F-8

<PAGE>

                                                   FIRST AMERICAN RAILWAYS, INC.

                                                  (A DEVELOPMENTY STAGE COMPANY)
                                                   NOTES TO FINANCIAL STATEMENTS

                      INTEREST

                         Interest is capitalized to constructed assets during
                         their construction period and is depreciated over their
                         useful lives.

                      INCOME TAXES

                         The Company has no income since inception and
                         accordingly has not provided for income taxes.

                      NET LOSS PER COMMON SHARE

                         Net loss per common share is based on the weighted
                         average number of shares of common stock outstanding,
                         as adjusted for the effects of the application of
                         Securities and Exchange Commission Staff Accounting
                         Bulletin ("SAB") No. 83. Pursuant to SAB No. 83, common
                         stock issued by the Company at a price less than the
                         contemplated public offering price is treated as
                         outstanding for all periods presented. Stock options
                         and warrants outstanding are not included since the
                         effects of such inclusion would be anti-dilutive.



2. FIXED ASSETS, NET    The Company's fixed assets at December 31, 1996 are 
                        summarized as follows:
                        Railcar held for future use               $ 810,000
                        Construction in process (Note 4 (b))      1,567,203
                        Office and computer equipment                44,469
                                                                 ----------
                                                                  2,421,672
                        Less accumulated depreciation                (8,352)
                                                                 ----------
                                                                 $2,413,320
                                                                 ==========

                         Pursuant to an agreement with Rader Railcar, Inc., a
                         company owned by a director and shareholder, the
                         Company had a railcar constructed at a 

                                      F-9

<PAGE>

                                                   FIRST AMERICAN RAILWAYS, INC.

                                                  (A DEVELOPMENTY STAGE COMPANY)
                                                   NOTES TO FINANCIAL STATEMENTS


                         cost of $850,000. The Company took delivery of the
                         railcar on April 28, 1995 and at that time assumed the
                         full risk of loss of such car. The balance was paid in
                         June 1996 at which time title passed to the Company. In
                         April 1996, Rader Railcar, Inc. entered into a lease
                         agreement with Great Canadian Railtour Co. to lease the
                         railcar for a period of seven months for $10,000 per
                         month. In June 1996, the remaining proceeds of the
                         lease were assigned to the Company and therefore, the
                         Company received monthly lease payments of $10,000
                         through September 1996. Since this leasing activity is
                         not the intended use of the railcar, the rental
                         payments aggregating $40,000 were recorded as a
                         reduction in the cost of the railcar. During 1996,
                         interest of approximately $92,000 was capitalized as
                         part of the cost of construction of the railcars (Note
                         4(b)).



3.   INCOME TAXES        At December 31, 1996, the Company had an accumulated
                         net loss of approximately $4,000,000 for financial
                         reporting purposes. In general, expenses incurred
                         during the development stage are capitalized for tax
                         purposes as pre-operating expenses and are amortizable
                         over a 60 month period commencing with the month in
                         which active business begins.

                         The use of the losses is limited to future taxable
                         earnings of the Company. For financial reporting
                         purposes, the deferred tax asset of approximately
                         $1,500,000 resulting from the future amortization of
                         capitalized pre-operating expenses has been entirely
                         offset by a valuation allowance.



4. COMMITMENTS        a) In 1996, the Company entered into one year
   AND                   employment agreements with seven of the officers of the
   CONTINGENCIES         Company to provide for annual aggregate initial base
                         compensation of $705,000 and payments in certain
                         circumstances following a "change in control" of the
                         Company. In addition, non-qualified stock options were
                         granted to purchase 71,000 shares of common stock at
                         the market price at the date of grant (ranging from
                         $3.06 to $4.75 per share) of which

                                      F-10

<PAGE>

                                                   FIRST AMERICAN RAILWAYS, INC.

                                                  (A DEVELOPMENTY STAGE COMPANY)
                                                   NOTES TO FINANCIAL STATEMENTS

                         25,665 vest immediately with the remaining 45,335
                         vesting equally in two annual increments. Additionally,
                         in July 1996, the Company entered into a three year
                         employment agreement with its President and Chief
                         Operating Officer. The agreement provides for an
                         initial annual base salary of $150,000 and a minimum
                         annual bonus of $25,000 with minimum increases in the
                         base salary to $175,000 on January 1, 1997, $189,000 on
                         January 1, 1998 and $204,120 on January 1, 1999. In
                         addition, nonqualified stock options will be granted
                         annually to purchase a minimum of 30,000 shares of
                         common stock. In connection with this agreement, in
                         July 1996 the Company issued 10,800 shares of common
                         stock and granted options to purchase 30,000 shares at
                         $3.50 per share. In February 1997 the Board of 
                         Directors voted to amend this agreement. (Note 9)

                      b) In October 1996, the Company entered into an
                         agreement with Rader Railcar II, Inc. ("RRI"), a
                         company owned by a director and shareholder, for design
                         and production of up to eleven additional railcars for
                         a total cost of approximately $8,800,000. Pursuant to
                         the agreement the Company made a down payment of
                         $1,400,000 to RRI. The agreement provides for delivery
                         of various railcars over a period of several months
                         beginning June 1997.

                      c) In October 1996, the Company signed an agreement
                         with CSX Transportation, Inc. ("CSXT") for use of its
                         tracks between West Palm Beach and Orlando to be used
                         for the operation of the Florida Fun-Train. The
                         agreement with CSXT provides, in part, that the Company
                         will pay CSXT the greater of $20 per train mile, or 16%
                         of the Company's gross ticket revenue (less discounts)
                         from the Florida Fun-Train operations. The per-train
                         mile is subject to various increases for inflation and
                         other price adjustments. In addition, the Company is
                         required to maintain a minimum of $300 million in
                         comprehensive general liability insurance with a
                         minimum deductible (or self-insured). The agreement
                         also provides for a certain degree of exclusivity of
                         the Company's proposed rail operations. Specifically,
                         CSXT has agreed not to grant similar access rights to
                         the subject rail corridor (between West Palm Beach and
                         Orlando) to any other private rail passenger operator
                         or contractor which would provide comparable
                         conventional rail passenger service (primarily
                         servicing the cruise ship market). This exclusivity
                         clause is voidable 


                                      F-11

<PAGE>

                                                   FIRST AMERICAN RAILWAYS, INC.

                                                  (A DEVELOPMENTY STAGE COMPANY)
                                                   NOTES TO FINANCIAL STATEMENTS


                         by CSXT upon the occurrence of certain conditions. The
                         term of the agreement is five years. In addition, the
                         Company has agreed to sell up to 475,000 warrants to
                         CSXT, exercisable at $4.50 per warrant, with 75,000
                         warrants being exercisable upon commencement of
                         operations of the Florida Fun-Train and thereafter in
                         four equal annual installments of 100,000 warrants each
                         commencing January 1, 1998. The Company has also
                         appointed a CSXT representative to its Board of
                         Directors.

                      d) In January 1997, the Company entered into a five
                         year agreement with Florida Department of
                         Transportation ("FDOT") for the right to use the tracks
                         between Ft. Lauderdale and West Palm Beach which
                         comprise part of the proposed route of the Florida
                         Fun-Train. The track usage fee will begin at $500 per
                         one way trip and increase by $50 per one way trip
                         annually. The Company and FDOT have agreed in principle
                         (subject to ongoing negotiations) to allow the Company
                         the right to use a railroad terminal in Broward County
                         and the track rights to an existing railroad
                         maintenance facility in Dade County.

                      e) In February 1995, the Company entered into an
                         agreement with the Florida East Coast Railway Company
                         ("FEC") for the use of FEC track in connection with the
                         Company's proposed rail operations. Under the
                         agreement, the Company will pay a fee to the FEC upon
                         commencement of operations of no less than either
                         $500,000 per train, per year, or $18 per train mile
                         (with a stipulated train size of 15 cars). Effective
                         January 1 of the year in which the third anniversary of
                         the commencement service occurs, and January 1 in every
                         third year thereafter, the car mile rate and the
                         minimum amount payable shall, upon the request of
                         either party, be adjusted based on the "Consumer Price
                         Index For Urban Wage Earners and Clerical Workers"
                         unadjusted, as published by the Bureau of Labor
                         Statistics, U.S. Department of Labor. The agreement
                         will expire ten years from the date of commencement of
                         service. At the conclusion of the initial ten year
                         term, the company will have the right to extend the
                         agreement for an additional ten year period upon twelve
                         months advance notice to the FEC.

                      f) In January 1997, the Company entered into a ten year
                         lease for

                                      F-12

<PAGE>

                                                   FIRST AMERICAN RAILWAYS, INC.

                                                  (A DEVELOPMENTY STAGE COMPANY)
                                                   NOTES TO FINANCIAL STATEMENTS


                         office and warehouse space requiring monthly payments
                         of approximately $7,200 (subject to annual adjustment
                         for inflation not to exceed 4%.) The lease may be
                         terminated after five years upon the occurrence of
                         certain conditions.

5. STOCKHOLDERS'
   EQUITY (DEFICIT)   a) In May 1995, the Company executed a stock split and
                         exchanged the 1,996,400 then outstanding shares of its
                         common stock for 2,495,500 shares of common stock and
                         changed the par value of its common stock from $.01 to
                         no par. In February 1996, the Company executed a second
                         stock split and exchanged the 2,495,500 shares of its
                         common stock for 4,275,000 shares of common stock with
                         no par value, 10,000,000 shares authorized to be
                         issued. On April 26, 1996, the Company merged into
                         Asia-America Corporation, a public company, and
                         accounted for the transaction as a reverse acquisition
                         for financial statement purposes, and was recapitalized
                         with 9,050,278 shares of $.001 par value stock,
                         100,000,000 shares authorized to be issued. In
                         connection with this transaction, there was no impact
                         on the operating results of the Company and it resulted
                         only in an adjustment to stockholders' equity. The
                         components of stockholders' equity and all per share
                         amounts in the accompanying financial statements have
                         been adjusted retroactively to reflect the stock splits
                         and changes in par value.


                      b) In 1994, the Company issued 3,854,430 shares of
                         common stock to its initial shareholders for cash of
                         $18,000.


                      c) In connection with a private placement, the Company
                         issued 420,570 shares of common stock for cash of
                         $961,035 net of offering costs of $20,965.


                      d) In 1996, the Company granted two-year warrants to
                         purchase 12,500 shares of common stock at $3.50 per
                         share to a shareholder, in consideration for extending
                         the repayment terms of a loan made to the Company.

                                      F-13

<PAGE>

                                                   FIRST AMERICAN RAILWAYS, INC.

                                                  (A DEVELOPMENTY STAGE COMPANY)
                                                   NOTES TO FINANCIAL STATEMENTS


                      e) During 1996, the Company granted three year warrants
                         to purchase 100,000 shares of common stock at $2.50 per
                         share (the market value at the date of grant) pursuant
                         to a consulting agreement.


                      f) In May 1996, the Company entered into a two year
                         agreement with an underwriter to provide financial
                         advising and consulting services. The agreement was
                         amended in January 1997 to extend the agreement an
                         additional eighteen months to October 1999 and to allow
                         all fees through October 1999 to be paid in full by the
                         issuance of 52,500 shares of common stock of the
                         Company in January 1999. The agreement also provides
                         for additional fees comprising of 3% to 5% of
                         consideration paid for acquisitions or mergers with
                         other companies, joint ventures, license and royalty
                         agreements, etc., that the consultant arranges and 1.5%
                         to 8% of the gross proceeds resulting from the sale of
                         any securities issued by the Company.


 6. NOTES PAYABLE        In June 1995, the Company entered into a loan
    TO RELATED           agreement with a shareholder and director for up to
    PARTIES              $125,000, with simple interest of 18%. As of December
    AND OTHERS           31, 1995, the Company had borrowed $125,000. In
                         addition, the Company entered into loan agreements with
                         two other shareholders for a total of $140,000 with
                         simple interest of 18%. Subsequent to December 31,
                         1995, an additional $68,388 was borrowed from related
                         parties bearing interest of 18% per annum. All loans
                         were repaid with the proceeds of the private offering
                         that closed in May 1996 (Note 7).

7. STAGE I AND II        In March 1996, the Company completed its Stage I
   FINANCING             financing. The Company received gross proceeds from
                         this private offering of $500,000 in exchange for
                         $500,000 in notes payable bearing interest at 10% per
                         annum, with a $55,000 original issue discount, and
                         375,004 shares of common stock valued at $55,000. Costs
                         associated with the offering were $106,291.


                         In May 1996, the Company completed its Stage II
                         financing. Total consideration of $16,501,365 from this
                         private offering was received consisting of $16,085,000
                         in cash and the conversion of $412,500 in


                                      F14

<PAGE>

                                                   FIRST AMERICAN RAILWAYS, INC.

                                                  (A DEVELOPMENTY STAGE COMPANY)
                                                   NOTES TO FINANCIAL STATEMENTS
                                     
                         notes payable and $3,865 in accrued interest from Stage
                         I financing. In connection with this transaction,
                         $8,250,682 in five-year convertible notes bearing
                         interest at 10% per annum were issued. Interest is
                         payable semi-annually in April and October and the
                         notes are convertible at $3.50 per share. In addition,
                         3,950,271 redeemable common stock purchase warrants and
                         4,050,274 shares of common stock valued at $8,250,683
                         were issued. Costs associated with the offering were
                         $1,986,460. The Company used $778,388 of the net
                         proceed to paydown $333,388 in notes payable to related
                         parties and others and $445,000 in notes payable from
                         the Stage I financing. In connection with the
                         retirement of the Stage I debt, $94,599 of deferred
                         loan costs was charged to operations as amortization of
                         deferred loan costs. In addition, $55,000 of original
                         issue discount was charged to operations as interest
                         expense.


                         Prepaid interest of $829,924 representing the first
                         year's interest on the Stage II debt was placed in
                         escrow and was included as restricted cash in the
                         accompanying balance sheet. The first interest payment
                         was made in October 1996.


8. STOCK-BASED           The Company has elected to follow Accounting Principles
   COMPENSATION          Board Opinion No. 25 "Accounting for Stock Issued to
                         Employees" ("APB 25") in accounting for its employee
                         stock options. Under APB 25, because the exercise price
                         of the Company's employee stock options issued equaled
                         the market price of the underlying stock or the close
                         of grant, no compensation expense was recognized.
         

                         Under the Company's 1996 Non-Qualified Stock Option
                         Plan, the Company may grant options to its employees,
                         directors and external consultants up to 717,500 shares
                         of the Company's common stock. All options granted to
                         employees have 10 year terms and become fully
                         exercisable at the end of the second year. All options
                         granted to directors and external consultants have ten
                         year terms and vest immediately. Statement of Financial
                         Accounting Standards No. 123 

                                      F-15


<PAGE>

                                                   FIRST AMERICAN RAILWAYS, INC.

                                                  (A DEVELOPMENTY STAGE COMPANY)
                                                   NOTES TO FINANCIAL STATEMENTS

                         "Accounting for Stock-Based Compensation," ("SFAS No.
                         123") requires the Company to provide proforma
                         information regarding net loss and loss per common
                         share as if compensation cost for the Company's Stock
                         Option plan had been determined in accordance with the
                         fair value based method prescribed in SFAS No. 123. The
                         Company estimates the fair value of each stock option
                         on the date of grant by using the Black Scholes
                         option-pricing model with the following
                         weighted-average assumptions for 1996: risk-free
                         interest rates of 6.5%; dividend yield of 0; volatility
                         factors of the expected market price of the Company's
                         common stock of .10; and weighted-average expected life
                         of the option of 10 years.

                         Under the accounting provisions of SFAS No. 123, the
                         Company's net loss and loss per common share for the
                         year ended December 31, 1996 would have been $2,633,644
                         and $.35, respectively. A summary of the Company's
                         stock option activity, and related information for the
                         year ended December 31, 1996, is as follows:


                                                            

                                                            WEIGHTED
                                                            AVERAGE
                                             OPTIONS        EXERCISE PRICE
                                             -------        --------------
Outstanding, January 1, 1996                    --                --   
Granted                                      138,700            $3.88
Exercised                                       --                --
Forfeited                                       --                --
                                             -------            -----
Outstanding, December 31, 1996               138,700            $3.88
                                             -------            -----
Exercisable at December 31, 1996              71,698            $3.77
                                             -------            -----
Weighted-average fair value of
  options granted during 1996                 $1.85
                                              -----

                                      F-16

<PAGE>

                                                   FIRST AMERICAN RAILWAYS, INC.
                                    
                                                  (A DEVELOPMENTY STAGE COMPANY)
                                                   NOTES TO FINANCIAL STATEMENTS


                         Exercise prices for options outstanding and exercisable
                         as of December 31, 1996 ranged from $3.06 to $4.75. The
                         weighted average remaining contractual life of these
                         options is approximately 9.8 years.

                         Subsequent to December 31, 1996, the Company granted an
                         additional 332,000 ten year options at prices ranging
                         form $2.375 to $3.50


9.  SUBSEQUENT EVENTS                


                         In March 1997, the Company purchased all of the common
                         stock of The Durango & Silverton Narrow Gauge Railroad
                         Company. The purchase price consisted of the following:
                         (i) two promissory notes aggregating $10.05 million
                         which are subordinate to a purchase money loan to be
                         provided by a third-party lender in the amount of $8.5
                         million; (ii) 200,000 shares of the common stock of the
                         Company; (iii) a six-year warrant to purchase 1,610,000
                         shares of the Company at an exercise price of $3.50 per
                         share; and (iv) cash of approximately $5 million,
                         including a $2 million deposit which was paid in
                         December 1996. Portions of the seller financing are
                         personally guaranteed by two of the Company's officers
                         for which the Company will pay annual guarantee fees
                         aggregating $55,000 to the officers. In addition, in
                         February 1997, the Board of Directors voted to amend
                         the employment agreement of one of the officers (the
                         President and Chief Operating Officer) to (i) extend
                         the term of such agreement five years from the
                         effective date of the personal guaranty, (ii) increase
                         in certain circumstances, such employment severance
                         package to three times his then - current compensation;
                         and (iii) grant additional ten-year stock options
                         covering 100,000 shares of common stock exercisable at
                         the market price on the date of grant upon such
                         officer's delivery of the aforementioned personal
                         guaranty. This guaranty was provided in March 1997.

                         In March 1997, the Company entered into a two year
                         unsecured line of credit agreement with a bank. Under
                         the agreement the Company is able to borrow up to
                         $1,000,000 at an interest rate of prime plus 2%. The
                         agreement contains covenants that require certain
                         operating and equity criteria to be met as well as
                         other requirements customary to loan facilities of this
                         nature.

                                      F-17

<PAGE>

                               INDEX TO EXHIBITS

   EXHIBIT NO.                      DESCRIPTION
   -----------                      -----------

         3.1                        Articles of Incorporation, as
                                    amended, are hereby incorporated by
                                    reference to Exhibit 3.1 of the
                                    Registrant's Registration Statement
                                    on Form 8-A filed with the SEC on
                                    May 30, 1996.

         3.2                        Plan and Articles of Merger are
                                    hereby incorporated by reference to
                                    Exhibit 3.2 of the Registrant's
                                    Registration Statement on Form 8-A
                                    filed with the SEC on May 30, 1996.

         3.3                        Amended Bylaws.**

         4.1                        Form of Common Stock Certificate is
                                    hereby incorporated by reference to
                                    Exhibit 4.1 of the Registrant's
                                    Registration Statement on Form 8-A
                                    filed with the SEC on May 30, 1996.

         4.2                        Form of Series A Redeemable Warrant
                                    Agreement.*

         4.3                        Series A Redeemable Warrant
                                    Agreement.*

         4.4                        Form of Financial Advisory Warrant
                                    Certificate.*

         4.5                        Financial Advisory Warrant
                                    Agreement.*

         4.6                        Common Stock Purchase Warrant
                                    Certificate held by Charles E.
                                    Bradshaw, Jr., dated March 13,
                                    1997.**


         10.1                       Agreement effective as of June 28,
                                    1994, between First American-Florida
                                    and Rader Railcar, Inc., as
                                    amended.*

         10.2                       Employment Agreement dated February
                                    16, 1994, between First American-
                                    Florida and Allen C. Harper.*
 
         10.3                       Employment Agreement dated December
                                    2, 1996, between the Registrant and
                                    Gordon L. Downing.**

         10.4                       Employment Agreement dated July 1,
                                    1994, between First American-
                                    Florida and Michael J. Acierno, 
                                    as amended.*

         10.5                       Employment Agreement dated July 1,
                                    1996, between the Registrant and
                                    Raymond Monteleone, as amended.*

         10.6                       Agreement dated February 28, 1995,
                                    between First American-Florida and
                                    Florida East Coast Railway Company.*

         10.7                       Form of Non-Competition Agreement
                                    between Thomas G. Rader and First
                                    American-Florida.*

         10.8                       Railcar Construction Agreement
                                    (without appendices) between Rader
                                    Railcar II, Inc. and Fun Trains,
                                    Inc. dated October 23, 1996.*

         10.9                       Financial Advisory and Consulting
                                    Agreement between the Registrant and
                                    International Capital Growth, LLC,
                                    dated April 26, 1996*, as amended
                                    December 5, 1996.**

         10.10                      Note Escrow Agreement between the
                                    Registrant, Capital Growth Interna-
                                    tional, LLC, and Sterling National
                                    Bank and Trust Company of New York
                                    dated April 26, 1996.*

         10.11                      Form of Convertible Secured Note.*

         10.12                      Employment Agreement dated October
                                    15, 1996, between the Registrant and
                                    William T. Nanovsky.*

         10.13                      Employment Agreement dated October
                                    9, 1996, between the Registrant and
                                    Donald P. Cumming.*

         10.14                      Employment Agreement dated August
                                    23, 1996, between the Registrant and
                                    Thomas E. Blayney.*

         10.15                      Employment Agreement dated September
                                    30, 1996, between the Registrant and
                                    Pamela S. Petcash.*

         10.16                      Form of Confidentiality and Non-
                                    competition Agreement between the
                                    Registrant's executive employees and
                                    the Registrant.*

         10.17                      Consulting Agreement between
                                    Management Resource Group, Inc. and
                                    the Registrant dated July 23, 1996.*

         10.18                      Agreement between Universal Studios
                                    Florida and the Registrant, dated
                                    October 30, 1996.*

         10.19                      Agreement between CSX Transporta-
                                    tion, Inc. and the Registrant, dated
                                    October 31, 1996.*

         10.20                      Business Lease between Mandel
                                    Development, a Florida general
                                    partnership, and the Registrant,
                                    dated January 15, 1997.**

         10.21                      Operating Agreement between the
                                    Florida Department of Transportation
                                    and the Registrant, dated January 6,
                                    1997.**

         10.22                      Form of the Registrant's 1996 Non-
                                    Qualified Stock Option Plan.**

         10.23                      Loan Agreement (without exhibits)
                                    between NationsBank, N.A. (South)
                                    and the Durango & Silverton Narrow
                                    Gauge Railroad Company, dated March
                                    13, 1997.**

         10.24                      Share Purchase Agreement between The
                                    Durango & Silverton Narrow Gauge
                                    Railroad Company and the Registrant,
                                    dated December 10, 1996, and
                                    Addendum to Share Purchase
                                    Agreement, dated February 28,
                                    1997.**

         10.25                      Promissory Note in the amount of
                                    $4,200,000 from the Registrant in
                                    favor of Charles E. Bradshaw, Jr.,
                                    dated March 13, 1997.**

         10.26                      Promissory Note in the amount of
                                    $5,850,000 from the Registrant in
                                    favor of Charles E. Bradshaw, Jr.,
                                    dated March 13, 1997.**

         10.27                      Registration Rights and Price
                                    Guaranty Agreement between Charles
                                    E. Bradshaw, Jr. and the Registrant,
                                    dated March 13, 1997.**

         16                         Letter dated May 10, 1996, from the
                                    Company's former accountants,
                                    Hansen, Barnett & Maxwell, to the
                                    Registrant is hereby incorporated by
                                    reference to Exhibit 16 to the
                                    Registrant's Current Report on Form
                                    8-K dated May 6, 1996.

         21                          Subsidiaries of the Registrant.**

         23.1                        Consent of BDO Seidman LLP.**

         27                          Financial Data Schedule.**

----------

*        Incorporated by reference to the comparable exhibit numbers as
         contained in the Registrant's Registration Statement on Form SB-2, as
         filed with the Securities and Exchange Commission on August 6, 1996.

**       Filed herewith.